By Julien Leys, CEO, Building Industry Federation of New Zealand
The hidden tax on every infrastructure project.
In mid July, Aotearoa New Zealand’s Minister of Transport the Hon. Chris Bishop will announce whether the largest infrastructure project this country has ever undertaken – a second crossing of Auckland’s Waitematā Harbour – will be a bridge or a tunnel. It is the right debate to be having, but it is the wrong question to lead with.
‘Bridge versus tunnel’ is the kind of choice our political system is comfortable making: visible, binary, an architectural model on the 6 pm news. The far more consequential choice – the one that will quietly determine whether the project delivers a generation of value or a generation of regret – is predicated on how the Crown buys it. On that question, New Zealand’s procurement system is not in good shape.
Bishop is also Infrastructure Minister, and he has been candid about the constraint. Construction costs are rising, revenue is falling, and there is not enough money in the system to do everything New Zealanders want done. He is right. This makes the procurement question – not the engineering question – the one that determines whether the money we do have is spent well or quietly wasted. The second Auckland harbour crossing is only the most visible of dozens of mega-decisions in front of us.
New Zealand’s first National Infrastructure Plan was released on 17 February, and was unsparing about our productivity problem. We spend close to 5.8 per cent of gross domestic product on infrastructure year after year, yet sit near the bottom of the OECD for value for money. Most public debate fixates on what we build: more hospitals, fewer roads, when to start, when to pause, bridge or tunnel. That is the easy question. The harder one – the one infrastructure ministers across the political spectrum keep avoiding – is how we buy.
For decades, public procurement in New Zealand has quietly eroded infrastructure value. Overpriced, underperforming assets; premature renewal cycles; and strong local products that are never specified often stem from the same problem: a procurement culture that mistakes the lowest compliant price for real value. That is the hidden tax, and Kiwi households pay it every day through rates, taxes, and user charges.
A culture, not a rulebook
The Government Procurement Rules were updated in December 2025. To the Ministry of Business, Innovation and Employment’s (MBIE’s) credit, the fifth edition is shorter and sharper, and includes a new mandatory 10 per cent weighting for economic benefit to New Zealand. But rules are not culture. The reality on the ground, particularly in construction and infrastructure, is that procurement decisions are still dominated by up-front price. A 10 per cent weighting helps. It does not fundamentally change a system in which a buyer who awards on lowest conforming price is almost never questioned, while a buyer who awards on whole-of-life value is.
For the supply chain (manufacturers, importers, merchants and distributors), the effect is corrosive. A polythene pipe with an 80-year design life, made locally by Iplex Pipelines or Hynds Pipe Systems, competes against an import that may last 25 years. A precast element from Stresscrete or Stahlton, with proven lead times and a local warranty pathway, competes against an import quoted at a lower headline price, but with a six-month wait and a thin accountability trail. Aluminium joinery from APL or Altherm competes against systems with shorter warranties and unproven thermal performance. A higher-grade seismic fixing competes against one specified to code minimum. The higher-value option usually loses. The asset is dug up sooner, the failure cost is absorbed quietly in the next operating budget, and the cycle starts again.
The whole-of-life paradox
The National Infrastructure Plan tells us that up to 60 cents in every dollar of capital spending over the next 30 years will go on renewals and maintenance. It tells us to think harder about whole-of-life cost, not just unit price. These principles sit in every Treasury investment guide and infrastructure plan written this century. What is in dispute is whether our procurement system enables that thinking or quietly undermines it.
Procurement officers are rewarded for defensible decisions and protected from second-guessing. The most defensible decision is almost always the lowest conforming price. Argue for a higher-cost, longer-life solution and you are inviting an audit conversation. Nobody will ever ask why the cheapest tender was selected. That asymmetry is the procurement culture. Until it changes, every aspiration about whole-of-life value will continue to die quietly in the evaluation room.
The shock already at the door
This is not a theoretical argument; it is happening right now. In the weeks since the Iran conflict escalated, New Zealand’s building products supply chain has been absorbing a cascading price shock driven by oil, freight, insurance and feedstock disruption. Fletcher Building’s Iplex NZ has notified merchants of plastic pipe price rises of around 25 per cent. Marley has signalled similar increases. Master Plumbers Chief Executive Greg Wallace has described 30 per cent rises on PVC, polythene and polypropylene pipe, the core products for plumbing, water mains and large infrastructure projects. Plastics New Zealand has reported one specialty-grade material rising 75 per cent in a single week. Roughly 22 per cent of our polymer is imported directly from the Middle East; another 56 per cent comes from Asia, much of which depends on Middle Eastern feedstocks.
The same Iplex pipe that goes into a school refurbishment, a hospital ward upgrade or a stormwater renewal is now meaningfully more expensive than it was a month ago. Contracts already bid at fixed prices are quietly turning unprofitable on every commercial and infrastructure project underway, the new Dunedin Hospital among them. This is what a thin, price-driven supply chain looks like under stress. The procurement system that selected those products rarely valued resilience, redundancy or local capability. When geopolitics shift, the cost of that choice is paid by ratepayers, taxpayers, and patients waiting for projects to come in on budget.
Unfortunately, this is not the last shock we will face; it is a preview.
What we lose
We lose innovation. If only the cheapest product wins, the logical response is to strip features, lower specifications and chase the price lower. Manufacturers will not invest in tooling, automation or research and development unless they can recover that investment through specification.
