THE KEY ISSUES THAT WILL DEFINE INFRASTRUCTURE IN 2023

By Peter Colacino, Partner, Avista Strategy

As investment approaches levels exceeding the previous all-time peak for construction and building work in Australia, and with public infrastructure now constituting over two-thirds of the total construction spend, public investment is crowding out capacity for the private sector to access the skills and resources it needs.

While the notion of constraint is not new for a sector that has faced a shortage of key skills for time immemorial, the breath of the issue is presenting unexpected challenges.

The Need For Productivity Reform Is Real And Immediate

The reality of a finite market is now visible with governments forced to respond with productivity reform.

Governments are moving to embrace collaboration with contractors and the supply chain to realise innovation and reform. This increased collaboration can unlock potential efficiency savings of up to 20 per cent.

Some governments are also acknowledging the fluidity and connectedness of the national market. State governments, notably New South Wales and Victoria through the Construction Industry Leadership Forum (CILF), are now several years into a journey to reform the sector. Western Australia has commenced a considered process of co-design with industry to consider reforms to support the sector, and Tasmania is active in managing the combined demands of public and private construction work.

Reform in the media-shy water sector has been less visible, however, led by Sydney Water’s Partnering 4 Success initiative, a series of utilities are following suit with their own collaborative delivery model reform processes.

The role of industry as an active champion and participant in these reforms sets them apart from past efforts led by government alone. Industry is looking to government for signals of preparedness to do things differently, and a willingness to invest in reform to bring digital transformation and modern methods of construction.

War in the Ukraine rippled through the Australian building industry with sanctions impacting $80 million worth of Russian timber imports, particularly laminated timber beams critical for housing construction. The shortage of timber and other materials has flowed through to further escalate the cost of housing.

These constraints all existed before the Australian Government’s Housing Accord, a commitment to build an extra one million houses over five years from 2024. Constraints in the international market, the increase in demand and the focus on timber as a sustainable material presents an opportunity for the Australian timber industry to innovate and deliver new products to service the gap in the market.

As expected shifts in interest rates flow through to the home building sector, there is a potential for a downturn in activity.

However there remains a question on the consequences in light of the Housing Accord and pent-up demand to service commercial projects.

The supply chain is responding to the emergence of constraints with the adoption of new (and some old) materials and approaches. The use of recycled materials and timber present significant opportunities to reduce the sector’s ecological impact while also alleviating capacity constraints. As Infrastructure Australia’s Market Capacity Report found, more than 27 per cent of the material used in road maintenance can be replaced by recycled materials.

A New Approach To Climate Risk And Resilience Is Needed

The water sector will also be at the forefront of reform to respond to climate change adaptation and mitigation.

Our land of droughts and flooding rains has been brought into stark focus over the past twelve months as many catchments deal with the compounding impacts of La Niña and extreme weather events.

A wetter, warmer Australia is one more prone to flood and to the need for drought resilient water supplies. Ensuring the resilience of water supplies to the impacts of flood and fire, as well as managing the inundation of stormwater infrastructure, is a critical challenge for a sector that faces significant knowledge gaps about the condition and capacity of its assets.

The significant changes to the landscape of resilience agencies adds a complicating factor. After significant mismatches between expectations and reality in the role of resilience, the leading agencies in the sector have been disbanded, so what’s next for resilience?

The focus must be moving beyond the notion that every asset or community can be fortressed against hazards. Climate adaptation is an infrastructure challenge. Not only are 79 per cent of emissions enabled by the sector, but 89 per cent of the costs of climate adaption will be met by the sector. This challenge requires deep pockets. So, instead, we need to think more holistically about the likelihood that a disaster will occur and how communities and the systems that support them can respond efficiently and effectively.

Social Impact Is The Next Frontier Of Sustainability

As communities emerge from the impacts of disasters resulting from natural hazards, the focus on sustainability must broaden beyond the ecological to include economic, social and governance considerations.

While recovering communities navigate the challenging interactions of physically rebuilding, business recovery and local employment, the broader focus of sustainability discussions will turn to a more complete and complex set of social issues.

From responding to the challenge of workforce diversity and gender in the sector, to the potential impacts of an

Indigenous Voice, and understanding how local voices can be more completely embedded into infrastructure decisionmaking, particularly on a diversity of issues such as resilience (and fire management), we have the opportunity to reopen sustainability as more than a response to climate change.

FREE MARKET IS OUT, INTERVENTION IS IN

The uncertainty of market conditions, the scale of change required to lead the carbon transformation and the focus on social dividend has brought market intervention back into vogue.

While intervention in the infrastructure sector has crept back over recent years with the re-emergence of government delivery entities, the formation of new government businesses and hybrid delivery models, this trend can be expected to accelerate as governments look to manage multiple risks and control price escalation.

The State Electricity Commission proposal put forward by Victorian Labor ahead of the 2022 election shows the significance of the potential change. However, it is not unique, with a shift away from privatisation prominent in the political dialogue in New South Wales, South Australia and elsewhere.

Great Aspirations Will Remain Out Of Reach Without Good Governance

From Indigenous governance to market regulation and the cascade of post-election Australian Government reviews that enter implementation, and could commence following the New South Wales election in March, the nature of sector governance will come squarely into focus.

The interface between market policy and governance reform will present as a focus in the political dialogue with asset controlling entities, such as NSW TAHE, the focus of election jostling. The important role of commercial diligence, and the focus on optimising assets beyond core services, should not be lost to governance changes.

The focus of governance discussion would ideally focus squarely on delivering outcomes for the community and ensuring the aligned behaviour of stakeholders. The UK Institution of Civil Engineers’ Infrastructure Governance Code, released earlier this year, lays the foundation for good behaviour, while it is the role of elected government officials to clearly define the outcomes and aspirations of infrastructure services in response to community needs and expectations.