Sydney Metro train

 

Infrastructure Australia advises governments, industry and the community on the investments and reforms needed to deliver world-class infrastructure for all Australians. The organisation’s recently released 2019 Australian Infrastructure Audit is a forward-looking document that highlights the key challenges and opportunities facing Australia’s infrastructure over the next 15 years and beyond. In this edited extract from the 2019 Audit, Infrastructure Australia examines how the infrastructure sector is responding to changing pressures and demands, and how it can meet best practice.

Twenty-eight years of uninterrupted economic growth in Australia has supported the development of a highly educated population, a robust economy and a diverse culture.

Infrastructure has been a fundamental component of this success story, supporting a world-class standard of living that is rightly a source of national pride. But looking forward, Australia faces an unprecedented period of uncertainty. The compounding issues of a growing and aging population, digital disruption, changing climate, a deepened dependence internationally on trading partners in Asia, and increasing political polarisation within established democratic nations is reshaping global institutions and norms.

The nature of work is changing too. Millennials and younger generations have new expectations of flexibility, and the persistent shift within the economy towards services and knowledge-based industries are fundamentally reshaping our day-to-day lives.

The 2019 Australian Infrastructure Audit is a timely opportunity to take stock of the most important issues facing our infrastructure as we prepare for a future that is set to be fundamentally different to what we have experienced in the past.

State of the Australian infrastructure sector

Chief amongst the findings of the Audit is that while infrastructure investment is elevated, we are unlikely to be in the midst of a boom, but rather a new normal of elevated activity in the sector as we cater for these new and emerging challenges.

While the sector faces challenges, such as access to skills and a patchwork of performance on planning and decision-making, the 2019 Audit finds that the efficiency, capacity and capability of Australia’s infrastructure industry is strong by global standards.

The sector ranks higher than average for developed countries across a range of measures of infrastructure governance, planning and delivery.

How we plan, fund and deliver infrastructure has improved since the last Australian Infrastructure Audit was published in 2015, however the industry is still not consistently achieving best practice.

Our institutions and regulatory systems are well-established and have performed reasonably well in ensuring affordable, accessible and high-quality services for users.

However, the large number of projects is overstretching the workforce and some public sector organisations. This in turn results in varying levels of performance, and can create long-term costs that are borne over the life of the project.

In order to address these challenges, the expansion of commercial and project skills within the public sector will be critical. The objective of such an investment should be to achieve a balance across the negotiating table to ensure contracts – and their management – are mature and have long-term partnership as a goal.

The emergence of independent infrastructure advisors within state and territory governments and the focus on long-term multi-sector strategies, has helped to bring greater transparency and certainty to the infrastructure pipeline.

Strong governance, coupled with a large and growing pipeline of projects, particularly in the transport sector in NSW and Victoria, has resulted in a stable and attractive environment to operate, invest and innovate in infrastructure.

We are also undertaking a historic infrastructure build. Australia’s inward foreign direct investment has nearly doubled over the last decade, from $444 billion in 2007 to $849 billion in 2017.

However, increased activity and transparency has not necessarily translated into better coordination across jurisdictions and projects. Duplication and inefficiencies still exist.
Infrastructure and land use planning can be siloed and poorly integrated. As a result, the sequencing and coordination of infrastructure investment can be misaligned.

Renewed effort to translate the visibility of the pipeline, as well as a more widespread acceptance that elevated activity will be maintained over the long term, will help to contain costs and support the development of further capacity within industry.

 

Street construction in Sydney

 

The rise of the mega project

At the same time, projects across Australia are getting larger and increasingly complex, and will require new approaches if they are to be effectively delivered.

While they were rare and infrequent less than a decade ago, so-called mega projects – projects larger than $1 billion in value – are becoming the default, increasing the burden on infrastructure builders, and in some cases exceeding industry capacity.

The emergence of these larger projects are in part a response to greater transparency in the pipeline. Governments are seeking to align or combine smaller projects into programs of work. If well thought through and clear alignment exists, these projects can reduce duplication and expedite delivery.

However, they can increase complexity of projects and reduce the number of organisations with the capability to deliver them.

This concentration within the market is compounding skill constraints and subsequently reducing competition and therefore value-for-money outcomes. In some cases, small and medium size contractors may be squeezed out of a tender by an insistence on the transfer of specific risks that go beyond the technical capacity of the market to manage.

However, the solution is not to buffer the market from risk exposure. The public sector response must be more sophisticated, tailoring procurement models and risk transfer to the specific capacities of the market at the time, and the skill and resource mix of contractors.

For larger projects, the development of a well-founded strategy for aligning risks with the parties best placed to manage them is critical. Risk allocations must respond to market conditions and ensure those best placed to manage them do.

While larger, bundled projects may seem like better options for the delivery of similar projects, the benefits of combining projects, and potentially limiting competition, must outweigh the costs.

Infrastructure planners and decision makers need to take a whole of life view of our infrastructure assets, and turn their focus to smaller investment and optimising existing assets where possible.

This is often a more efficient and cheaper method of meeting future needs than constructing expensive, long-lived assets. This is an option that is often overlooked, however will require greater attention as we seek to respond to changing pressures across the Australian infrastructure sector.

How you can get involved

The Australian Infrastructure Audit provides industry with a greater understanding of the challenges and opportunities that must be met to ensure they can provide the infrastructure services Australians rely on, now and in the future.

Infrastructure Australia is accepting feedback and submissions in response to 180 challenges and opportunities identified in the 2019 Audit.

Submissions are accepted via the Infrastructure Australia website, and will inform the strategies and recommendations for reform identified in the forthcoming Australian Infrastructure Plan.

For more information, visit www.infrastructureaustralia.gov.au

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