3.1
Most major infrastructure projects are jointly funded by the Australian Government and state and territory governments. Both of these levels of government have committed to significant investments in infrastructure projects over the next few years. However, given that many of these projects will be administered by state and territory governments, the Australian Government will need to work cooperatively with these jurisdictions to help ensure consistent procurement best practice and cost effective and efficient infrastructure delivery.
3.2
The Department of Infrastructure, Transport, Regional Development and Communications noted that the Australian Government had already progressed work to foster great efficiency and maximise the intended economic stimulus from the recent infrastructure investment. The department advised that it had been reviewing its processes and guidance to streamline administrative processes.
3.3
Further, the Department of Infrastructure, Transport, Regional Development and Communications noted that the threshold for business cases receiving government funding to be assessed had been raised from $100 million to $250 million, to enable Infrastructure Australia to focus on larger and more complex projects. Also, that in 2020, Infrastructure Australia had improved the average time taken to complete business case evaluations by 25 per cent.
Australian Government infrastructure funding
3.4
The Australian Government funds public infrastructure projects through mechanisms such as direct delivery via Australian Government entities, funding arrangements with states and territories, government business enterprises (GBEs) and grants. Each have their own set of procurement functions, policies and frameworks to guide project delivery.
3.5
The Department of Infrastructure, Transport, Regional Development and Communications leads the negotiation process for agreements with the states and territories. This is done in consultation with the Treasury and the Department of the Prime Minister and Cabinet.
3.6
While acknowledging the Australian Government’s important contribution to infrastructure investment, Infrastructure Australia observed that this financial contribution is ‘around one in every 10 infrastructure dollars’ spent in Australia. In particular, Infrastructure Australia noted that the Australian Government has a limited role in infrastructure delivery. The Grattan Institute also commented that the Australian Government’s levers of influence are mostly indirect.
3.7
However, IFM Investors saw potential for the Australian Government to leverage significant project contributions to ask states and territories to plan and make provision for particular objectives.
Funding agreements
Federation Funding Agreements Framework
3.8
The Federation Funding Agreements (FFA) Framework, established in August 2020, covers the new governance arrangements for Australian Government and state and territory funding agreements. The FFA Framework comprises the:
Intergovernmental Agreement on Federal Financial Relations (IGA FFR)
Council of Federal Financial Relations (CFFR), as a gatekeeper
FFA architecture and Principles
administrative arrangements.
3.9
The IGA FFR recognises that while states and territories have primary responsibilities for many areas of service delivery, coordinated action is necessary to address Australia’s economic and social challenges.
3.10
The new FFA architecture consolidated existing federal funding agreements into two forms of agreements: National Agreements and sectoral FFAs. National Agreements contain significant policy content, act as sources of ongoing funding and have relatively complex and bespoke terms and conditions. The sectoral FFAs consolidated all existing National Partnership Agreements, Streamlined Agreements and Project Agreements as schedules. New agreements under the relevant sectoral FFA are now termed FFA Schedules.
3.11
The FFA on Infrastructure consolidated all the pre-existing National Partnership Agreements—notably the National Partnership Agreement on Land Transport Infrastructure Projects (2019‑2024)—and Project Agreements related to the infrastructure sector. Other agreement objectives include contributing to the delivery of specified initiatives in the infrastructure sector and providing a framework for facilitating future initiatives that reduces complexity while maintaining accountability and transparency.
3.12
The National Partnership Agreement on Land Transport Projects (NPA) has continuing effect as the main way that the Australian Government provides infrastructure funding to states and territories. The NPA covers projects administered by the National Land Transport Act 2014, primarily through the Infrastructure Investment Program. States and territories each have separately agreed schedules in the NPA indicating the Australian Government’s intended level of funding for land infrastructure investments, which are updated each year following the Federal Budget, as required.
3.13
The current NPA covers 1 July 2019 to 30 June 2024. Towards the end of the term an independent review will assess the degree to which agreed objectives and outcomes have been achieved. One of the findings of the review of the 2014‑2019 NPA was that ‘the five-year timeframe, combined with annual funding allocations, is not well suited to the nature of infrastructure planning and delivery’.
3.14
The NPA outlines the roles and responsibilities of the parties. Which, the Department of Infrastructure, Transport, Regional Development and Communications noted, includes that state and territories ensure that procurement practices:
…deliver value for money for public funds and support the longer-term capacity and diversity of the construction market, in accordance with principles agreed through the Transport and Infrastructure Council.
