22 minute read
Bruce Munro | Managing Director, Thiess
Bruce Munro
Bruce Munro
Despite ongoing challenges and signs the construction sector may be slowing as Australia transitions away from the capitalintensive phase of the mining boom, activity remains at historically high levels, according to Thiess Managing Director, Bruce Munro.
I think it’s very timely, when we look at new governments, that we bring infrastructure right back to the forefront of our agenda.
When I think about the construction industry and how it’s evolved over the years, there’s something very Australian about what we do and the journey our industry has taken.
We talk about can-do culture in this country, and that’s very much a part of what construction is about – taking on challenging environments and turning them into what we call landmark legacies for the country, and for the communities in which we live.
When we talk about landmark legacies and projects, I always hark back to the Snowy Mountains Hydroelectric Scheme, which is even more appropriate at the moment, because this scheme was built over a 25-year period between 1949 and 1974.
This was a nation-building project – I think the first of its kind in this country. Thiess played a vital role – we ended up constructing almost 25 per cent of that project, whereas in the early days it was almost entirely foreign contractors constructing it, as local contractors were deemed not to have the technology or capability.
That’s an interesting scenario in itself – how quickly you learn what needs to be done in these projects.
At the time, the cost was a huge $820 million – that’s roughly $6 billion in today’s terms. So this project that we all look back on is, in fact, relatively small in the scheme of things, when you compare it to what is being built around the country today – particularly some of the infrastructure projects and the big investments being made in our resources sector.
The Snowy Mountains Hydroelectric Scheme set construction records and was completed on time and on budget, and that in itself also sets it apart from many projects.
The project included 1600 kilometres of roads and tracks in quite a harsh environment, seven townships, more than 100 camps, construction of 16 major dams, and seven hydroelectric power stations generating almost 4000 megawatts of renewable
Bruce Munro
power – 67 per cent of Australia’s total renewable energy at the moment. The pump station had 145 kilometres of tunnel and 80 kilometres of pipelines and aqueducts. Only two per cent of that project is visible above the ground; the rest is hidden.
But beyond these statistics and facts is an incredible story of the success and endurance needed to deliver a project that has stood the test of time.
It’s a reminder of the perseverance required in challenging times, and the impact that these types of projects can have on a country’s culture and psyche – and I think that’s an important issue.
The project was notable for its immigrant workforce following the end of World War II. It was the start of a huge surge of immigration to Australia, such that now more than 50 per cent of our population is made up of immigrants or the children of immigrants, which contributes to the true diversity that we see in Australia.
The point I’m making is that the implications for Australia of these mega-infrastructure and resources projects go beyond just the commercial imperatives. The spin-offs can be both nation-building and nationchanging. They can change both our culture and the lifestyles of the communities in which we live, and when we look at these projects we need to take that into account. It’s very difficult to put a dollar value on it, but it’s something that is very real with regard to how it impacts on our society.
Back to the present, and I’m going to talk about surviving in our industry.
Surviving – let alone thriving – in today’s economy has become a real feat in this industry, as construction is very volatile.
Official statistics released just a few months ago reveal that, in construction and the building-related sector, two companies per day are collapsing as late payments from debtors worsen, activity dries up and banks tighten funding.
Figures on liquidations and voluntary administration, reported in the media, show that between 1 June and 18 July 2013 – approximately six weeks – almost 100 companies in the construction and related industries collapsed, including 23 in Victoria, 45 in New South Wales, and 15 in Queensland.
Many of these are smaller organisations, certainly, but there have been some other high-profile failures over the past 18 months, including the Hastie Group and Reed Construction.
And yet, according to the latest Australian Bureau of Statistics (ABS) figures, the value of total engineering construction work that has been completed fell only 1.6 per cent in the June 2013 quarter, and this is coming down from record highs previously.
The total value of engineering construction in 1990 in Australia was $20 billion. By 2000, it was $28 billion, in 2005 it was $48 billion, and in 2008, just before the downturn, it was $71 billion. Then, in 2009, it was $77 billion, and by 2010 it was $79 billion.
