Call to drive a harder bargain on major transport projects

Australian taxpayers are paying too much for major road and rail projects because governments don’t drive a hard bargain on contracts with the big construction firms, according to a new Grattan Institute report. With Australia’s transport infrastructure costs weighing in above the global average, the 'Megabang for megabucks' report pointed the finger at a culture of caving in to contractor demands after contracts are signed. However the Australian Constructors Association argues the costs will not be reduced by government getting tougher, but through government and industry working collaboratively. ACA chief executive officer Jon Davies said the report perpetuated the idea that construction was a zero-sum game - an approach that had led to the situation where project cost and time blow outs regularly made headlines and construction productivity had hardly grown in 30 years. ACA chief executive officer Jon Davies. “We need to collaborate to ensure project objectives are clear, information provided is accurate and can be relied upon, the right delivery models are adopted, risk is appropriately managed, and waste is reduced through productivity enhancing processes and technology such as digital engineering," he said.“If we could just halve the gap in productivity growth between construction and other major industries, we could be constructing an extra $15 billion of projects every single year for the same investment.“That is the equivalent of three new Western Sydney Airports every single year or enough money to pay for the additional investment in aged care over the forward estimates, announced in the recent Federal Budget. The Grattan Institute report showed about 25 per cent of transport infrastructure projects ended up costing taxpayers more than the government expected when construction started. As the size of projects had grown, so had the size of contracts – and with larger contracts, competition inevitably thinned, the authors found. "Few firms have the technical and financial capability to win contracts worth $1 billion or more. Yet Australian governments often give undue priority to domestic experience, making it hard for international firms to win contracts," the report overview stated. "State governments often rush projects to market, so they can announce and start them before the next election. But in the rush, governments don’t always identify or mitigate expensive problems such as contaminated soil, and they’re not systematic enough about dividing projects into bundles or choosing the contract type with the right incentives for the particular job. "Governments should only sign contracts that they are prepared to enforce, and should award all infrastructure contracts through an open tender process. "And Australian governments should investigate how similar countries overseas manage to build high-quality transport infrastructure more cheaply." The authors noted that governments loved to trumpet the size of their road and rail spending - but this only made sense if the community was getting value for every dollar spent, and if there wasn’t a less costly way to get a service of the same quality or better. The report included a raft of recommendations on the need for greater transparency, competition and attention to costs, as well as calling for governments to scope projects properly and procure systematically rather than rushing into jobs. Mr Davies said the Grattan Institute had identified a number of areas for reform that were supported by the ACA.“We strongly support the recommendation for a systematic approach to procurement selection which is why we are advocating for the development of a Construction Playbook,” he said. “A Playbook is a compact between government and industry that sets out how the two will work together. It captures industry best practices and specific sector reforms that would see projects awarded on best value rather than lowest cost.“Importantly, for a Playbook to be effective it needs to be developed in partnership between government and industry.”The construction sector—Australia’s third largest industry employing 10 per cent of the working population—accounted for 20 per cent of all insolvencies last financial year. Read the full Megabang for megabucks report HERERead the detailed response from the Australian Constructors Association HERE

Call to drive a harder bargain on major transport projects

Industry Queensland

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