3.15
The Grattan Institute observed that NPAs set out the principles that should form the basis of Australian Government funding support as:
the benefits of the investment extend nationwide, or spill beyond the particular state or territory receiving the funding
there is a particularly strong impact on aggregate demand or sensitivity to the economic cycle, or
the support helps harmonise policy between states and territories, to reduce barriers to the movement of capital and labour.
Opportunities for influence and collaboration
3.16
Infrastructure Australia cautioned that the Australian Government has limited influence where projects are funded through a National Partnership Agreement—suggesting instead that grant funding or direct investment through debt or equity offered more scope for influence. Other groups, however, suggested ways in which funding agreements—and the NPA specifically—can be used to influence desirable outcomes for the Australian economy.
3.17
Despite arguing that the current provisions present in NPAs ‘are opaque and rarely verifiably enforced,’ Infrastructure Partnerships Australia saw funding agreements as an opportunity for the Australian Government to ‘institute a powerful mechanism for ensuring leading practice is adopted in all jurisdictions’ by assigning ‘firm and enforceable conditions to its infrastructure allocations’.
3.18
Australian Owned Contractors (AOC) suggested that as a significant funder of major infrastructure, the Australian Government does not ‘ask anything for its spend’, stating that:
…the steady and healthy flow of federal funds for state-based projects is probably the greatest influencer on states to work collaboratively to introduce these expectations, including industry sustainability.
3.19
While noting that the FFA model usually includes a few jointly accepted expectations ‘to include indigenous employment outcomes, workplace safety and local content levels’, AOC highlighted the absence of any provisions or expectations ‘to provide fair access to head contract opportunities for Australian companies and mid-tier contractors’. Specifically, AOC was critical of the fact that:
Commonwealth owned projects such as the $14.5 billion Inland Rail and Sydney’s Second Airport do not include within their procurement approach deliberative industry sustainability clauses to attract Australian owned contractors to carry out head contractor opportunities.
3.20
AOC agreed that FFAs could be ‘reasonably and easily amended to drive other agreed, positive outcomes for the wider industry’. It highlighted that, as an inter-government agreement, no substantive legislative or regulatory changes would be required to add funding conditions. AOC called on the Australian Government to take a leadership role in the reform of procurement practices to ensure that Australian owned mid-tier contractors can participate in head contracts. The group proposed that this could be achieved by including funding requirements that:
major government transport infrastructure projects be broken up into packages of less than $500 million so that Australian companies can competitively and successfully bid for them
where projects cannot be broken down below $500 million, the Australian Government mandate the inclusion and assessment of industry sustainability criteria as a part of the early-stage procurement process.
3.21
The Civil Contractors Federation (CCF) National expressed the view that the current infrastructure partnership agreement is the ‘perfect mechanism by which the Commonwealth, state and territory governments can agree on a criterion, including a more collaborative approach in rolling out procurement, to lift productivity’. To help enhance sovereign industry capability, the CCF recommended including the following conditions in NPAs for all infrastructure projects receiving Australian Government funding:
To disaggregate (or debundle) large projects where possible to foster broader competition and a more sustainable contracting industry at both head contractor and subcontractor levels.
To include local content participation levels as a tender requirement at employment and product source level.
To adopt contracting models that encourage greater participation from tier two and three head contractors enabling them to secure more work and providing the opportunity to mature commercially.
Further, that the federal government conduct annual audits of procurement agencies on all federally funded infrastructure projects to measure the level of debundling and local participation rates.
3.22
Offering a state perspective, Infrastructure New South Wales (NSW) recognised joint funding agreements as a key area of collaboration between the Australian Government and state and territory governments. It outlined that these agreements should:
…support efficient infrastructure delivery models that reflect early risk identification, preconstruction de-risking, removing requirements to undertake competitive processes in the delivery phase regardless of the size of the procurement and incentivised risk sharing for elements that cannot be quantified prior to construction.
3.23
The Australian Constructors Association proposed that NPAs could be used to mandate desirable objectives such as using standard forms of contracts and improving risk allocation and compliance with a cultural standard. Along similar lines, the Queensland Major Contractors Association saw scope for:
…enshrining principles of collaborative contracting in the various project-level investments that are extended to the state based procuring agencies, in much the same way as the Commonwealth mandates, for example, Building Code compliance or registration with the Office of the Federal Safety Commissioner, effectively having some conditions or caveats attached to the Commonwealth's investment.
