by Peter Colacino, Chief of Policy and Research, Infrastructure Australia
The Infrastructure Market Capacity report released by Infrastructure Australia in October 2021 lays out the opportunity and the challenges associated with Australia’s unprecedented infrastructure spend.
The commitment to infrastructure investment laid out by governments is a central component of our economic recovery roadmap to the COVID-19 pandemic, as well as laying the foundation for future economic growth.
Infrastructure Australia strongly supports this ambitious investment agenda to support productivity growth and lift Australia’s standard of living.
However, this investment must also be matched with reform which requires both a maturing of the way we plan for and buy infrastructure, as well as how it is built, maintained and operated.
An opportunity for industry to grow and invest in new capability
The doubling of investment in major infrastructure over the next three years presents a significant opportunity for industry to grow and invest in new capability. It also presents an opportunity for employment, with 105,000 jobs potentially unfilled in an industry that employs 182,000 people today.
However, the opportunity presented by the Market Capacity Program is the ability of industry to deliver this growth and move from a cycle of ‘infrastructure booms’ to a new normal of elevated activity, supported by a skilled workforce, an efficient and innovative industry, knowledgeable and capable public clients and mature, responsive decision-making, approval and commercial systems.
Australia has a legacy as a global leader in infrastructure delivery and procurement model design. Our model of Public Private Partnership has been exported globally, our mineral resource supply chains are some of the world’s most efficient and our electricity grid is the world’s largest.
However, our infrastructure sector – particularly the construction sub-sector – lags our international peers in the adoption of digital technology, supply chain development, workforce diversity, consideration of sustainability and the adoption of new delivery models.
If we are to deliver on the ambitious promise set out by the record $218 billion spend by 2025, the sector must modernise. This modernisation would embrace new ways of working, seek out and adopt best practice and learn from others both here and abroad.
2021 Australian infrastructure plan
The 2021 Australian Infrastructure Plan, released in September, lays out the reform agenda to meet this challenge, and we have sought to balance the need to both deliver the infrastructure investment pipeline and support reform.
However, it is critical that action is taken in the short-term to align future project announcements and schedules to the capacity of the market in order to avoid cost escalation and improve value for money.
In order to deliver on the significant commitment to infrastructure spending, it will be necessary to fully engage the industry as a whole – the full spectrum of organisations, both large and small.
To better accommodate industry, procuring agencies will need to consider the size, risk profile, timing and packaging of infrastructure projects in order to ensure a competitive tender environment and to ensure that Australian businesses can fully participate in the sector.
We also need to lower barriers to entry to the market and increase the exportability of Australian capability through the adoption of international standards and approaches, including potentially contract suites like NEC or FIDIC.
The reform opportunity
Infrastructure is not a short-term proposition because major projects take years to deliver and operate for many decades. A poorly planned or delivered project can lock many years of inefficiency into the economy with far-reaching consequences.
To overcome this challenge, reform is needed to improve front-end planning, develop procurement strategies to match projects, understand the need to build sustainable market capacity and enhance due diligence to better manage risk and unlock efficiency.
All public infrastructure is delivered in partnership between industry and government, but the strength of these partnerships can vary. At an industry level, trust needs to be strengthened between government, business and the community.
A transparent infrastructure pipeline partnered with wellplanned projects can unlock the capability for a step change in construction productivity. Embracing new modern methods of construction and moving from a project-to-project approach to procurement, to a more sophisticated view of supply chains and networks, as well as utilising digital tools to enable change, is vital.
The building blocks of this approach are not new and the lessons of project challenges are painful to learn. Over the next five years, more than 80 per cent of the future project pipeline by value is transport infrastructure, and on average three in four of those projects will be delivered over budget.
It’s our hope that the lessons of poor project performance would be learnt once, and then shared. In shifting to become a more mature client, government should invest in its own capability to overcome challenges in projects and commit to be model clients.
Many leaders are already delivering to world-class standards, however we must embrace the opportunity to share best practice, to support exemplar projects and encourage innovation. There’s no need to reinvent the wheel – more widespread application and publishing of post completion reviews is a logical first step.
A shared challenge
The future of Australia’s infrastructure hinges on being affordable, meeting current and future needs, and maintaining access to the high-functioning industry that creates, operates and maintains it.
There is a legitimate but differing role for each level of government, which we articulate through the Implementation Pathway released alongside the 2021 Australian Infrastructure Plan. With the vast majority of Australia’s infrastructure funded and delivered by states and territories, these governments must take a leadership role.
This demonstrates there is significant opportunity for local leadership – from individuals and local governments – to right-size approaches and demonstrate best practice. And there’s a clear role for leadership from the Australian Government in identifying, supporting and encouraging meaningful change.
While there is an inescapable role for government in supporting reform – through best practice planning, contract reform and standardisation, embedding modern methods of construction at scale and supporting the digital transformation – reform can also be led by industry, as we have seen particularly around culture in NSW and Victoria. This is not a challenge for governments alone, it’s a challenge for us all.