1.

Introduction
In todays world, the economic situation of every country is intrinsically linked to global economy. Especially an open economy like that of New Zealand is more prone to get affected by any adverse or positive happening around the world. Thats why every economist here in New Zealand, who worth his/her salt, was watching very closely the debate in US congress on the bill of raising credit limit for USA. Any adverse outcome of this debate was capable enough to shake the whole world. Global economy is still struggling to come out of the recession. Every government is trying its level best to formulate and keep implementing such policies that could help put the country back on growth curve. The construction sector in New Zealand, which contributes to around 5% to GDP, also expects business enabling policies from Government. The Building Act 2004 is an example of such policies where some positive developments would be highly beneficial to the construction sector. The given assignment, on procurement and context of construction, poses two major issues on which responses are required. On the one hand, assessment of the new Building Act 2004 on selection and operations of the procurement system available to construction industry today is required. On the other hand, it is required that how this act may be amended to facilitate economic growth in New Zealand. Therefore, first of all, a brief description of the new Building Act 2004 is given under the article 2. The construction industry operates through various procurement models to deliver the desired results. These procurement systems have major impacts on the working of the construction industry. Under Article 3, impact of the Building Act 2004 on various procurement systems is assessed. Then under article 4, current economic situation and possible amendments in Building Act 2004 are discussed to make this act more business enabler. The Department of Building & Housing, which is administering this Act, is also reviewing this Act and has invited suggestions from various concerned to make this act more consistent, coherent and efficient. Finally conclusion sums up the whole exercise under article 5.

2.

The Building Act 2004

2.1 The new Building Act 2004 comes into force from 30th November 2004. Certain features of this Act will come into force progressively on 31st march 2005 and 30 November 2010. This Act aims to ensure that all Buildings (and all structures) are designed and built right first time. It means they comply completely with Building Code. This Act thus aims to improve control of, and encourage better practice, in building design and construction. This Act has been amended twice till date, first by Building Amended Act 2005 and then by Building Amendment Act 2008, to clarify some of its provisions regarding consent and code compliance procedures. The Building Act 2004 has detailed provisions for -

2.1.1 2.1.2 2.1.3 2.1.4

The licensing of building practitioner so that only capable peoples are involved in the design and supervision of the building works. The role of the local authorities which will works as Building Consent Authorities (BCA) in the building consent and inspection process. The implementation procedures of the building consents and code compliances. The provisions of the mandatory warranties for better protection of the owner/client.

2.2

2.3

The Building consent process as required by this act is follows: 2.2.1 Owner/Client decides about the budget. 2.2.2 He gets the intended building designed by an architect or designer ( After 30 April 2012, only licensed building practitioner can do the design works) 2.2.3 Get the Project Information memorandum (PIM) (optional at this stage but it helps to clarify the information required later at BC stage and speed up the issuance of the BC) 2.2.4 Decides about the type of contract (labor only or full with labour and material) he wants. 2.2.5 Appoint the contractor through tender or quotations. 2.2.6 Apply for BC with all required information such as detail plan, drawings and specifications, means to comply with building Code, Compliance schedules, details of legal building practitioners, fee etc and obtain BC 2.2.7 Begin the construction of the building and arrange inspections. 2.2.8 After completion of the works, apply and get Code Compliance Certificate. ECONOMI

3.

Impact of the Building Act-2004 on Procurement Systems Presently Building and construction sector in New Zealand is following certain set of well established delivery models or procurement system. The most popular procurement systems are: Traditional Design-Build Management Alliance BOOT, BOO, DFBOOT Concession

Many provisions of the Building Act 2004 lack clarity in interpretation, especially on the selection of and operations of the procurement system available to the construction industry today in New Zealand. The consent and compliance procedures as set out by Building Act 2004 have major implication on the most of these procurement systems except Traditional system. Therefore it is important that the implication of the Building Act 2004 on these procurement systems must be assessed on practical ground. Apart from the procurement systems point of view, Building Act 2004 has certain other issues which need further clarifications to establish building Act 2004 as consistent, coherent, business enabling and successful act. There are certain popular procurement systems in place in New Zealand which are also followed globally. These systems will be assessed one by one with respect to the new Building Act 2004.