Bruce Munro
So, whether it was the government stimulus or other reasons, the engineering construction value in Australia continued to climb even through the global financial crisis. It continued climbing in 2011 to reach $101 billion, and again in 2012, to reach $125 billion.
Everyone is now saying that doom and gloom is upon us, but the March quarter of 2013 was higher than the record March quarter of 2012.
The June quarter of 2013 has shown half a per cent decline in the values, so we are not saying that it is going to continue to grow. It will flatten off, and without a doubt we will see some decline.
But given the record levels we got to – $125 billion worth of engineering construction in 2012, compared to around $70 billion five years earlier – there is just huge growth, and the industry has had the capacity to actually meet the demands of that growth.
There is a lot of sentiment across the industry at the moment. The market is coming off peaks in mining, oil and gas, and the transport sectors. Governments at both the state and federal levels are pursuing tighter fiscal policies and a number of major projects have been delayed or put on hold.
But I think it’s important to acknowledge that engineering construction in Australia is at record highs. We do expect to see some declines, but we don’t expect to see it crash and burn in the near future.
Look at the infrastructure that is going to be built, or that is planned for construction across New South Wales and Queensland. Victoria has been quiet, but there are some major projects coming onstream.
There is something else fundamental in our industry, when we talk about all of these liquidations and administrations, that we do need to look at. Certainly it is as a consequence of the slowdown in our industry.
According to a Dun & Bradstreet survey, trade payment terms for the construction sector have almost doubled since June 2012 to 55.3 days, and the national average was 54 days. These late payments have had a knock-on effect, further impacting our cash flow.
The slowdown is playing out in the listed company space, as well, with a spate of earnings downgrades in the mining services and construction sectors in the past few months.
I would suggest that we need to look at the administration efficiencies that go on within our industry. We’re in a record boom period with a lot of work around, and we’re still seeing these liquidations, and companies going into administration. I think that clients and contractors need to get together to try to understand what can be done, in order to make sure that we bring this to an end.
Against these odds, it makes Thiess’s 80-year anniversary in 2014 somewhat remarkable. We’ve survived 80 years, but it’s been a roller-coaster journey over that time. During the Snowy Mountains period, Thiess almost went to the wall.
Just a few years ago, a couple of the major projects we had in Victoria and in Brisbane certainly tested our financial capacity, and if we hadn’t been part of a much larger group, it could have been fatal.
But, given the dynamic nature of our industry and the current challenges, I decided to share with you a contractor’s view of what it takes to manage this ebb and flow – the ups and downs, the peaks and troughs in our industry.
And with this context I’d like to focus on what I see as the vital ingredients that have held us in good stead over some pretty tumultuous years.
Firstly, I’d like to talk about vision and agility, and being able to seize the opportunities that come along.
As a company, we obviously have our own vision to which we aspire. But as part of a very large industry, we need and rely on organisations like Infrastructure Partnerships Australia and Roads Australia, and governments and government agencies, to drive our country‘s vision forward.
As peak industry bodies, they draw together the public and private sectors in a genuine partnership to debate the policy reforms and the priority projects that drive a more productive Australia.
They also help us to navigate the challenges of our industry and, importantly, understand the opportunities and set the agenda into the future.
I think it was a crucial day when Tony Abbott was elected Prime Minister. He promoted himself as ‘the infrastructure Prime Minister’, and he has already outlined some of the key projects he’d like to get off the ground, including $6.7 billion for the Bruce Highway in Queensland, $1.5 billion for the East West Link in Melbourne, $1.5 billion for WestConnex, and also a determination to continue with the NBN – albeit probably in a different format to that of the previous government.
Deputy Prime Minister and Minister for Infrastructure and Regional Development, Warren
Bruce Munro
Truss, has made positive comments about the government’s priorities and funding options, and I welcome Industry Minister Ian Macfarlane’s comments regarding the likely fast-tracking of coal seam gas projects in New South Wales – subject, of course, to the state government’s agreement.