3.24
For all infrastructure projects receiving Australian Government payments of over $20 million, the NPA already requires that jurisdictions develop and implement a Local Industry Participation Plan or an Australian Industry Participation (AIP) Plan. To avoid duplication, most jurisdictions ensure their local plans meet NPA requirements.
3.25
The Department of Industry, Science, Energy and Resources observed that since procurement for many of these projects are not directly undertaken by Australian Government officials, having the AIP plan requirement in place means that those types of responsibilities are flowing through from the federal to the state level.
3.26
Another suggested inclusion for NPAs is to apply the Australasian Railway Association’s Best practice principles for rail construction procurement to all rail infrastructure procurement. The Australasian Railway Association proposed that the application of these principles accordingly be made a requirement as part of the NPA’s next revision in 2024.
Government business enterprises
3.27
Considerable infrastructure activity is also undertaken through government business enterprises (GBEs). These operate at arms-length from government, which is a shareholder and, in some cases, funds projects. Current GBE infrastructure projects include:
Australian Rail Track Corporation’s Inland Rail—the 1,700-kilometre Inland Rail alignment has been divided into 13 sections, with procurement strategies developed for each subsection.
Moorebank Intermodal Company—partnered with Qube Holdings (through their wholly owned subsidiary, Sydney Intermodal Terminal Alliance) to construct and deliver the Moorebank Logistics Park.
Snowy Hydro—Snowy 2.0, hydro generation technology.
Western Sydney Airport—WSA Co was established in 2017 as a GBE to build and operate the Western Sydney International (Nancy-Bird Walton) Airport.
3.28
The Department of Finance noted that while not subject to the Commonwealth Procurement Rules, GBEs are strongly encouraged to deliver value for money outcomes and apply basic principles from the CPRs and Procurement Connected Policies to their procurement activity.
3.29
The Department of Finance commented on the work being done by certain GBEs in providing access to local businesses, noting that the WSA Co had broken the $5.3 billion of works, originally envisaged as a single procurement, into smaller packages to ‘support greater competition and value for money’. Also, that the Moorebank Intermodal Company partner Qube Holdings had established a range of mechanisms to support local businesses and contractors to provide goods and services to the Moorebank Logistics Park, including local companies being able to pre-register via the Industry Capacity Network to work with the project.
3.30
The Australian National Audit Office (ANAO) reviewed WSA Co’s procurement framework and activities related to the Western Sydney Airport. In its Auditor-General Report No. 16 of 2019–20, the ANAO noted that the Australian Government had committed $5.3 billon to the project over 10 years from 2017‑18. WSA Co had procured $599 million in goods and services under 189 contracts in the first two years, and 67 per cent of contracts by value were done by open tender or by a panel established by open tender. The ANAO made two recommendations in relation to GBEs. The Department of Finance noted Recommendation 2 that GBEs be required to use the AusTender website to publicise procurement activities and report on procurement results, and agreed to Recommendation 1 that:
To assist government business enterprises to obtain value for money from their procurement activities, the Department of Finance take steps to better enable those Enterprises to take advantage of coordinated and cooperative procurements, such as panel arrangements.
3.31
Sydney Water, a statutory corporation wholly owned by the NSW Government, has adopted collaborative contracting and the Project 13 enterprise model. Both of these approaches have been highlighted as best practice exemplars and are explored in Chapter 5. In considering the potential for applying these approaches more widely, the committee questioned Sydney Water on whether there are any governance differences between NSW statutory authorities and federal GBEs that would impact the procurement and related practices of these bodies. Sydney Water did not see any governance differences as restricting wider use of such models and explained that:
…in our operating context, we still have the same probity requirements as any other government department in terms of the way we conduct our procurement processes. We still go through certain government approval processes and we're still open and transparent in terms of providing information, just like any other government department, in terms of the GIPA Act [Government Information (Public Access) Act 2009] and things like that. So, we hold our probity processes to the highest account, as to which I don't think ours would be different from any other requirements of federal or state government agencies.