We lose local capability. Strategic local manufacturing in pipes, precast, structural steel and electrical componentry becomes harder to justify. Cement from Golden Bay Cement, plasterboard from Winstone Wallboards, structural steel from D&H Steel and Steel & Tube, ready-mix from Allied Concrete and Firth, insulation from Tasman Insulation, and the merchant networks (ITM, Carters, PlaceMakers, Mitre 10 Trade, Bunnings Trade) each represent a fragment of capability built up over decades, sustained in part by the steady flow of public sector demand. The shock we are absorbing right now is a reminder of how exposed New Zealand has become when freight routes and feedstocks both contract at the same time.
We also lose carbon performance. Lower-carbon products, including those produced domestically with renewable electricity, almost always cost more at the factory gate. Without procurement settings that price embodied carbon, they cannot compete on a like-for-like basis even when their whole-of-life climate cost is materially lower.
Additionally, we lose productivity. Offsite manufacturing, modular components and prefabricated service modules all rely on suppliers being engaged early enough to influence project design. A procurement system that meets the supply chain only at tender stage misses gains that should already have been banked.
This is the hidden tax. It does not show up on any balance sheet; it shows up in budgets that overrun, assets that wear out early, regions that lose local manufacturing, and a built environment that emits more carbon than it should.
What others have already worked out
The United Kingdom’s Construction Playbook, published by the Cabinet Office in 2020 and refreshed twice since, is the clearest example of disciplined construction procurement: a 14-policy operational guide that all United Kingdom central government bodies follow on a comply-or-explain basis.
Its principles are outcomes-based contracting, early supply chain involvement, mandatory cost modelling, and longer-term framework procurement that rewards capability investment. The result is better assets, more confident suppliers and more resilient supply chains. New Zealand has nothing equivalent.
Singapore has gone even further. Its Building and Construction Authority’s Price Quality Method, mandatory for public construction tenders above S$3 million, requires every tender to be scored against a weighted combination of price, quality and productivity. Contractor track record matters. Productivity indices matter. Adoption of new construction technologies matters. In Singapore, lowest price alone does not win – because lowest price alone is not what the system measures. Over a decade, this has produced a system-wide lift in productivity and technology adoption that no individual project could deliver on its own.
Australia offers perhaps the most instructive comparison because the system is closer to ours and the productivity slide is further advanced. The Queensland Productivity Commission’s 2025 interim review found construction productivity in that state had fallen nine per cent since 2018. Australian construction labour productivity sits barely five per cent above 1994–95 levels; the wider economy lifted productivity 65 per cent over the same period.
The Australian Constructors Association puts the lost economic value at around A$60 billion a year. And here is the uncomfortable part: Australia’s federal Commonwealth Procurement Rules already require buyers to weigh whole-of-life cost, environmental sustainability and economic benefit on construction procurements above A$7.5 million. Our new 10 per cent weighting is, in effect, arriving at a starting line Australia crossed years ago and even with those settings, Australian industry has concluded the system is still not delivering. Its Blueprint for the Future, endorsed by government, industry and unions in September 2025, places procurement reform at the centre of the productivity agenda.
The lesson is twofold. Progressive procurement rules do not automatically translate into productivity gains; execution, culture and capability matter more than the rulebook. And if a country with stronger settings than ours is still confronting a reckoning, then doing nothing is not a viable option. We are not lagging by one step; clearly, we are lagging by several.
What good reform would look like
The principles are not complex. We do not need to invent them but only adopt them, adapt them, and embed them.
A construction-specific procurement playbook, equivalent in seriousness to the United Kingdom’s, should sit alongside the rules. Whole-of-life cost, embodied carbon and resilience should carry meaningful, mandatory weightings in major infrastructure tenders on top of the new 10 per cent economic benefit weighting. Early supply chain involvement should be a contractual given, not a courtesy. Framework procurement should replace one-off tendering for repeat-pattern work (hospital refurbishments, water network renewals, school upgrades, roading maintenance), rewarding capability investment rather than punishing it. And fortunately, Minister for Building and Construction the Hon. Chris Penk has already enabled reforms to enable faster pathways to be created for products certified in markets we already trust, because procurement reform and product assurance reform are linked.
The political opening
The political conditions for this reform are unusually favourable. The Plan calls for system reform. MBIE has shown, with the fifth edition Rules published in December 2025, that it can move when given a mandate. Building and Construction Minister Chris Penk and the Infrastructure Minister have both spoken candidly about value-for-money and the gap between what we want to build and what we can fund. The fiscal pressure makes the case unanswerable. What is missing is sector-specific leadership in construction procurement and an industry partner willing to help design what comes next.
A question worth sitting with
In a few weeks, cabinet will decide between a bridge and a tunnel. The decision will be reported, analysed and contested. Whichever way it goes, the project will proceed. But the more important decisions – what we specify, how we weigh whole-of-life value, whether we accept lowest conforming price for the largest project of our lifetimes, and whether we engage the supply chain early enough to influence the design – are being made every day in offices and frameworks the public never sees. They will determine, far more than the choice of crossing, whether this country gets infrastructure that earns its cost.
So, here is the question worth sitting with. Twenty years from now, when the second Waitematā crossing is in daily use, when our grandchildren are paying the rates, taxes and user charges that funded it, will they look at it and conclude the country bought it well? Or will they experience what we have been discovering quietly for decades: that the hidden tax was paid in full, and the value never arrived?
If we want better infrastructure, we have no choice but to buy it differently. The conversation our political system has been avoiding for years is well overdue. The longer we leave it, the more we will pay for the privilege and the more our successors will pay on our behalf.