Infrastructure, the coal seam gas sector and a whole lot of other opportunities in Australia will create thousands of jobs, boost domestic supplies and be a key driver for our economic growth. But so far, it is all talk.
All of us are under obligation to hold the politicians and our governments accountable for the promises they have made. They need to create certainty in the pipeline of work that is coming our way.
We shape the vision within our company on the opportunities that are outlined ahead of us. We are looking for a high level of certainty in the commitments and the investments that we make.
Infrastructure should not be a political football anywhere in this country.
That brings me to the importance of agility. Our industry, more than most, is vulnerable to unpredictable fluctuations that are often outside of our control. Commodity prices, weather, geotechnical risk, global events – there is a whole raft of them.
It’s in these sorts of decisions that to tack or to jibe, or to just bunker down, will ultimately determine our future success or failure. Historically, we have been able to rely on diversification as a strategy.
In fact, there was an uncanny counter-cyclicality to the timing of sectors, industries and government spending that Thiess and other companies are well aware of, and you use this in leveraging your position.
As contractors, we found comfort in this. It allowed us to redeploy resources and efforts to where there was capital spending occurring.
So what is different today? We have just come off a stimulus package from the global downturn. There was plenty of work out there at the time, but that has now come to an end as governments tighten their budgets. We then had continuing strong growth in the new resources projects that replaced this. But in 2013, this has also started to decline as current projects are being completed, but very few new projects are coming onstream.
And so we now look to government infrastructure spending to make up that difference. Contractors are
Below: Hunter Expressway. Image courtesy Thiess
Bruce Munro
keen to maintain or rebuild their order books, and we’re seeing fierce competition as prices begin to fall, pressuring margins and putting profitability at risk.
This, combined with late payments and cash flow pressures, explains why some of the companies simply haven’t survived.
In addition, the past decade has seen a rise in the number of new foreign contractors entering the Australian market.
This has further fuelled the intense competition that already exists within Australia, so it demands that local companies be much more cost-effective and innovative in how we do business.
We need to stay tuned to our clients, our markets and the global economy if we are going to navigate this industry as we go forward.
Many industry forecasts at the moment point to the infrastructure pipeline continuing well above trend over the next decade and beyond, with the total volume of work not expected to fall dramatically. This is quite different to 12 months ago.
We also have a new Federal Government that is committed to maintaining infrastructure spending.
In all, the 10-year outlook, we believe, is quite positive. As contractors, we need to step up and help shape the program and the timetable that is necessary to create the certainty to set our visions.
So this brings me to the second key point that we have within Thiess, and that’s our workforce. As our markets decline, it is a natural response to cut jobs, reduce overheads and ‘de-layer’. That has become a very popular word in the group.
However, I can’t stress enough the importance of retaining and building the skills base that we have. Despite advances in technology and automation, our industry still relies very heavily on the quality of the people we employ, and this is why certainty is vital.
Knowing when or where the next project is will help us plan our priorities and mobilise workers to where they are needed most.
To give an example, since our work on the Hunter Expressway entered its official demobilisation phase this year, 97 per cent of the 135 Thiess staff have been redeployed to other Thiess projects.
Fifty per cent have gone to the Frederickton to Eungai project, nine per cent to another road project, and 38 per cent to other projects, including the North West Rail Link.
Having this ability to redeploy staff is a remarkable achievement; it’s well above industry standards and it means that we can take those people and hit the ground running.
There’s little debate, though, that Australia is underresourced. Every time there is a boom, we look overseas to bolster our ranks, to fill the gaps, and in doing so we have one of the highest cost bases in the world.
Although it’s heartening to see an increase in the number of engineering graduates, permanent and temporary migration continues to be a central factor in meeting Australia’s engineering skills demand.
Overseas-born engineers represent approximately 50 per cent of Australia’s engineering labour force, but we also need to take some accountability for the high cost of our industry. We can sometimes be too agile for our own good.
