Unlocking New Zealand’s productivity

By Mary Kilkelly, Ben McCarroll and Trevor Manners
 

New Zealand cannot solve its infrastructure deficit simply by working harder – we must work smarter. Productivity growth is essential to addressing the infrastructure deficit, and the way we approach procurement is critical to that growth.

New Zealand faces a significant and growing infrastructure deficit. Long-term underinvestment, combined with slow delivery, cost escalation and capacity constraints, has created a shortfall estimated in the tens of billions. This gap cannot be closed simply by spending more or working harder; the industry and workforce are already operating at, or near, capacity. Closing the infrastructure gap will require New Zealanders to think more strategically and extract greater value from existing inputs.

A key constraint on infrastructure delivery is the absence of a clear, credible pipeline of future work. Fragmented procurement practices and limited visibility of committed projects constrain the market’s ability to plan, invest, and build the capability required to deliver at scale. Contractors are not empowered to invest in the processes, systems, tools, and capability that can help improve their long-term efficiency and productivity. Over time, this entrenches a cycle of higher costs and slower delivery.

These challenges are compounded by an over-reliance on short-term funding cycles that drive planning and procurement decisions. Annual budget horizons incentivise reactive, short-term investment choices, often prioritising in-year affordability over long-term performance, resilience, and whole-of-life value. Without the ability to secure and sequence multi-year capital and maintenance programmes, government agencies are constrained in their ability to negotiate effectively with the market or pursue more strategic delivery models.

The result is a stop-start approach to investment that undermines productivity and prevents the system from realising efficiencies over time.

Procurement activity remains highly fragmented and largely project-by-project in nature. Projects are commissioned sporadically, limiting opportunities to bundle work, leverage economies of scale, and smooth demand across the supply chain.

While competition at the individual tender level is often treated as a proxy for public value, this approach is increasingly misaligned with the scale, complexity and volume of infrastructure required. The outcome is a collection of isolated projects, rather than a coherent, programme-led delivery system.

These traditional procurement and delivery models do little to support long-term productivity growth or incentivise innovation. Neither buyers nor contractors have the confidence or commercial incentive to invest in up-front improvements, plant, equipment or workforce capability for single, discrete projects. Increasing the volume of projects through conventional procurement mechanisms only intensifies pressure on the sector, driving up costs, extending delivery timeframes and further stretching an already constrained workforce.

Delays in commissioning are common, often requiring contractors to stand up teams without certainty of deployment. The resulting overheads and inefficiencies are inevitably passed back to the public sector. Collectively, these system settings make infrastructure delivery slower, more expensive, and less predictable – underscoring the need for a more coordinated, transparent and pipeline-led approach to procurement if New Zealand is to close its infrastructure gap.

For more than 50 years, New Zealand’s productivity performance has lagged behind other Organisation for Economic Co-operation and Development countries, and the gap continues to widen. Our GDP per hour worked is lower now than average benchmarks from 1970, despite New Zealanders working some of the longest hours in the developed world. Those long hours come at the cost of mental and physical wellbeing, which, in turn, hinders our ability to innovate.

This challenge is felt strongly in the construction sector, one of New Zealand’s largest industries. Despite strong employment growth, annual productivity growth averages only around one per cent – significantly lower than other major New Zealand industries.

Unless the approach to procurement in New Zealand shifts from transactional to strategic, it will continue to act as a handbrake rather than an accelerator of sector performance.

A mindset shift: future thinking

A more strategic approach to procurement requires buyers to consider the overall scale and future pipeline of projects, the alignment of incentives, and the commercial approach to delivery. This enables longer-term, performance-based contracts that, when supported by clear productivity-related KPIs, reshape market incentives and drive sector improvement.

Improving efficiency and productivity in infrastructure delivery will require a deliberate shift towards bundling and packaging work at scale. Grouping similar work – by location, asset type or delivery methodology – reduces duplication in mobilisation, design, and procurement efforts, while enabling more efficient deployments of labour, plant, and materials. Larger, more predictable packages of work allow delivery teams to smooth resource demand over time, reduce stop-start inefficiencies, and capture economies of scale that are difficult to realise through fragmented, project-by-project procurement.

Realising these benefits requires operating models to function as intended. Many current models are designed to enable greater engagement, collaboration and efficiency across clients, contractors, and consultants; yet, these outcomes are often undermined by late engagement and limited visibility of forward work. Earlier, more open collaboration during programme planning phases materially improves the transparency of future workloads, allowing delivery partners to plan with greater certainty and allocate resources more effectively. Over time, this builds trust, improves delivery confidence, and shifts relationships away from transactional contracting towards shared ownership of outcomes – reducing rework, shortening decision cycles, and enabling repeatable delivery methods that get faster and cheaper over time.

Longer-term visibility and coherent work programmes also create stronger incentives for investment in productivity-enhancing technology. Identifying opportunities to deploy new construction methods, digital tools, or asset management technologies is far more feasible when contractors and consultants have confidence in a sustained pipeline of work. Providing longer forward work plans increases the likelihood that delivery partners will invest in technology, systems, and skills that improve efficiency and quality over multiple projects, rather than optimising for single commissions. In this way, better bundling and more strategic commercial models catalyse innovation, supporting productivity gains that extend across the infrastructure system.

Long-term performance-based contracts rely on robust, carefully designed commercial arrangements that align incentives and give clients effective levers to drive desired behaviours. When done well, the client–supplier relationship moves away from adversarial dynamics and towards a shared focus on outcomes, incentivising continuous improvement and empowering suppliers to deliver quality. Tying commercial returns to measured productivity improvements (e.g., cost per unit delivered, time per task, defects per 1000 units) converts ‘value for money’ from a tender promise into delivered, year-on-year performance.

When the next multi-year contract depends on demonstrated efficiency gains, contractors have strong motivation to invest in systems, tools, process improvements, and capability development that make projects more efficient, reduce pricing, and improve cost-effectiveness. This continuous improvement loop turns competition from a one-off price event into sustained productivity growth.

Clients must also consider the importance of supporting long-term contract management with the right systems, digital tools and data. Informed decision-making is the crux of effective commercial management and unlocking long-term value from contracts. By adopting and integrating the right technologies and systems, clients can manage suppliers and assets more effectively, reduce risk, strengthen compliance, improve processes and procedures, and ultimately boost operational performance.

Procurement is a fundamental lever to lift productivity in New Zealand’s infrastructure delivery. By buying for scale, certainty and performance, government and procurers can unlock investment, innovation, and continuous improvement – accelerating delivery, reducing cost pressures, and creating durable public value. We cannot close the infrastructure deficit by working harder; we must buy smarter.