3.32
Sydney Water suggested that federal and state GBEs both ‘present the same opportunities’ for working with the private sector through a program like its partnering for success (P4S) commercial framework. This new infrastructure and delivery model, which commenced on 1 July 2020, covers planning, design, construction and maintenance and facilities maintenance, using the New Engineering Contract (NEC4) suite of contracts. Sydney Water outlined that:
…we are the first major Australian infrastructure company to implement this contracting framework. Under P4S, we signed a 10‑year partnership with three regional consortia as well as a planning partner…
Also, as part of partnering for success, we have a pool of specialist suppliers that can be leveraged by Sydney Water and our regional consortia under something that we call shared purchasing. This is a pool of goods and services that we put together that can respond quickly, consistently and in a transparent way to enable us to receive the goods and services that we need for our delivery.
Grants
3.33
Australian Government grants for infrastructure-related activities are made to a range of recipients including profit and not for profit entities such as universities, local councils, charities and public corporations. The Department of Finance noted that generally there will be multiple grants for similar infrastructure projects, the grants do not usually cover the full cost of the infrastructure, and the relevant infrastructure is not owned or operated by the Australian Government. The GrantConnect website publishes information about Australian Government grants.
3.34
The Grattan Institute noted that the Australian Government, in both the 2020 and 2021 budgets, allocated around 0.6 per cent of GDP to transport infrastructure grants to states and territories. The NSW Farmers’ Association observed that at the local government level, councils are heavily reliant on Australian Government assistance grants for various services and infrastructure projects.
3.35
The Commonwealth grants policy framework is set out in the Commonwealth Grants Rules and Guidelines 2017. These guidelines cover the Australian Government’s expectations in relation to grants administered by non-corporate Commonwealth entities. Non-corporate Commonwealth entities must use coordinated procurements, which are arrangements established for commonly used goods or services by the Commonwealth. A non-corporate Commonwealth entity can only be granted an exemption, jointly by the relevant portfolio minister and Finance Minister, if it can demonstrate a special need for an alternative arrangement. Prescribed corporate Commonwealth entities—those listed in section 10 of the Public Governance, Performance and Accountability Act 2013—may opt-in to coordinated procurement.
3.36
Infrastructure Australia suggested that grants, or funding by debt or equity—in contrast to arrangements such as National Partnership Agreements—increase the Australian Government’s opportunity to effect change and drive a project outcome. It provided the Australian Rail Track Corporation’s work on the Inland Rail as an example of a procurement approach that has ‘sought to engage smaller, more local contractors on some elements of project delivery, engaging a domestic and indeed regional workforce on those projects’.
3.37
Under the Australian Industry Participation (AIP) framework, AIP plans are required for projects funded by Australian Government grants of $20 million or more. Details of the AIP framework are covered in Chapter 6 in the context of supporting Australian business access to infrastructure projects and building industry capability.
3.38
Targeted grants are another way in which the Australian Government can support building Australian sovereign industry capability. The Modern Manufacturing Initiative, for example—under the Modern Manufacturing Strategy—provides co-funded grants to help Australian manufacturers scale-up, compete internationally and create jobs. The Entrepreneurs’ Programme delivered by AusIndustry also includes grants and services to support Australian SMEs to build their capability, grow, innovate and commercialise nationally and globally.
3.39
The Australian Constructors Association suggested that Canada, the United States and France are doing more than Australia in placing significant pre‑
conditions when granting money to states or provinces for use on infrastructure projects. It also noted that European Union grants for construction projects require member countries to follow extensive guidelines.
Role of National Cabinet
3.40
In May 2020, Australia’s National Cabinet agreed to form the National Federation Reform Council (NFRC), which would replace the Council of Australian Governments. The NFRC is a forum for leaders and treasurers across the Commonwealth and states and territories to focus on priority national federation issues.
3.41
The National Cabinet Reform Committee on Infrastructure and Transport is one of five committees formed by National Cabinet to focus on priority reform areas. The others cover rural and regional Australia, skills, energy and health. The Infrastructure and Transport Reform Committee was tasked with expediting major infrastructure projects through approval processes and optimising job opportunities from the national infrastructure pipeline. It has been developing proposals to streamline planning and approval processes at all levels of government.
3.42
The Australian Chamber of Commerce and Industry saw the Infrastructure and Transport Reform Committee as an important forum for cooperation between the Australian Government and state and territory governments on jointly funded infrastructure projects.
3.43
The Business Council of Australia (BCA) also saw a role for the National Cabinet in fostering greater collaboration between these tiers of government and across jurisdictions. Specifically, it recommended the Australian Government work with state and territory governments ‘to sequence delivery of mega projects where it will demonstrably smooth the pipeline and lead to greater certainty for delivery timeframes and better value for money outcomes’.