We need to be prepared to stay firm on what are realistic costs, and to sit with our clients to make sure that we end up with a win for both of us.
Skills shortages will continue to be a significant challenge across our industry, and it’s important that we forge stronger ties between industry, government and educational institutions to promote workforce planning and increase the number of trade professionals and engineering graduates.
Bruce Munro
I think education is a key to the success of our businesses.
At Thiess, we have formalised a partnership with MEGT Australian Apprenticeship Centre to equip our apprentices and trainees with the skills to meet future project commitments. This nationwide agreement will help streamline systems and processes of education qualifications within a federal Australian apprenticeship framework.
An important thing regarding apprentices and graduates is that we all need to maintain these programs through the tough times. Too often, the first thing we do is cut our apprenticeships or cut our graduate programs, so the future leaders of our industry are left wallowing for some years.
We also need to increase diversity within our ranks, including the number of women. Construction is very much a blokey business, and it can only be a better industry with more women in it.
We need to think about how we will meet the demands of generations Y and Z, and whatever comes next, and the work-life balance that these people are now demanding.
We also need to address issues of underemployment and increased workforce participation, and whether 65 really is the right time for very skilled and very experienced people to be encouraged to leave the workforce. We can find some great employees out there at the moment, if we are prepared to work harder on some of these things.
We also need to stop blaming the unions for all of our productivity and cost issues. On every Enterprise Bargaining Agreement (EBA) there will be union signatories and employer signatories, so we must accept that some responsibility for where we are at and where we are going is with us.
We need to be realistic about what we can achieve, but we also need to understand the changes necessary, and we have a part in that change. We just need to stop blaming the unions for everything that happens.
It’s a bit of an industrial relations jungle out there – it has been for many years – but somehow we need to sit down and try to find a compromise that works, not only for us and the unions, but also for Australia as a whole.
New, innovative technologies and processes are also in demand to service emerging markets that are linked to our more traditional infrastructurebased business.
The growth in operations and maintenance has been increasing across a number of sectors. In the energy sector, we’ll see enormous growth in the longterm maintenance of Liquefied Natural Gas (LNG) and Coal Seam Gas (CSG) assets, and in the delivery of social infrastructure, such as new hospitals. Alternatively, through the growing capital works programs of the utilities asset base, there will be more operations and maintenance options available.
As clients become more sophisticated, they are looking for contractors to become involved from a whole-of-life asset perspective. There is more willingness to consider innovative procurement models that are not limited to the construction of new infrastructure.
This includes asset management services and facilities management to drive operational benefits and maximise the lives of the assets.
Some of the more important innovations in 21st-century technology include the iPhone, iPad, driverless cars, electric car charging stations, Nintendo Wii, YouTube and Facebook. There are a whole lot of things out there that are going to change how we currently do our business.
Technology is critical. I read an incredible fact recently: today, there are more transistors made in a year than there are grains of rice grown in a year. That gives you some idea of where technology is going.
The point I’m making, of course, is the importance of the power of information and data.
The challenge for us is how we extract information from all of the infrastructure we build in order to extend its useful life.
Perhaps our opportunity is to shift our role from just being a construction partner to being a knowledge partner.
Innovation, however, is not just limited to some of the technologies available; it includes the processes, the methodologies and the systems that allow us to create value for all of our clients.
To summarise, the key challenges and opportunities facing the Australian infrastructure market will demand vision and agility, valuing our people and looking for innovation. Collaboration with clients, governments and the industry overall will provide the insight we need to make the right decisions at the right time.
Before I conclude, though, I would also like to share some final observations on how we shore up our infrastructure future.
Bruce Munro
Firstly, we need greater visibility and certainty around the pipeline of projects.
This insight is critical to ensuring the right planning, the timely mobilisation of skilled workers, and the strategic and cost-effective management of resources.
Secondly, we need bold decisions to maximise Australia’s competitive advantage.
And, last but not least, we need effective partnerships for delivery of these projects.
