SMART: Infrastructure Cost Drivers Analysis

INFRASTRUCTURE COST DRIVERS ANALYSIS CONNECT: SMART INFRASTRUCTURE FACILITY The SMART Infrastructure Facility, at the University of Wollongong, is endeavouring to understand the cause of rising transport infraststructure costs in Australia over the past two to three decades.

SMART’s economic team is undertaking a detailed comparison of transport infrastructure costs over time – across jurisdictions, transport modes and by project scale. The aim is to unpack the drivers behind the increases in the costs of building and maintaining new roads, rail networks, and other transport infrastructure.

Furthermore, we aim to establish a database so as to benchmark these cost drivers to inform future policy design and implementation of projects.

To better inform this research we need to gather then analyse detailed case studies. We have identified 15-20 matched case studies for roads in QLD and developed a cost database for these particular case studies which includes some initial analysis. Early analytical results suggest that the economic cycle has been a key cost driver (in boom times accounting for up to a 25% premium above ‘normal’ costs).

Changes in environmental and safety regulations over time have also been a key factor in rising costs, although many experts have argued that the increased safety requirements have largely been worthwhile despite the increase in cost.

The NSW study is focussed on rail projects and prelimiary analysis of rail construction costs (per track km) reveal an extraordinarily wide variation in costs across projects. The average total construction cost per track kilometre for rail projects for NSW projects is around $50 million per track kilometre, which is almost double some estimates for the rest of Australia.

PROJECT METHODOLOGY

KEY VARIABLES IN INFRASTRUCTURE COSTING

In general terms, the methodology for undertaking this project is to: • Collect cost of infrastructure data by individual cost driver (materials, labour, etc.) across time and by related projects (eg. large road project in Sydney in the 1980s, 1990s and 2000s).

Materials costs

Labour costs

Capital costs

Risk sharing arrangements

Number of project bidders per project

Environmental standards

Quality/safety standards

Complexity

• Undertake mathematical and/or econometric analysis to determine which parameters are the main cost drivers of infrastructure project costs.

• Cross-check this analysis with publicly available ‘macro’ data from the ABS and BITRE and other public data sources.

• Ask, what are the reasons for these increases in costs? For instance, if the cost (in real terms) of laying 10 km of freeway has doubled between decades, does this reflect, for example, resource scarcity (whether materials, labour or capital), or does it reflect a change contract design, quality standards, risk sharing or governance?

• Being able to answer this question directly (as opposed to indirectly or a ‘residual’) will require high quality interviews and case studies being supplied by participants. This is because the contracts that set the approved costs for these projects are not publicly available.

The NSW and QLD Governments have engaged SMART to undertake this research as they see the benefit in understanding what are the motivators behind cost increase in this domain. We look forward to increasing the scope of the study and welcome expressions of interest from other jurisdictions.

FOR MORE INFORMATION PLEASE CONTACT Mr Garry Bowditch

Mr Rafael Vazquez Romero

Chief Executive Officer

Business Development Manager

garry_bowditch@uow.edu.au

+61 42 39 2331

smart.uow.edu.au

rvr@uow.edu.au

http://smart.uow.edu.au

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