1.1
Infrastructure investment will play a crucial role in Australia’s economic recovery this decade. As part of the Economic Recovery Plan supporting Australia’s recovery from the economic impacts of the COVID‑19 pandemic, the Australian Government will invest $110 billion from 2021‑22 over 10 years into land transport infrastructure across Australia.
1.2
Similarly, state and territory governments are making record investments in their infrastructure programs, covering transport networks and education and health facilities. In their 2021-22 budgets, for example, the New South Wales Government committed $110.4 billion, the Western Australian Government $30.7 billion, the Queensland Government $52.2 billion, and the South Australian Government $17.9 billion, to their respective infrastructure programs over four years. The Tasmanian Government, in its 2021-22 Budget, committed $5.7 billion to infrastructure investment, with various projects to be delivered over the next two, three or four years. While the Victorian Infrastructure Plan 2021 outlines a 2021-22 Budget commitment of $144 billion in new and existing projects for the next five years and beyond.
1.3
Given these significant infrastructure investments by governments, it is essential that infrastructure pipeline planning, coordination and project delivery is optimised to ensure taxpayer money is used effectively.
1.4
In this inquiry into procurement practices for government-funded infrastructure, the House of Representatives Standing Committee on Infrastructure, Transport and Cities (the committee) examines the context of the infrastructure pipeline and industry’s capacity to deliver, while focusing on the role for government procurement in the planning, coordination and delivery of infrastructure projects. Strategic and sophisticated planning and procurement will be key to not only the successful delivery of specific projects, but also to enhancing the longer‑term sustainability of Australia’s infrastructure and the industry capability needed to support it.
Conduct of the inquiry and report structure
1.5
On 1 June 2021, the committee commenced its inquiry into procurement practices for government-funded infrastructure, as referred by the then Deputy Prime Minister and Minister for Infrastructure, Transport and Regional Development, the Hon Michael McCormack MP.
1.6
The details of this inquiry were published on the committee’s webpage, and a media release was issued seeking submissions. The committee received 63 submissions, eight supplementary submissions and two exhibits, which are listed in Appendix A.
1.7
The committee held six public hearings for the inquiry on 14 September, 5 and 10 October, and 10, 16 and 18 November 2021. Due to travel and safety considerations during the coronavirus pandemic all public hearings were conducted via videoconference and webcast through the Australian Parliament’s website, allowing interested parties to view or listen to the proceedings as they occurred. Hearing witness details are provided in Appendix B. Submissions and transcripts of public hearings are available on the committee’s webpage.
1.8
In undertaking this inquiry, the committee recognises that it was important to first understand the context and scale of the amplified infrastructure pipeline resulting from recent injections of investment. Chapter 2 sets the scene accordingly, by examining the challenges and opportunities that the infrastructure pipeline presents for governments and the infrastructure sector.
1.9
Chapter 3 covers funding and administering government infrastructure projects and the leadership role for government in driving more strategic and sophisticated approaches to infrastructure planning and coordination, and better alignment across federal, state and territory, and local governments. The committee recognises that for procurement to play its role, the pillars of strong government vision and leadership need to be in place.
1.10
The next chapters then focus on key aspects of the procurement process and how, if approached strategically and holistically, the Australian Government can help ensure its investment in infrastructure is optimised.
1.11
Chapter 4 covers current procurement practices and reforms. In particular, the committee closely examines project planning, how thoroughly real value is assessed in procurement, and approaches to risk allocation on projects.
1.12
Opportunities for greater collaboration and industry engagement, and best practice models for project contracts, are explored in Chapter 5. Issues related to Australia’s industry capacity are the focus of Chapter 6, including the inherent tensions between meeting international free trade obligations and supporting the growth of Australian industry capability. Here, the committee examines approaches to using local content and increasing small and medium enterprises’ participation in government-funded infrastructure projects. Chapter 7 then explores the benefits of better integrating digital technology throughout the infrastructure procurement, planning and delivery cycle, to maximise efficiency and productivity.
1.13
In addition to seeking specific procurement reforms, the committee recognises that without addressing underlying challenges in the construction sector the industry may not be best positioned to deliver the ambitious pipeline of current infrastructure projects. Accordingly, Chapter 8 discusses productivity challenges and the need for cultural reform in the construction industry.
Background
Previous infrastructure reports and government responses
1.14
In recent years, parliamentary committees and the Productivity Commission have examined and made recommendations aimed at enhancing Australia’s infrastructure planning and procurement.
1.15
In the September 2018 Building Up & Moving Out report, the previous committee recognised infrastructure procurement as a key element in the development of Australia’s cities and regions and highlighted the need to refine procurement methods and align them more closely with planning mechanisms.
1.16
As well as recommendations to enhance the Australian Government’s role in the development of Australia’s cities and infrastructure, the Building Up & Moving Out report made five recommendations related to infrastructure procurement, which included the following themes:
adopting infrastructure procurement practices that require a ‘whole of life’ approach to infrastructure procurement, which look at costs and benefits across the service life of any given piece of infrastructure, its place within long-term planning frameworks, and how well it meets objectives in terms of economic, social and environmental sustainability (Recommendation 33)
promoting technical innovation (Recommendation 34)
supporting and engaging with tier two and three contractors (Recommendation 34)
establishing a national training program for public sector infrastructure procurement (Recommendation 35)
project appraisals should include assessment of both the wider economic, social and environmental benefits, costs and returns over the life of the infrastructure, and of the cost of the project using a discount rate of 4 per cent (Recommendation 36)
developing a system of value capture as an organising principle of infrastructure planning and procurement and progressing the reform of the taxation system to match the requirements of value capture (Recommendation 37).