3.1

Traditional System
In this system of procurement, client or owner get the design done of the intended building from any independent architect or consultant. Then it goes for tendering to appoint a contractor to construct the building as per his/her design. The appointed Contractor constructs the building as per owner/client design and takes his/her payments in timely manner as specified by the contract signed between two. The client/ owner may appoint a project manager to deal with contractor and architect on routine issues. This is very straight forward system in which client/owner has the design control and contractor has very little scope for innovations. The client/owner, after getting the design completed, apply for the building consent with all the required details as mentioned above in 2.2.6. Building consent authority may ask for any modification in the design to make it compliant with the Building Code. Client/Owner may modify the design and gets the building consent. After getting the building consent for the intended work, he/she get the building constructed as per the approved design from the appointed contractor. After construction, he is responsible for getting the Code Compliance Certificate from the Building Consent Authority and during the use or operation of the building he is also responsible to fulfill compliance schedules and provide the Building Warrant of Fitness. The client/owner always has the option to get the design works done by a licensed building practitioner as per the requirement of the Building Act 2004. Also if he wants to appoint any project manager, he has the option to appoint a person who is also a licensed building practitioner. The contractor should also be a legal building practitioner and in this system he/she is not responsible for getting the Building Consent, Code Compliance Certificate and/or any other compliance required. Owner at his/her cost, only responsible for these and therefore there is no matter of disputes between contractor and owner regarding building consent issues and compliances. Even if owner wants to make

any change in the building, then he/she is solely responsible for the costs, amended consents and time and fee required for amended consents. Of course new Act introduced implied warrantees to give the homeowner defined expectations. Irrespective of which contract is used, a builder is liable for any defects in their works. (www.branz.co.nz/cms_show_download.php?id..) So as we can understand from the above mentioned procedures, traditional system of the procurement is perfectly consistent with the provisions and procedures required by the Building Act 2004.

3.2

Design and Build

In system of procurement, the client does not prepare the detailed design and drawings for the building he wants to build. He may get the scheme drawings prepared from any suitable consultants or architect. Then he calls for the tender on design and build basis. The contractors quote one price for the work based on their own detailed design which fulfils all the requirements of the client. Once the contractor is finalized, he constructs the building as per his own design. If client ask for any change in the design at any later stage, then payment of these variation works are settled as per the provisions of contract signed between client and contractor. After completing the building, contractor hands over the building to the client/owner for use or operation. Contractor receives payments from the client in the manner and time as set out in the contract document. The general steps as given in the article 2.2 require that application for the building consent must be accompanied by the detailed design and drawings of the intended building. In design and build procurement system, detailed design is available only after appointment of the contractor. So till the time, contractor is appointed and he supplies the detailed design, building consent cannot even be applied. Owner/client can apply for the building consent and resource consent only after appointment of the contractor (and finalization of the cost of the building). Things become murkier when BCA instruct any modification in the design. Now the cost implications of such modification may be substantial because construction works has very low margins. Client might not want to own the responsibility of any such modification in the design and subsequent cost implications. Whole responsibility for the design of the building lies with the contractor and hence he has to bear any cost implications due to such modification in the design. The contractors have the tendency to innovate and propose cost effective designs in Design and Build procurement system. He must be fully aware of the building code and his design should strictly confirm with the building code so that building consent could be obtained with minimum modification in the design and hence with minimum cost implication over the cost

