Round Table on Supply Chain and Other CAPEX/OPEX Issue – Collated Days

ROUNDTABLE ON SUPPLY CHAIN AND OTHER CAPEX/ OPEX ISSUE – COLLATED DATA

Executive Summary

The Institute of Public Works Engineering Australia Queensland (IPWEAQ) has been asked to participate in a roundtable discussion, initiated by the Local Government Finance Professionals Queensland (LGFP) in conjunction with Queensland Treasury Corporation (QTC). The intent of the roundtable is to unpack the issues and their impacts, to Queensland Councils, from increasing financial and service delivery pressures from the economic and supply chain impacts caused by covid 19, the Russia-Ukraine conflict, and natural disasters. The overall objective of the event is to assist councils to form strategies to manage the budget processes, regional supply chain and service delivery issues.

On the 22nd of April IPWEAQ sent an invitation to the Public Works sector via email, including all seventy-seven regional Councils, requesting the sector to share their current supply chain and other pressure points. IPWEAQ received responses from seven constituents and collated the responses. The seven constituents were made up of four regional councils, Local Government Association, one material’s supply company and an engineering consultancy. The information gathered has been split into two key sections, those being “Pressures currently being felt” and “Suggested Solutions”. The material was then grouped into “like data” which formed the following headings under each section: Resourcing, Recruitment, Funding Deadlines, Cost Pressures, Procurement, Covid19, Natural Disasters/ Climate Change and Governance.

Pressures currently being felt

The findings from the data showed serious concerns in four of the like data sections, those include resourcing, recruitment, cost pressures and procurement with more than half of the seven replies indicating issues in these like data fields.

Resourcing: Key concerns around access to goods, services and consultants in a reasonable time frame, slow uptake of new or innovative technology by LGA’s, broad supply chain issues, onerous reporting requirement, and constrained budgets reducing the capacity for proper service delivery.

Recruitment: Key concerns around recruitment are lack of technical staff to fill positions, an ageing workforce, low wage offerings of LGA’s, local government not the first choice of career employment (image awareness).

Cost pressures: Most resources, materials and consumables are increasing in cost exponentially. Also, excessive insurance fees and risk management cost blowout.

Procurement: Excessive lead times, shortage of supplies.

Suggested Solutions

A limited number of proposed solutions were provided. A spattering of solutions came from most of the constituents that replied, with more focus placed on the following data collection sections: Resourcing, recruitment and procurement. Resourcing: LGA’s building capacity to manufacture and supply materials and resources. LGA’s corporatizing function and services.

Recruitment: Alternative sources of employment pools, lift fees to enable higher wages.

Procurement: Establish a centralised procurement body, better understanding of extended lead times.

Overall, the representative sample of reply data is minimal. However, there are clear indications of concern for a number of touch points where more than half of the constituents, who replied, provided feedback for similar like data sections/issues, which included resourcing, recruitment, cost pressures and procurement. A limited supply of suggested solutions were provided, and again, most were targeted at a small number of issues including resourcing, recruitment and procurement. The raw data responses are collated in the below table.

Pressures currently being felt

Resourcing Consultants overcommitted and unable to deliver quality, on-time results; BAU reporting / valuations etc. in a time of peak demand for all engineering professionals Major delays being experienced across all asset classes but particularly light and heavy vehicles. Local suppliers are placing orders with the manufacturer, but it may take some weeks/months for a production spot to be made available. Biggest delay for heavy vehicles is the building of trays or specialist backs (road making, toolboxes etc). Some specialist equipment is now taking up to 2 years to be delivered (prior to COVID this would have been approx. 12 months). One supplier has recently asked for a 50% upfront deposit on his product – approx. $160k upfront with no guarantee of delivery in 18 months. We politely declined and went with another option. Supply of RCP (Reinforced Concrete Pipe) is under extreme pressure right now. It is a national supply issue, not just SEQ. Market demands are at unforeseen very high levels, combined with a long-term Pipe Supplier (Rocla) exiting the market 2 years ago in NSW & QLD. The biggest issues we’re encountering at the moment are around sourcing new plant, vehicles & items such as concrete pipes & culverts We struggle to do structural jobs, due to low fees and often individual-ness of the design. Councils/state government are slow to embrace new technology. In 2017, AS1726, included surface wave technology as a test method. Despite the fact that this technology is fast, economical and accurate, we never have received a contract or enquiry from government. Recruitment Higher than normal turnover of field staff – retirement for those of age and increased opportunities with private sector for others Lack of professionals to fill technical positions Difficulties recruiting competent trades labour We cannot compete with the mining industry, and we have to rely on local service providers who are also extremely busy Local Government seems to be at the tail end of career options for school leavers We have very tight budgets and operate on skeleton crews across the organisation, with a customer base that is quick to criticise Availability of professional services whether it’s recruiting staff or engagement of consultants There are pressures of lack of staff, and low wages. The staff are hard to get and not adequately trained to do the work. Wages are far too low, yet we are hamstrung by low fees. The universities are too expensive. The teachers are often foreign, and even if you can understand them, and their knowledge is too generic and not contoured to Australian Industry. Funding deadlines Grant funding-imposed deadlines placing increased demand on limited resources Cost Pressures Costs of products have also increased considerably over the last 12 months – by way of an example 8 months ago we placed orders for 30T Volvo trucks for approx. $200k – the latest round of quotes have the same trucks (make and model) now at $280k. Increase in fuel costs has been covered by media but along with increases to fuel we have also had major increases to the cost of oils. All parts and consumables have also sustained 10-15% increases over the last 12 months. Steel/iron products have had multiple increases in prices – almost monthly for the last 8 months. Some shortages in products have been experienced but at least the Australian production has increased to help stabilise this area.

