The Grattan Institute’s latest report on the cost of Australian infrastructure provides some useful recommendations that unfortunately are overshadowed by poorly supported claims that further damage an already fragile construction industry.
Titled Megabang for megabucks: driving a harder bargain on megaprojects the report claims Australia is paying too much for infrastructure. We agree that Australia is paying too much but not because governments are not driving a hard-enough bargain with big construction firms as the report claims. It is because procurement and delivery processes are inefficient and do not foster collaboration or encourage innovation.
The key to reducing the cost of infrastructure is creating a more sustainable industry where construction insolvencies do not account for 20 per cent of the total, where women make up more than 12 per cent of the workforce and construction workers are not six times more likely to die from suicide than a workplace incident. We need to ensure project objectives are clear, information provided is accurate and can be relied upon, delivery models are selected based on project specifics rather than market cycles, risk is appropriately managed, and waste is reduced through productivity enhancing processes and technology such as digital engineering.
If we could just halve the gap in productivity growth between the construction industry and other industries over the past 30 years, we could construct an extra $15 billion of infrastructure every year for the same level of expenditure and employ an extra 15,000 people. That is equivalent to constructing another three Western Sydney Airports every single year.
Statements like “Governments should stop worrying about the profitability of the industry and start delivering quality services at the lowest long-term cost to the community” only serve to perpetuate the idea that construction is a zero-sum game. Improved project outcomes will be achieved when the sustainability of the industry that builds them improves.
Away from the apocryphal headlines, the report contains a number of recommendations that could actually help improve the sustainability of the industry. Outlined below is the Australian Constructors Association’s high-level response to the recommendations.
- Recommendation 1: Governments should enforce contracts
Agree – Governments should only sign contracts that they are prepared to enforce however these contracts need to be equitable and align the interests of all the parties. For too long government delivery agencies have outsourced contract development to external legal counsel with the overriding instruction to pass as much risk to the contractor in the mistaken belief this will deliver certainty of outcome. The goal should be to achieve the best outcome for the project through procurement processes focused on delivering best value rather than lowest initial cost.
- Recommendation 2: Publish a central register of project awards
Agree – Increased transparency of major project awards would help build trust and potentially lead to an increased focus on overall value rather than lowest cost.
- Recommendation 3: Report on why infrastructure costs are comparably high in Australia
Questionable – Grattan have failed to provide sufficient evidence to demonstrate that infrastructure costs are comparatively high in Australia; however, we should seek to learn from international experience. A good example is the UK where industry and government have come together to publish a construction playbook documenting best practice procurement and delivery methodology.
- Recommendation 4: Regularly update project cost benchmarking
Agree – Regularly updating a benchmarking series of road and rail construction costs will enable us to determine the reforms that will deliver improved outcomes and incentivise states to adopt best practice procurement and delivery processes.
- Recommendation 5: Collaborate on construction pipeline
Questionable – While it is appealing for governments to coordinate their own schedules and collaborate with neighbouring states to minimise bottlenecks, this is unlikely to occur due to a lack of political will.
- Recommendation 6: Align rules for local content with federal government procurement principles and don’t preference Australian made materials
Partially agree – Any proposal that seeks to align procurement rules across the country is strongly supported by the Australian Constructors Association. We are however advocates for maximising local content wherever commercially practical in a competitive bid process. This is why we believe that governments should focus on delivering best project value not lowest cost. In many cases, considerable additional social / economic value can be achieved by eschewing marginally cheaper projects from overseas in favour of purchasing locally.
- Recommendation 7: Transparent industry assistance
Questionable – Industry is not looking for handouts. The best assistance that the government could provide would be to work with industry to make it more sustainable and collaborative.
- Recommendation 8: Weighting of local experience
Agree – Local experience (as opposed to local content) should always be assessed and weighted appropriately for the circumstances. We agree there needs to be increased transparency on weightings used.
- Recommendation 9: Only award through an open tender process
Questionable – Market led proposals (MLPs) have their place and should be appropriately scrutinised to ensure value for money. Efforts should be made however to increase competition between proponents of MLPs to avoid dominance by any particular player in a given sector.
- Recommendation 10: Systematic approach to project packaging
Agree – We support the need for appropriate packaging of work. A healthy industry needs a sustainable pipeline of work at all levels.
- Recommendation 11: Governments should undertake due diligence and certify information provided
Agree – We strongly support this recommendation. Contractors should be able to rely on the information provided by government given they only have a short period of time to bid on projects when compared to the time governments have able to undertake investigations.
- Recommendation 12: Expert panel required for any project renegotiation
Partially agree – We support the use of Dispute Resolution Boards (DRB) and Dispute Avoidance Boards (DAB) to arbitrate on major contract disputes as opposed to a State appointed auditor as DRBs and DABs are made up of independent senior industry professionals with deep insights into how projects are procured and delivered.
- Recommendation 13: Systematic approach to be taken in respect of procurement selection
Agree – We strongly support this recommendation and propose a Construction Playbook, developed in partnership with government and industry, is the solution. A playbook is a repository for best practice procurement and delivery processes. Find out more about the proposed Construction Playbook.