quoted by him in the tender. Since work cannot be started before obtaining the building consent, it would be very critical that building consent should be obtained at the earliest to complete the work within the contract period. The contractor is required to be licensed building practitioner to carry out restricted building works. He must also get the detailed design done by any licensed building practitioner. Contractor has to produce compliance document to satisfy the building consent authority that the designs confirms with the building code. The contractor is also responsible for the required inspection of the building works at various stages to ensure that construction is going according to building consent. Any instruction to modify the construction methods, materials or workmanship during or after the inspection may have substantial financial implication. The contractor is responsible to bear this cost also. These costs may become substantial. Contractor might limit these liabilities through incorporating certain clauses in the contract. As per the new Act, contractor is also bounded by the mandatory warranties. After completion of the building works, contractor applies for the Code compliance Certificate. If owner wants to make any change in the building during construction, then only owner is responsible for the costs, amended consents and time and fee required for amended consents. After completion and hand over of the building to the owner, it is responsibility of the owner to comply with various compliance schedules and to provide annual Building Warranty of Fitness during the use or operation of the building.

3.3

Management System
There is a complex contract arrangement in the management system of procurement. The owner employs management consultants/ service providers (project manager) to manage the design, tendering and construction of the building projects. The owner appoints the architect to design the building projects in consultation with the project manager. Then the owner appoints a contractor to construct the facility as per the design. The project manager also supervises the construction works. In this system of procurement, architect is responsible to produce design in full compliance to building code. The architect must be a legal building practitioner. Then owner is responsible to get the building consents and the code compliance certificate. The contractor may not be responsible for consents or any cost associated with the consent process. However the contractor is liable to the owner for any construction defects as per the mandatory warranties. In this system, Project Manager, Architect and the contractor must be legal building practitioners. Client may also choose to adopt the Design and Build System to appoint the contractor. Then the role of the architect is limited just to

prepare the scheme design and detailed design is done by the contractor. In design and build system, as detailed above, contractor is responsible for consents, inspection, code compliance certificate and mandatory warranties etc. However, during the operation of the building, owner is responsible for the compliances schedules and to provide Building Warranty of Fitness.

3.4

BOOT
Build, Own, Operate and Transfer (BOOT) and Private Finance Initiative (PFI) system of procurement is essentially like Design and Build system with some vital differences. In this system owner use project financing to raise 3rd party capital for project finance and the developer/contractor is responsible for operations of the projects for some defined durations. In this system of procurement, like design and build, contractor is solely responsible for detailed designs of the building, building consents, code compliance certificates and mandatory warranties. He must use services of the legal building practitioners for the design and supervision of the building works. Apart from this, since he is also responsible for the operation of the project, he necessarily liable to comply with required compliance schedules and produce the building warranty of fitness. Any cost implications due to modifications required by the Building Consent Authority must be borne by the Contractor and also he is responsible for the any construction related defects due to implied mandatory warranties.

4.

Present economic conditions and suggested amendments to Building Act-04

New Zealand is small open economy operating on free market principles reliant on trade to maintain its relative prosperity. The economy is made up of a myriad of markets. NZ has sizable manufacturing and service sectors complementing a highly efficient agricultural sector. The NZ public sector provides a modern welfare system providing universal access to education and health. New Zealand enjoy a high degree of political stability but shorter office period of just 3 years for government impact adversely on the governments ability to take and implement major policy decisions. The NZ economy and that of the majority of its trading partners is currently in recession. The impact can be seen in growing unemployment, net household debt and falling asset prices. The current GDP of the New Zealand stands at NZ$. The current rate of inflation is hovering around 5%. Fiscal deficit is 8 % of the GDP which not significant. The New Zealand dollar has been quite volatile in past year and has appreciated by more than 20 % during the last year. The government should play greater role in promoting market-led economic development as macroeconomic measures. The New Zealand construction industry is a significant factor in the New Zealand economic landscape. While creating

the very support environment required for most other industrial sectors construction spending totals nearly five percent of the Gross Domestic Product (GDP). The industry has made significant strides in recent years in developing safer work sites, shorter construction time, more resilient products and systems that make the built environment more productive and efficient for the industries. As per the task force report in 2009 on improving productivity of construction industry in New Zealand, on an average per year, the building and construction sector builds about 24,000 new houses and renovates approximately 32,000 existing homes and builds $4,000 million worth of non-residential buildings offices, warehouses, factories and other facilities crucial to the performance of every other sector in New Zealand. All these constructions could only be started after obtaining building consents. The new building act 2004 for building consents has impacted the construction industry in more than one ways. The following graph illustrates the building consents issued during last 15 years-