Costs are also increasing PI insurance fees/excesses are too high, and out of control, hence we look at the risk of jobs and often decline to do them. Management of risks of projects has driven costs of project delivery higher. Procurement Huge delays on key construction materials, resulting in many stockpiling making lead times even longer We have a commitment against 21/22 budget of 160% but only expecting 80% to be delivered this financial year (hopefully) pushing the other 80% into next financial year. Local suppliers are predicting a delivery date but our experience is that delivery is usually another 6-9 months after this. Shortages in filters has meant that we no longer do ‘just in time’ procurement of these type of items – we are now needing to plan at least 6 months out and have in stock. Consequently, the value of stock on hand has significantly increased. Ability to obtain and cost of materials/ parts are impacting on costs and overruns in project delivery. Lead times are extending significantly Supply is not guaranteed as these are generally imported products Procurement of services. Lack of competitive tenders/ amount of work in regional urban centres is making remote work less attractive for contractors. Positive: A positive in all this however is the price we have obtained by auction for the sale of our disposed assets – crazy prices currently being paid but this will only be short lived (I suspect).

Covid 19

Stimulus packages by governments during and coming out of COVOID 19 has focused on the construction industry which is welcomed by manages of roads and community infrastructure. Such programs and amount of works has required flexibility in various facets of project delivery. Natural Disasters/ Climate Change Seasonal nature of works programs in Northern Australian and reduction in the widow to complete maintenance and delivery of projects is reducing due to extended wet seasons. Governance Management of asset users’ expectations Competing interest for asset spend public amenities/ industry / regional economic development/ accessibility/ road safety. Time spent in dealing with red tape when delivering infrastructure projects The work we do, majorly is based on a template. If we do not have a template, we are delayed in output times, and usually it is not profitable to undertake these jobs. We are increasingly declining to do these jobs. Legislative compliance and regulations, public monies accountability (preferred panels Local Buy)

Solutions

Resourcing Does LG need to look to have its own pipe manufacture plant somewhere in SEQ for example? Or an area like Somerset has a timber plantation for supply in the future for LGA’s? Richmond Valley Council developed and manufactured the Doolan Deck bridges for years quite successfully. Some councils do operate their own quarries and/or asphalt plants. How many suppliers outside of their LG boundary? Or should a LG corporatise its construction arm for works across the industry? This is one step further than the original hope of the regional road groups where resources would be shared across LGA’s but to my knowledge this rarely occurred. Currently in QLD & NSW, lead time for Steel Reinforced Concrete Pipes is around 40-52 weeks from order. We are working hard to improve and update existing and new factories.

However, this does take a lot of time and Capital Investment. RCPA can offer another type of RCP – FRC Pipe as per attached. FRC has a much shorter lead time currently around 8-12 weeks. FRC Pipe has been around for many decades and proven history. Opportunity for other suppliers to enter the market Workforce/Turnover Ageing workforce is a significant issue especially in civil construction. Employment and retention of professional persons in regional and remote councils. Project management Engineers Surveyors Recruitment I now know of several key LG engineer mentors of industry that have now moved to a semiretirement phase of their career, focusing more on project work (big or small). These guys are great as their fees don’t have the normal corporate consultant overheads and they know our industry. How do we tap into this pool? How do we expand it? Can it apply to a younger cohort? Fees need to increase x3. I think fees should be free for core courses of math, physics, engineering, teaching. Universities should welcome industry to undertake some lessons. Cost Pressures There has been an increase in costs due to fuel, but I believe this will be only short term and this is reflected in contract rate increases only until June with a review clause. Procurement Is there potential for a centralised procurement body? Local Buy does this to some extent but using the pipe example, rather than every council stockpiling some pipes a central body could do this or be large enough at least to get to the front of the list with manufacturers? Or potentially have quantities to economically source offshore when demand peaks are so high. Order months ahead of delivery Estimated costs of projects in long term budgets / financial planning are low and must be adjusted Breaking down of projects to allow smaller contractors participation Flexibility in program delivery by government agencies.

Covid 19

Relationships and trust between Mangers and contractors has been critical over the past two years. Being able to operate remotely and not actually visiting or inspecting works before payments are made. In remote aboriginal communities there is still nervous around persons entering country and spread of COVID. This must be and is respected. Natural Disasters/ Climate Change HR and work health in Central Australia due to increase in temperature will require flexibility and review of work practices. Recognition there must be an increase in funding of mitigation and asset protection by government agencies and asset managers. Governance Review of existing long term asset management and long-term financial plans to reflect existing uncertain political climate. It is always a challenge for asset managers in remote communities ensuring most efficient use of public monies against viability and sustainability of regional contractors and service providers. Consider the benefits of standardisation of processes across the industry. The time to get up to speed would be significantly reduced without having to learn another set of business rules, nuances etc but still providing largely the same service.