1.17
However, in its response to these recommendations in May 2020, the Australian Government simply noted—rather than actively supported or committed to implement—most of these recommendations and did not agree to Recommendation 35 to establish a national training program for public sector infrastructure procurement.
1.18
In November 2017, the Joint Select Committee on Government Procurement tabled its report Buying into our Future: Review of amendments to the Commonwealth Procurement Rules. These amendments to the Commonwealth Procurement Rules (CPRs), which had come into effect on 1 March 2017, had aimed to ensure that the full benefit of Commonwealth procurement flows through to the Australian economy. The report noted that the amendments were also designed to ensure that Australian regulations and standards are upheld and ‘mitigate the disadvantages faced by Australian suppliers to access government procurement opportunities’.
1.19
The Joint Select Committee expressed the view that ‘implemented effectively, the new clauses will enable a broader, more accurate consideration of value for money in procurement decision making…and provide important support to Australian industry and the economy’. Notwithstanding this, evidence in that inquiry highlighted various issues relating to the implementation of the CPRs, with the Joint Select Committee expressing concern that ‘ineffective implementation may hinder their [the CPRs’] ability to enhance procurement outcomes’ as ‘many of the new clauses lack clarity or leave too much to the discretion of officials’.
1.20
In the government response to the report’s 16 recommendations, only Recommendation 11 relating to creating certain records for procurements over $4 million was supported, with the Australian Government noting that paragraph 7.2 (a‑e) of the CPRs already requires procuring officials to maintain records underpinning the procurement process and decisions. Five recommendations were given support in principle or in part, two were noted, and eight were not supported.
1.21
In 2014, the following three reports relating to infrastructure and procurement were released, with many of the findings and challenges identified yet to be fully addressed:
Planning, Procurement and Funding for Australia's Future Infrastructure: Report on the Inquiry into infrastructure planning and procurement—a report of a predecessor committee, the then House of Representatives Standing Committee on Infrastructure and Communications.
Commonwealth procurement procedures—a report of the Senate Standing Committees on Finance and Public Administration, which examined the ratio of Australian goods and services versus imported goods and services utilised by the Commonwealth through procurement procedures.
Public Infrastructure—a Productivity Commission report which covered infrastructure provision and its funding and financing.
1.22
Key findings in the predecessor committee’s Planning, Procurement and Funding for Australia's Future Infrastructure report included:
Serious deficiencies in procurement processes, especially around tendering, cost-benefit analysis, procurement skills and expertise, and risk management.
Typical tendering processes for public infrastructure in Australia are slow, costly and do not always promote innovation.
Greater up-front investment by government in project design, or separate contracts for design and construct, could help bid costs.
Misalignment between project and tendering methodology was often the result of a lack of expertise or capability in procurement.
Evidence presented to the committee highlighted the need to create and retain specialist procurement skills in the public sector.
A project must be judged not only on construction costs, but also on long-term maintenance and operating costs.
The committee concluded that public sector procurement practices are not always serving the taxpayer well and need to be more efficient, cost-effective and flexible.
Infrastructure project assessments should also include consideration of the value these projects create elsewhere and their capacity to transform the economy.
1.23
In the Commonwealth procurement procedures report, the Senate committee’s recommendations seeking to encourage procurement engagement with Australian businesses proposed that:
The government review the application of the non-discrimination principle to ensure that it does not inadvertently discriminate against Australian manufacturers (Recommendation 3). However, this was not supported in the 2015 government response, which reiterated that paragraph 5.3 of the CPRs states that all potential suppliers must be treated equitably.
The CPRs be redrafted to provide an explicit exemption for practices to benefit or preference small and medium businesses (Recommendation 5). This was not supported in the government response.
1.24
The Productivity Commission, in its Public Infrastructure report, found in relation to infrastructure procurement that:
There is significant scope to improve public sector procurement practices and lower bid costs for tenderers, with potentially large benefits for project costs and timing.
Governments can use their procurement policies to drive reform in the construction industry.
Despite significant concentration in the market for large public infrastructure projects, the market appears to be workably competitive, though simple measures would make it more so and would reduce the cost pressures facing procurers.
1.25
In relation to technology, the Productivity Commission recommended that:
Recommendation 12.5: For complex infrastructure projects, government clients should provide concept designs using Building Information Modelling (BIM) to help lower bid costs and require tender designs to be submitted using BIM to reduce overall costs. To facilitate the consistent use of BIM by public sector procurers, Australian, state and territory governments should:
facilitate the development of a common set of standards and protocols in close consultation with industry, including private sector bodies that undertake similar types of procurement
include in their procurement guidelines detailed advice to agencies on the efficient use of BIM.
1.26
The Australian Government, in response to this recommendation, supported ‘the use of modelling technology, as it is likely to drive down costs and provide detailed information for whole of life infrastructure’, and noted that BIM was already being used by some Commonwealth and state agencies for a variety of projects. However, it did not ‘endorse any specific technology in procurement activities and considers that individual government agencies are best placed to consider the benefits of using such technology’.
Committee comment
1.27
The committee acknowledges that some progress has been made on certain aspects of procurement reform, in reviews of the CPRs, and in enhancing coordination across different levels of government. However, the fact that the committee has received evidence during this inquiry on many of these same issues, highlights that more work needs to be done to improve procurement practices for government-funded infrastructure projects.