A closer look reveals that house sale and building consents had shown a consistent growth from the year 2000 to 2004. It peaked in the year 2004 and then it started on downward journey. It was a period of global economic boom which lasted till 2007. The building consents should have shown consistent growth till 2007. But it was not the case here. This reversal of trend in the growth the building consents in 2004 instead of 2007 could be explained by the fact that new building act 2004 was introduced in the year 2004. There are two jumps in the number of building consent issued after 2004, first in the year 2005 when first amendment to building Act 2004 passed and second jump was in the year 2008 when second amendment to the act passed. These facts shows that many of the original provisions of new building act 2004 were not conducive to the construction industry. Hence there was a sudden fall in the building consents after the introduction of this act. Some of these provisions were amended, rightly so due to widespread demands, in the year 2005 and 2008. Hence two jumps in the building consents could be seen in these two years. It was felt since the beginning that many of the provisions of the new building act are not consistent and friendly to the construction industry. Apart from it, the interpretation of some provisions for issuing building consents and code compliance certificate are subjective. Following is the tentative list of the grey areas in the building act: The act specifies the time limit of 20 days for issuing Building Consent, Project Information memorandum and code compliance certificate after receiving the application for these. BCA may ask for further information and clock stops till the time information received. There is no provision to enforce these time limits or penalties if BCAs does not adhere to this time limit for BC, PIM and CCC. Further if any amendment is required in the original BC then again it is treated as new BC application and BCA may take another 20 days or longer to process the amended BC. It can impact very adversely the overall project program of the contractor. Under this new Act, the roles and responsibilities of the BCAs have increased considerably. Sufficient numbers of qualified personnels are not available to handle BC process in each BCA. This would result into unnecessary delay in getting required consents and other documents. All designs and drawings must be fully compliant with the building code before submission to BCA along with the application for BC; otherwise there might be considerable delay in the issue of BC. After 2010, owner/client is required to provide names of the legal building practitioners who designed the building and will supervise it at the time of application for BC. It means that owner is required to have appointed main contractor before applying for the BC. If BCA wants to modify the design, it

becomes an area of confusion between owner and contractor to adjust time and cost implication of modified design. As per the Act, LBPs are required to sign a memorandum or certificate, in place of producer statement as required by 1991 act, for various phases of the building works on which they have worked. The wordings of these documents are still to be defined. It appears that BCAs, on its own peril, will continue to rely on both producer statement (not required in new act) and Memoranda (required by new act). Another grey area is the extent of the legal liability of the LBPs involved in the design and supervision of the building works. As per the new Act, Code compliance Certificate will only be issued construction of the building is completed fully as per the BC. If there is one BC for the whole work then there will be only one CCC. This will certainly create problems when some portions of the building required to be occupied early then the rest of the building. In this case separate or staged BC should have been obtained to occupy separate portion of the building which again increases the bureaucracy. Although, the building amendment act 2005 now allows BCA to issue a certificate for public use, if it is satisfied that it is safe for public use.

To overcome above mentioned shortcomings, following amendments may be done in the building act 2004: Strengthening in of the BCA is of utmost important. Adequate qualified personnels should be there in the BCAs for the consistent and efficient operation of the BCA. Suitable provisions to enforce the time lines should be introduced. Even some penalties for delay in the issue of documents by BCA may also be incorporated. At the time of application for BC, instead of providing details of the legal building practitioners for supervision, owner may certify that he/she would take services only of registered legal building practitioners for supervising and constructing the building works. If this can be amended then owner may apply for the BC even before appointment of the contractors. This fact could be checked by the BCA during various inspections and at the time of issue of Code Compliance Certificate. Industry wants that suitable indemnities may be incorporated into the Act to limit the extent of liabilities of the legal building practitioners. Clear roles, responsibilities and liabilities of the LBPs, BCA and others may be defined. There must be provisions for ensuring training, skill up gradation, relicensing, auditing and monitoring of the track records of the LBPs to ensure a credible and capable LBPs. The data base and register of the LBPs, with clear guidance on their class, skill levels, roles, responsibilities and track record should be made easily available to consumer.

