TO WEATHE R THE STO R M, WE MUST r EFOR M

By Michael Kilgariff, CEO, Roads Australia (RA)

It’s no secret that these are challenging times for many organisations engaged in the delivery of infrastructure across Australia. Over the past year, a multitude of negative pressures – any one of which would in themselves represent a major issue – have combined to produce a storm of such force that parties of all sizes across the industry are feeling the effects.

Because COVID-19 has now dominated the economic narrative for three years, the temptation from some commentators is to look upon the conditions now afflicting the sector as entirely a product of the pandemic. But that misses something more fundamental.

Yes, some of the inflationary pressures and labour shortages in the economy have been exacerbated by COVID-19. However, to lay the blame entirely at the feet of the pandemic overlooks some of the industry’s other structural weaknesses.

Recent economic analysis of the industry (including by Deloitte) has specifically called out the need for additional flexibility in contracts and for collaboration over combativeness, particularly in the allocation of risk.

These issues were present long before COVID-19, and unless industry and governments can deliver some fundamental reform, they will endure long after the pandemic recedes into memory.

Indeed, the year before the start of the pandemic, RA and its members identified that serious and major issues in the way transport projects are delivered needed to be remedied. This is essential if Australians are to get best value for money and best project outcomes for the investments being made.

These critical issues included risk definition and allocation, increase in project size and complexity, lack of visibility of a long-term pipeline of work, inadequate timeframes to assess risks, inadequate time in the design phase for innovation and improved design solutions, inadequate engagement between governments and industry during the design stage, and deficient education and immigration approaches to provide the required workforce skills and diversity in the workforce for the industry.

THE INDUSTRY’S MOST PRESSING ISSUES

RA produced its first Procurement Reform Report: Recommendations and Strategies in September 2020, which identified some of the ‘green shoots’ being seen in procurement reform across several states and territories. That report made a series of recommendations as to how governments and industry could collaborate to drive further reform and put the sector on a more economically sustainable pathway.

Of course, much has changed since September 2020. Most notably, there has been a substantial deterioration in both the economic and geopolitical climates, which is having a deleterious impact on the planning and delivery of infrastructure. Significant and increasing supply chain and hyper escalation challenges including for materials, plant and equipment, and supporting transport logistics are having significant impacts on the way contracting is undertaken. Added to this are labour supply challenges, with Australia at near-full employment leading to worker and skills shortages across the market.

With these factors in mind, RA convened workshops in the second half of 2022 to consider, update and (where necessary) recalibrate some of the initial report’s recommendations to reflect this new reality. This resulted in RA’s Procurement Reform Report Update: Momentum for a sustainable transport sector, released in December 2022.

The update report calls attention to the most pressing issues now confronting the sector, such as:

♦ Cost escalation, foreign exchange rate volatility, and hyper-inflation for construction materials and manufactured items

♦ Increasing pressures on wage and labour costs

♦ Often unreliable timeframes for the tendering process and inconsistent approaches to bid cost reimbursement

♦ Lack of skilled resources with near full employment and low skilled migration levels

♦ Difficulty in adopting innovation, including the use of new methods and recycled materials within the existing contracting approach

♦ Access to, and cost of, professional indemnity and project insurances and inappropriate cascading of requirements to project partners, including principal arranged insurance

♦ Increasing importance of visibility of operations and maintenance pipeline and the need to reform procurement in this area in line with capital projects

♦ A more collaborative approach is needed for appropriate risk allocation and mitigation between clients, contractors and subcontractors

While these issues aren’t necessarily unique to the delivery of transport infrastructure, the cost of inaction in this sector will have widespread ramifications for stakeholders.

For governments, the risk lies in an inability to deliver the planned transport infrastructure for the community. This increased uncertainty around real project costs and timeframes will ultimately lead to a loss of confidence from the community in project planning and delivery.

For industry, inflexible contract arrangements, unrealistic risk allocation and unsustainable cost pressures are leading to increased risk of business failure, reduced investment in resources and career opportunities for the workforce. Without reform, we risk withdrawal of more industry players from the sector and all the associated economic and well-being consequences that flow from that.

For the wider community, the ongoing risk is that the full value of the transport infrastructure investment made via their tax dollars is not realised, due to planning and delivery practices that are no longer fit-for-purpose.

Enhanced Productivity Growth Recommendations

The updated report provides a realistic and comprehensive reform pathway that will drive better outcomes for all these parties by incentivising collaboration, reducing adversarial approaches and allowing the community to get the best value for money and the best project outcomes for the investments being made.

Importantly, the report also provides concrete examples of good practice and innovation in procurement that are already being delivered by industry, to help promote knowledge sharing and stimulate the development of creative and truly collaborative solutions.

RA’s recommendations are all centred around enhanced productivity growth in the sector by:

♦ Encouraging more collaborative approaches to contracting and risk allocation

♦ Reducing regulatory barriers to innovation

♦ Embracing circular economy opportunities to improve sustainability

♦ Ensuring that industry training programs are equipping our workforce with the right skills

♦ Improving the wellbeing of our workforce by sharing knowledge and successes in initiatives that improve industry culture

Given the challenging conditions that the market now faces, this is the right time to make further progress on procurement reform. A sustainable, productive and successful transport infrastructure sector where the whole industry works together for better outcomes is an imperative. The recommendations in RA’s report will help bring this objective to fruition.