We’ve ticked past the halfway point of 2023 and the reform journey is well and truly taking shape.
Last month in Canberra, the Australian Constructors Association (ACA) Board engaged in discussions with Ministers and government representatives regarding the potential to transform Australia’s construction industry. One key question was whether the Commonwealth could play a stronger role in driving a more consistent national approach to procurement. The focus would be on delivering true value for money rather than prioritising the lowest price at the tender stage. Our discussions, including those with the Hon Catherine King, have left us confident that the Commonwealth can indeed play a more influential role.
During our meeting with Senator Gallagher, we discussed the role that the Commonwealth Procurement Rules have to play in improving the efficiency of delivering capital infrastructure in Defence. We also discussed leveraging the funds granted by the Commonwealth’s Clean Energy Finance Corporation to enhance the delivery of new energy projects in various states and territories and ways in which the ACA can collaborate more closely with the Commonwealth to increase female participation.
Assistant Minister Thistlethwaite joined us for discussions on opportunities to enhance the efficiency of Defence capital infrastructure delivery, particularly in the context of the Defence Strategic Review. Defence faces the challenge of attracting resources to remote locations while metropolitan markets are booming. To become the preferred client and stand out, Defence must strike a balance between competition and efficiency. This requires working closely with the industry and building stronger partnerships without sacrificing either aspect.
Collaborative procurement models are the best approach for big and complex projects in a competitive industry. The ACA is ready to team up with Defence and other agencies to make the current processes better and explore different ways of buying if needed.
We also delved into the review of the Commonwealth’s $120 billion infrastructure investment, emphasising the importance of having a clear, transparent and stable pipeline of work. Furthermore, we discussed the opportunity to use any savings from the program to compensate for unforeseen material price escalation. This practice has been successfully implemented at the state and territory level through relatively simple contract variations.
Lastly, we addressed the significant role that the National Construction Industry Forum (NCIF) can play in improving industry culture and productivity. To achieve the desired changes in the industry, it is crucial for government, industry and unions to leave behind historical issues and embrace collaborative efforts. The NCIF presents an opportunity to facilitate this transformation.
Speaking of productivity, the nation needs to keep improving infrastructure to increase productivity but the industry being relied on to deliver this is the least productive of all! In our meeting with the Treasurer, productivity was the focal point. To fix the productivity problem the construction industry needs to fundamentally change and the largest infrastructure buyer can help. That buyer is government.
ACA recently launched the 2023-30 Strategic Plan. Our strategic priorities focus on improving industry productivity and are grounded in a commitment to improving environmental sustainability. The three crucial elements necessary for an enduring and sustainable construction industry are a good culture, equitable commercial frameworks and sufficient capability and capacity. To increase productivity and better manage environmental impacts, we need to work on improving all three of these areas.
ACA will continue to drive clarity and focus on what is needed to progress in these areas but it is clear that to achieve the improvements that are so desperately needed, the industry must first become more financially sustainable, with businesses able to make a fair return for delivering high-quality performance. How can industry invest in research and development when it is not making a reliable and reasonable return on the capital it invests in projects?
If we get this right, we will close the productivity gap between construction and other major industries. Construction insolvency rates will finally reflect business participation rates and we can address the challenges currently faced by ongoing skills shortages. We can also ensure the industry’s contribution to the national net zero ambition will be fulfilled.
In revising the strategic plan, ACA consulted with government and other key industry stakeholders and we thank them for their contributions.
Download the ACA Strategic Plan 2023-2030.
In our latest blog, guest authors Matthew Croagh and James Morgan-Payler from Pinsent Masons discuss fairness in the construction industry – specifically in procurement, delivery and commercial close out. Matthew and James describe fairness in procurement as clear rules of engagement, use of standard form contracts with only project specific amendments, appropriate risk allocations in those standard forms and appropriate opportunity for teams to consider risks before signing up. They state, “If we hold out fairness as an agreed essential element and a test by which we measure our actions, the construction industry will thrive!”
Sound reasonable? We think so.
Read the blog.
Get ready for the grand finale of 2023! We will shortly be releasing a report that lifts the lid on why the construction industry has become so dysfunctional. The report highlights recent data from credit rating agency Equifax which paints a bleak picture. Profit margins in the building sector have fallen from around 3% to below 1%, while liquidity has nosedived from 15% to below 5%. Most concerning is that over half of all large builders are now carrying current liabilities that exceed their current assets—a technical definition of insolvency. Stay tuned for this report.
In addition to highlighting the problems, we are also committed to providing solutions. Our flagship report for 2023 takes a solutions-oriented approach, focusing on the critical issue of productivity. Productivity has become a buzzword in the industry, and it’s high time we tackle it head-on in construction. This report will provide a pathway for bridging the productivity gap that exists between the construction sector and other major industries.