Procedures to get the amended BC may be fast tracked so that valuable time of BCA and owner could be saved. Building Act should encourage formation of the regional authorities to oversee building consent so that more consistent, coherent and efficient services could be provided. These regional authorities must be provided with required qualified staff to deal with BC process. Fee and other charges may be reduced to lower down the cost of construction. Ultimately this will benefit the end user groups.

5. 6. CONCLUSION

More minor low-risk work will be able to be done without needing a building consent (for example higher fences and decks, and carports) from later this year. greater awareness and understanding of the performance requirements of the Building Code and of how to comply with them a base of competent practitioners in the sector, the cornerstone of which is the Licensed Building Practitioners Scheme strengthened contracting requirements and related measures in the residential construction sector an effective monitoring regime. a streamlined building consent process for some low-risk work (such as a free-standing garage or large rural shed) that simply checks that certain conditions are met (for example the work is undertaken by a licensed building practitioner) but involves no further inspections by building consent authorities 2. a simplified and more prescribed consenting process for certain simple residential building work at the lower-risk end of the spectrum (such as a simple single-storey house built using proven methods and design with low structural and weathertightness risks) 3. existing consent and inspection requirements for moderate- to high-risk residential building work, such as a multi-story house of complex design, and for lower-risk building work not involving a suitably qualified building practitioner 4. new building consent processes and requirements for commercial buildings, to provide for reliance on third-party (non-building consent authority) review and quality assurance processes as an alternative to the current consenting and inspection requirements provided certain conditions are met. This could see nationally consistent decision making, back office support and IT systems in support of efficient local delivery.

This could potentially reduce costs of consent production by an estimated 40% and save around $250m over five years.significant factor in the claims that BCAs are
inefficient and inconsistent is the building industrys poor level of understanding about consent requirements, poor quality applications and poor knowledge of the Building Code. standardising council fees across the country There is broad agreement across sectors that it is less necessary to involve BCAs in this type of work. While design checks, peer review, quality control and construction oversight are important, they can be provided using independent peer review, a national or regional system or specialists with Department of Building and Housing oversight. more use of producer statements to certify design and construction review structures overseen by chartered professional engineers (CPEng) internal systems to ensure as appropriate: that designs comply with the Building Code and accord with accepted national and international standards; with design producer statements, peer reviewers and contractors to ensure quality use of a profession such as a Clerk of Works to provide on-site management and oversight random audits by independent third party inspection. Many councils acknowledge that they do not have the in-house expertise to provide proper review or oversight to these projects. BCAs may also not be best qualified to assess quality assurance systems. Ninety-two submitters thought licensed building practitioners should be able to construct simple buildings without the current level of oversight, at least in principle. However, 57 of those supporting this idea expressed some reservations or conditions, and a further 84 submitters disagreed with the concept. Although some submitters thought the package had potential to increase accountability, others saw risks unless it was linked to a proven track record (due to the time lag before defects become apparent) or noted a need to monitor performance. The discussion document proposed expanding
the range of work in Schedule 1 of the Building Act exempt from consent requirements to include building work that is unlikely to fail or where the consequences of failure (especially for health and safety) are minimal. Two tables of potential additions were provided in an appendix of work for discussion, with potential limitations/conditions and notes to consider. Questions explored: whether the suggested items are low risk; items of work suggested that should not be exempt from consent and what concerns applied; other areas of work that should be exempt; essential or useful information gathered during consent application that would be lost; and other comments on consent exemptions. Quality

homes and buildings are produced through a business enabling and efficient regulatory framework Consumers can make informed decisions and have confidence in transacting in the building and housing market Homes and buildings are produced cost effectively by a productive sector who have the right skills and knowledge

 The regulatory system is administered in an efficient and costeffective manner.