Productivity, productivity, productivity – where is the productivity farmer! The Productivity Commission released its final 5-year report this month and it turns out it isn’t that productive.
As anticipated, the Commission’s final report is long on macro-economic reforms and broad principles such as adoption of new technologies and boosting the skill base of the workforce, but it lacks sufficient focus on specific issues and industries where short-term opportunities are ripe for the picking.
The construction industry is the prime example. The industry’s productivity performance is now worse than it was 30 years ago, which incidentally is around the time of the last substantial report published by the commission on the industry. Wages typically grow with increased productivity, yet we find ourselves in a situation where the construction industry’s productivity performance has hit rock bottom, while industry wage growth has continued to outstrip inflation and wages in other major industries.
It’s a costly game. This poor productivity performance is placing pressure on labour which has had to be boosted to compensate—and we’ve exhausted available supply. The nation’s infrastructure advisory body estimates a 214,000 shortfall in workers. We simply must find ways to deliver the nation’s infrastructure with fewer labour inputs. We must become more productive.
In a 2022 report commissioned by the Australian Constructors Association (ACA), BIS Oxford Economics identified that the lost opportunity to the economy from construction productivity growth lagging other major industries has now reached $47 billion every year! Surprising? Not really, construction is Australia’s fourth largest industry, employing 1 in 10 of the working population and contributing 7 per cent of GDP but it is stuck in the past and accounts for 26 per cent of all business insolvencies.
The nation cannot afford for this to continue, and the government is well positioned to act.
Whilst it will take time and a concerted effort to completely close the productivity gap between construction and other industries, substantial savings could be achieved relatively quickly and certainly within the current term of parliament.
The new National Construction Industry Forum (NCIF), announced at the Jobs and Skills Summit is intended to bring together government, industry and unions to identify ways to improve workplace relations, industry culture, skills and training, safety and gender equity. Productivity is also an agreed focus area, but it goes without saying that a more diverse, skilled, flexible and safer industry will also be a more productive industry. As chair, the Government needs to ensure this forum hits the ground running and any recommendations quickly acted on either through legislation or by using its buying power to implement reform.
The Federal Government is the nation’s largest infrastructure client. It can no longer act as a passive buyer of infrastructure by simply granting money to the States with few conditions on how the money is spent. It is time for the government to become an informed buyer—a model client—to drive much-needed reform to transform the industry.
Whilst there has been much discussion about the impact of IR reforms on productivity, the biggest opportunities do not involve improving how we pour concrete. Substantial productivity gains can be quickly achieved by streamlining lengthy government tender processes, stripping back multiple layers of project governance and not defining to the last nut and bolt how a project is to be built but the bigger opportunity lies in correcting the narrow-minded focus on achieving lowest price at the tender box to the detriment of all else. The notion that best project value equals lowest upfront price is outdated and can be largely blamed for the slow adoption of productivity enhancing technologies and adversarial behaviour in the industry.
Reform needs to start with infrastructure clients implementing procurement processes designed to maximise overall project value that would include outcomes such as increasing innovation and productivity, improving industry sovereign capability, reducing environmental impact, increasing diversity and inclusion in the workforce, and improving industry culture.
Whether through the development of new national procurement principles, implementation of a ratings initiative to measure project performance or simply pre-conditions applied to the updated National Partnership Agreement, the Federal Government needs to start using its buying power to fast-track reform and the industry needs to get behind it.
The construction productivity tree is groaning with low hanging fruit and we don’t need any backpackers to harvest it, we just need a committed farmer!
New legislation was introduced this month to give the nation’s infrastructure advisor, Infrastructure Australia, more influence over government decision-making. Irrespective of the changes, the most important change will be government listening to Infrastructure Australia’s advice—otherwise what is the point of having them.
ACA has supported Infrastructure Australia’s reform recommendations but implementation by government has been non-existent. Government needs to urgently enact these reforms as the health of the industry is too important to ignore.
The next critical step is the Federal Government using its buying power to accelerate reforms. ACA has developed a way for the Federal Government to expedite reforms through a new ratings initiative called the Future Australian Infrastructure Rating (FAIR). FAIR would enable greater sharing of learnings that would significantly help the industry to improve.
Already there is a provision for state and territory delivery agencies to submit post completion reports to Infrastructure Australia under the National Partnership Agreement, but this rarely occurs. FAIR would provide a mechanism for Infrastructure Australia to ensure agencies fulfilled this requirement. Under the FAIR initiative, an online database of learnings and innovations from projects would be established where industry and clients alike can identify ways to improve on upcoming projects.
The sharing of lessons learned is just one benefit of the FAIR initiative—the opportunity to implement reforms that will improve industry productivity, diversity, technology adoption and more are limitless.
Government is moving in the right direction. It now needs to follow through and act on the advice.
Productivity to reform and everything in between
It is not all doom and gloom for construction with this year’s Future of Construction Summit (FCON23) set to ignite positive change. FCON23 will see government, industry and union leaders come together to discuss a collective and disruptive response to the industry’s challenges.
Appropriately themed ‘FCON disrupted’ this year’s event is based on the premise that the industry cannot afford to continue down the path of slow incremental change. It is time to fundamentally disrupt how it operates, if for no other reason than to ensure the industry has sufficient workers delivering infrastructure that Australia can afford.
With both influencers and decision makers in the room, a new audience will be descending on the summit, the disrupters. Yes, the voices of industry’s emerging leaders will be amplified—Gen Z. The Gen Z panel discussion is the most anticipated with five industry graduates and undergraduates set to send a compelling message to the audience.
Join us in Melbourne for FCON23 to be held from 3-4 May: https://futureofconstructionsummit.com/
Best of the best
For the past 26 years ACA and Engineers Australia have promoted the Australian Construction Achievement Award (ACAA) to celebrate the best of the best in Australian construction.
Following a record number of entries, seven finalists have been selected in 2023 to compete for the highly sought-after title of winner of the ACAA. What makes these projects the best of the best is not just the awe-inspiring structures. The ACAA recognises projects where companies are actively contributing to a more sustainable industry.
This year’s finalists are going about their work differently. They are implementing digital tools and processes to improve productivity. They are investing in training and development initiatives to equip workers with critical skills. They are creating flexible working environments that support workers’ mental and physical health and breaking down barriers to entry while also building a more inclusive and diverse workforce. And collaboration is strong not just within project teams but throughout the supply chain. Moreover, these finalists are actively working to reduce the impact on the environment for future generations. Australia’s construction industry will be stronger for this.
With just the one award up for grabs, the competition is fierce. Who will take possession of the unique 60kg trophy?
Join us for the winner presentation event to be held on the evening of day 1 of FCON23. Find out more: https://acaa.net.au/