3.44
In particular, the BCA saw a stronger coordination role for National Cabinet in mega projects, supporting a known pipeline and rolling program of projects, rather than an uncoordinated stop-start approach where one part of a program comes to an end and then is not sequenced across jurisdictions.
3.45
However, the Australian Constructors Association was more cautious when discussing the role for the National Cabinet in addressing infrastructure pipeline challenges. In response to committee questioning about the group’s experience with the national cabinet structure, the Australian Constructors Association indicated that its limited interaction through the infrastructure and transport committee had been a ‘very frustrating exercise where [there was] an hour of talk about buses, trains and heavy haulage, and about one per cent was actually infrastructure’. It stressed the need for concentrated focus on infrastructure, especially given the industry’s role in leading the economy forward.
Government cooperation
3.46
Given that infrastructure investment is not solely an Australian Government responsibility, inquiry contributors were clear on the need for cooperation across all levels of government. This has also been recognised by governments, as reflected through the establishment of fora such as the National Cabinet Reform Committee on Infrastructure and Transport.
3.47
Improving cooperation between all levels of government will be key to the effective and efficient delivery of Australia’s pipeline of infrastructure projects. Infrastructure Australia’s 2021 Australian Infrastructure Plan described it as one of the four key reforms areas, as follows:
Increasing the coordination and active management of the national infrastructure project pipeline through active portfolio management across agencies and jurisdictions. Critical to improved performance is great collaboration between governments.
3.48
The BCA saw a role for cooperation across the Australian Government and state and territory governments in improving the efficiency of pipeline sequencing, which would ‘help to remove peaks and troughs in the availability of key skills and materials’.
3.49
The Department of Infrastructure, Transport, Regional Development and Communications told the committee there were several fora in which the Australian Government engaged with its state and territory counterparts, including via regular engagement with its transport counterparts to gather and actively share information.
3.50
In cases where the Australian Government jointly funds projects administered by states, the Department of Infrastructure, Transport, Regional Development and Communications noted that there are governance and financial mechanisms to help project the Australian Government’s values and policy interests. In terms of governance, the department outlined that for major projects there is generally a steering committee, comprising a state and federal representative. This process provides the Australian Government with a certain level of oversight, as the steering committee will ‘go through various elements, including monitoring and tracking the progress of the project, the budget, the risks, environmental approvals, [and] the procurement methodology’. However, the department acknowledged that:
…the person who generally signs the contract and runs the procurement process, consistent with whatever the steering committee or governance structure is, would be the delivery partner—the state.
3.51
For projects that do not have a steering committee, such as smaller projects, the Department of Infrastructure, Transport, Regional Development and Communications noted that:
…there's a requirement under the governance arrangements and the notes of administration in the National Partnership Agreement to actually provide monthly reports on the progress of those projects. The teams that are responsible for [overseeing] the states have regular conversations—weekly, fortnightly, monthly conversations—with states and councils about progress on those projects. Payments are restricted to successful achievement of milestones.
Committee comments
3.52
Where infrastructure projects are being delivered directly by Australian Government entities—in accordance with the Commonwealth Procurement Framework which determines procurement practices—the Australian Government will have the greatest scope to apply best practice procurement and drive priority reforms.
3.53
However, the committee acknowledges that given that many jointly government-funded infrastructure projects are administered at the state or territory level in line with their own procurement frameworks, the Australian Government must collaborate with those governments to influence and drive national infrastructure objectives and consistency.
3.54
As the infrastructure pipeline affects all levels of government, it is logical that all jurisdictions have an appropriate level of input in shaping the planning and delivery of Australia’s infrastructure led recovery. Accordingly, this is reflected in many of the committee’s recommendations, which call for consultation with state, territory and local governments when addressing certain priority issues.
3.55
The committee agrees that the Australian Government should demonstrate stronger leadership and be more strategic in using existing arrangements, in particular funding agreements, to embed requirements for jointly funded infrastructure projects that support priority and desirable objectives.
3.56
Challenges and opportunities related to improving procurement, assessing value, risk allocation, project scoping, industry engagement, collaboration and contracting, and Australia’s sovereign industry capability, will be explored in the following chapters. The committee makes several recommendations where it finds that the Australian Government should take urgent action to ensure the delivery of the significant infrastructure pipeline and the future sustainability of the infrastructure sector.