Governments alone cannot be expected to fund the entire backlog of infrastructure. Within the next decade, we expect infrastructure construction costs to be somewhere in the order of $400 billion, of which as much as 15 per cent is to be delivered, potentially, via Public Private Partnerships (PPPs).
We’re all aware of the challenges that PPPs have faced in recent times, but there are also many, many examples of successful PPPs in our infrastructure – both economic and social infrastructure.
Melbourne CityLink, EastLink, the Victorian County Courts and the Royal North Shore Hospital in Sydney are all good examples.
However, there is a need to find alternative funding models. One model does not fit all, and Thiess is actively exploring options, such as the warehousing model, that offer government greater efficiency with the same risk transfer.
Governments can deliver infrastructure with the intention of selling it to the private sector once the project is complete and its revenue is known, in a process sometimes described as capital recycling.
What it does, though, is give certainty to all of the parties. Our analysis shows this to be a very efficient model. Materially, governments can achieve the same risk transfer via design-build and maintain, or designbuild-operate and maintain, in their procurement models as on a social PPP.
Underlying this whole value chain is a regulatory environment that encourages investment in Australia over the long term, so that a steady pipeline of capital projects can be rolled out.
We welcome the new Federal Government’s commitment to reviewing regulatory processes that are stalling the development of major infrastructure projects, and its pledge to streamline project approval processes, at both the state and federal levels.
Importantly, governments and industry need to stop gold-plating major infrastructure projects, in order to drive the costs down. Over-engineering these projects is expensive, and in this environment it is imperative that we get the best value for taxpayers’ dollars.
There is more to be done and more that we can all do. Weathering the current storm, which I think is fading over the horizon, will take foresight, and it will need some endurance and belief in our own vision of the future. It will require resourcefulness and an industry that is prepared to look at new technologies and new ways of doing things.
If we can overcome some of the problems of the past, particularly with our cost base, then Australia’s construction future is assured.
Bruce Munro, Managing Director, Thiess
Bruce Munro was appointed Thiess Managing Director in September 2011 after joining the Thiess Group in 1986.
A civil engineer with 36 years’ experience in the construction and mining industries in Australia, South East Asia and India, he has held a number of senior positions within the company. These have included President Director of PT Thiess Contractors Indonesia – a role he held for eight years after his appointment in 1999. Bruce was appointed Executive General Manager in Asia in August 2007, and in January 2010 he took on the role of Thiess’s Chief Executive Mining.
Bruce has a long history with Thiess’s parent company, Leighton Holdings, having worked for both Leighton Asia and Leighton Contractors.
He is a Non-Executive Director on the board of Sedgman – a leading provider of minerals processing and associated infrastructure solutions to the global resources industry.
Bruce is also on the Boards of the Minerals Council of Australia, Australian Constructors Association, Roads Australia and is the Queensland Chair of the Australia Indonesia Business Council.
12291 Photographer: Brett Boardman
We don’t achieve EXCELLENCE by being a contractor. We achieve it by being a PARTNER.
EXCELLENCE IS THE STANDARD WE AIM FOR EVERY DAY.
It enables us to attract and retain the best talent and to deliver some of Australia’s most high profile projects.
And it’s not just something we aspire to; it’s something we achieve. Thiess won the 2013 National Infrastructure Award for Contractor Excellence in recognition of our work on the Royal North Shore Hospital and Community Services Redevelopment in Sydney.
As the largest hospital project undertaken in NSW in the past 30 years, we were responsible for the $721m design and construct contract. The integrated campus showcases expert planning and delivery of a complex brownfield health project. Smart design and construction consolidated 53 outdated buildings into a multi-purpose facility with in-built flexibility to accommodate Sydney’s future healthcare needs.
We turned a project into a partnership, working alongside our valued client to deliver on time and on budget including facilitating more than 700 meetings with 134 user groups and managing the significant decant process. We’ll continue the partnership by delivering hard facilities management services for the 28-year project period. For more information about this project visit THIESS.COM
