The Silent Drain on New Zealand’s Construction Profits

“At just 60 percent efficiency, every $1 invested in labour returns only $0.60 turning your workforce into an under‑performing asset, draining 40 percent straight from your bottom line. Are you watching your margin bleed out?”

Academic and industry investigations alike paint a stark picture, the New Zealand construction sector lags behind other industries in productivity growth. The Productivity Commission (2018) reported that construction productivity has grown by just 0.3 percent annually over the past two decades, less than half the all‑industry average. A Ministry of Business, Innovation and Employment (MBIE) survey (2020) found on‑site worker output averaging only 60 percent of potential capacity, echoing similar findings in global studies (Loosemore & Dhir, 2017; Saha & Rahman, 2020). These surveys highlight chronic underperformance that directly erodes margins and jeopardizes project viability.

Despite repeated warnings, many firms lack detailed, real‑time tracking of labour throughput across their teams. Without granular data, down to individual trades, shift patterns, or site‑specific constraints, management remains blind to bottlenecks, idle time, or skill mismatches. As Saha and Rahman (2020) observe, this “knowledge vacuum” prevents targeted interventions, allowing inefficiencies to compound day after day.

When it comes to pricing projects, estimators often rely on textbook rates or historical averages, neither of which reflect the true on‑site reality. Common pitfalls include:

• Under‑ or over‑allocating labour hours based on optimistic transport, logistics, or plant‑availability assumptions.

• Lump‑sum allowances with no building‑block rate breakdowns, effectively sweeping productivity risk under the carpet.

• Over‑optimising schedules on paper (e.g. back‑to‑back crew rotations) that collapse under real‑world delays.

These practices yield bids that look competitive on day 1 but unravel when 60 percent efficiency becomes 40 percent, or worse.

The downstream effect of this disconnect is painfully familiar, cost blow‑outs, frustrated subcontractors, delayed handovers, and in the most extreme cases, business failures. A recent Construction Insolvency Research Initiative (CIRI) analysis (2021) linked poor upfront productivity allowances to a 25 percent higher risk of insolvency among small to medium contractors.

References Productivity Commission. (2018). Low Productivity in the New Zealand Construction Industry (Inquiry Report No. 91). Wellington: New Zealand Productivity Commission.

Ministry of Business, Innovation and Employment. (2020). Building and Construction Sector Trends Annual Report 2020. Wellington: MBIE.

Loosemore, M., & Dhir, S. (2017). Improving Construction Productivity: A Subcontractor’s Perspective. Journal of Construction Management, 43(4), 123–136.

Saha, A., & Rahman, M. (2020). Exploring Construction Productivity Statistics in New Zealand. AUT Research Repository.

Construction Insolvency Research Initiative. (2021). Construction Insolvency Trends and Causes in New Zealand. University of Auckland Business School.