Tonight might just be the scariest night of the year but this month certainly got the blood pumping.
Last week’s Federal Budget proved that a transparent and reliable infrastructure pipeline is still a pipedream with the Rockhampton Ring Road one of several projects shelved as budget repair gets underway.
The Rockhampton Ring Road project is symptomatic of a much deeper problem in the way infrastructure spending is managed in Australia. The public sector is the largest single buyer of major projects in Australia, so decisions of this sort really do deter industry from investing and create uncertainty that prevents increased direct employment.
There was no shortage of bidders for the Ring Road and two joint ventures have already been shortlisted so scarcity of resources should not be cited as a reason for deferral. Contractors incur substantial bid and tendering costs which in many cases are only partially reimbursed with contractors expected to absorb the costs as part of doing business.
The most likely reason for the deferral in the case of the Ring Road is the significant increase in the cost of the project from what was budgeted, most of which was avoidable. The Best Practice Industry Conditions imposed by the Queensland Government are likely to have been the biggest contributor to the recent spike in the cost of the project.
The construction industry has experienced unavoidable price escalation, like almost every other industry, but the Queensland Government has ignored warnings from industry that the imposed conditions will add further significant inflationary pressures. Whilst the construction industry is operating in a constrained market where there are limited resources, the best way to address this is by implementing measures to improve industry productivity—not by kicking the can down the road and hoping the situation improves.
The current Productivity Commission 5-yearly review will be more critical than ever and government must act quickly. This will be a strong message the Australian Constructors Association (ACA) will be sending at the November public hearing for the inquiry.
In a positive move, ACA welcomes funding to support the establishment of the National Construction Industry Forum. Government, industry and unions have an opportunity through this Forum to build a stronger, more sustainable construction industry and we need to grasp it with both hands. This is our opportunity to work together to transform, as other sectors have, so we can become sustainable.
CULTURE STANDARD TRIALS UNDERWAY
This month the Construction Industry Culture Taskforce announced five Australian-first pilot project sites across NSW and Victoria, which include different project types, contract models and sizes:
- Narre Warren Cranbourne Road Upgrade (VIC) – McConnell Dowell
- Brunt Road Level Crossing Removal Project (VIC) – Fulton Hogan
- Wentworth Point new high school (NSW)
- Transport for New South Wales Mulgoa Road Upgrade Project Stage 1 (NSW)
The fifth pilot includes a study of the experiences of infrastructure trainees in NSW. The NSW Government Infrastructure Traineeship commenced in 2021 and creates employment and training opportunities for Year 12 school leavers. While studying a Cert IV qualification, trainees complete 8-month rotations with Government and Industry to get broad exposure to the infrastructure industry. The office-based roles attract females, first nations and regional youth and provide unique insight into the culture of the industry from their view.
The trials are testing the impacts of flexible and capped working hours on construction workers, implementation of plans aimed at increasing female participation and mental health programs.
The evidence so far is compelling, and the pilot projects will build on the existing research, testing the implementation of the Standard in on-the-ground projects and creating a strong, contemporary evidence base for its adoption.
For more information on the CICT and the Culture Standard visit: cultureinconstruction.com.au
CREDIT WHERE CREDIT’S DUE
This month ACA released a new report calling on government and other clients to stop treating construction contractors and suppliers like financial institutions. Titled Credit where credit’s due—Improving security of payment and liquidity in the construction industry, the report argues that construction projects are no different to any other significant purchase and should be financed through institutions that are appropriately set up to do this.
Construction is one of the few industries operating under a cash negative payment regime where work is undertaken for third parties without payment until after materials have been ordered and fixed to site. Airbus requires 20 per cent of the capital costs to be paid upfront before manufacture of a new plane and with a price tag of US$445 million—an investment that is comparable to a mid-range construction project.
The current construction boom combined with rapidly increasing prices and shortages of materials and labour have negatively impacted business balance sheets and cash reserves resulting in an increase in insolvencies. More businesses fail in construction than any other industry.
Prompt and fair payment is essential for the health of the industry, starting with advance payments. Advance payment should be provided for site mobilisation costs and long lead, high value procurement items to avoid the contractor commencing in a cash negative position and reduce the risk of material price escalation.
Several other policy responses are available to improve liquidity and address security of payment throughout the industry without resorting to the costly, burdensome and ineffective method of project bank accounts.
Improving payment frequency, simplifying claims processes and increasing bid cost reimbursements are some of the solutions posed by ACA , along with a call out to the Federal Government to standardise security of payment regulations across the states.
More upfront payment would flow down through the industry the same way risk currently does but this would be positive. By tying up industry capital, clients are missing out on the opportunity for increased innovation, reductions in carbon emissions, increases in productivity and reductions in the overall cost of construction. More importantly, construction clients are significantly increasing instability in the industry on which they are relying.
For the sake of the economy, the environment and wider society we need to improve the financial health of construction industry and we need to start now.
Download the report.
AUSTRALIAN CONSTRUCTION ACHIEVEMENT AWARD
Entries for the 2023 Australian Construction Achievement Award (ACAA) close November 30.
Now in its 26th year, the ACAA is the industry’s most prestigious award recognising the best construction projects, delivered by the nation’s very best construction companies.
The judging of the ACAA is a two-stage process by an independent panel, the first of which involves completing an online entry.
Finalists for the award will notified on December 19 and are then required to submit a detailed submission and participate in a judging panel site inspection.
Finalists will be honoured, and winner announced, at a black-tie award dinner at The Palladium at Crown Melbourne on Wednesday 3 May 2023 in conjunction with the Future Construction Summit 2023 (FCON23).
This month we were delighted to share two guest blogs on important topics.
The most recent, written by Avista Strategy, addresses a phrase you can expect to hear more frequently from the ACA – Should-cost modelling. Essentially, it is a costing method designed to inform clients of fair value very early in the project. A Should-Cost Model provides project teams with the ability to evaluate proposals and drive innovation and efficiency in design. Done well, it produces more reliable and tighter budgets with less gold-plating. It’s exactly the sort of thinking we need to drive productivity through the industry. View the blog.
Earlier in the month, Kiri Parr shared her insights on complex systems thinking. The blog reinforces the need to look beyond linear supply chains, tiers and sectors and start thinking of construction as a complex network. If the outcomes from the industry are not the ones we want, like low productivity and lack of innovation, then the answer lies in setting a new trajectory for this system as a whole rather than trying to tinker with one element of it. View the blog.
Promoted through LinkedIn every Sunday, our ‘Sunday surveys’ campaign aims to raise awareness of research you can contribute to that will help provide the evidence base for positive industry change.
The latest survey is being administered by Cupix. Cupix is helping support the construction industry in transitioning to a resilient future through a new research project investigating how widespread digital twin practices are leveraged in the Australian and NZ construction industry. The purpose of the survey is to better equip industry with best practices.
The survey takes approximately 5 minutes to complete. Submission of responses signifies that you fully consent to participating in this research. As a token of Cupix’s appreciation, Cupix will personally email you a copy of the completed report in 2023 and make a donation for each completed survey to Mates in Construction.
The closing date of this survey is 5th November 2022.
This survey is designed for individuals with experience in infrastructure and project lifecycle.
Complete the survey.
There’s a new kid on the ACA block – welcome Robert Sobyra! We’re thrilled to announce Robert has joined our team as Head of Policy.
Robert is a leading thinker at the intersection of construction and skills. He writes and talks regularly on all things relating to construction and the workforce. Robert has a special interest in the future of work, skills, and training.
Join us in welcoming Robert.