Challenges and opportunities
2.1
The infrastructure sector is anticipated to play a prominent role in Australia’s economic recovery, with infrastructure investment expected to continue to grow from already record levels. This is reflected in the total infrastructure investment across federal, state and territory governments with 2020-21 budgets allocating a record $225 billion in general government expenditure on infrastructure over the four years to 2023-24. The 2021‑22 budgets saw further significant infrastructure investments by Australian governments, as outlined at the start of Chapter 1.
2.2
The Australia and New Zealand Infrastructure Pipeline (ANZIP), produced by industry think tank Infrastructure Partnerships Australia, provides a forward view of major infrastructure projects and contracts across Australia and New Zealand. It tracks infrastructure opportunities from announcement to completion and provides updates and analysis. The portal provides access to pipeline information in categories including status and location, and expenditure and labour demand forecasts.
2.3
Infrastructure Partnerships Australia noted in its submission to the inquiry that ANZIP had listed 236 major projects, contracts and transactions, across Australia’s infrastructure pipeline, with a total value of $320 billion. It also observed that not all spending in the pipeline was directly taxpayer funded or procured by governments. In particular, for the largest category, energy, the majority of generation and transmission projects will be privately financed and funded through user charges. However, Infrastructure Partnerships Australia found that for road, rail, social and other transport—the next four biggest categories by value—these projects ‘will need to be almost entirely funded by taxpayers and procured by state and territory governments’.
2.4
The Australasian Railway Association encouraged all governments to use the ANZIP portal as a reference when considering new infrastructure investments, giving due consideration to the status and timelines of projects already in the pipeline.
2.5
Evidence to the committee highlighted that the significant increase in the volume, scale and complexity of infrastructure projects will exacerbate existing challenges and constraints in the sector if not addressed. Supply issues, planning, coordination, timing and skills shortages will put pressure on the sector’s ability to not only deliver the pipeline successfully, but will also risk timeliness and providing value for money. As the Australian Constructors Association told the committee, ‘if we don’t address those issues there is a real possibility that the pipeline will not be delivered…nearly as quickly as everyone is hoping it will’.
Supply issues
2.6
The significant increase in the number and scale of projects—notably the rise of mega projects (costing $1 billion or more)—in Australia’s infrastructure pipeline places increased pressure on the supply chain’s ability to deliver these projects. As observed by professional service business WSP, it is important to:
…embrace the entire supply chain in the construction of these large projects. As we reach capacity in our industry, one of the opportunities for efficiency is to ensure that all available sources of labour are involved in these projects. But we've got to be cognisant that there are different skill levels, so different levels of contracts, levels of supervision, levels of risk that are going to be appropriate for each one of those layers to participate. An important part of thinking around the procurement is how the whole supply chain can be engaged.
2.7
A key issue identified throughout the inquiry is that mega projects require larger tier one contractors who have enough capital to take on projects with higher risk. Where tier one contractors joint venture with mid-tier companies on projects to share risk, this further reduces the pool of available resources and skills.
2.8
Another pressure point in the supply chain will be the concentration of investment in Australia’s south-east corner, with more than half of the projected investment listed in ANZIP concentrated in New South Wales and Victoria.
Skills shortage
2.9
Ensuring that the infrastructure workforce is well positioned to deliver on the pipeline is essential. It is broadly recognised across the industry that there will continue to be a skills shortage, which will have consequences such as price pressures, increasing cost to governments, and potentially delaying projects. Infrastructure Australia estimated that there will be about 105,000 jobs that will not be able to be filled by 2023—directly impacting costs, productivity, and risking the delivery of the infrastructure pipeline.
2.10
Addressing the skills shortage goes beyond attracting people into the workforce. The Australian Constructors Association provided two options with procurement at the core: using procurement to improve industry culture; and using procurement to reduce waste and improve project productivity.
2.11
According to Infrastructure Australia, the unprecedented size of the infrastructure investment pipeline will require the full engagement of the infrastructure industry. The construction sector is one of Australia’s largest employing industries, predicted to grow by 6.8 per cent between November 2020 and November 2025. However, there is a growing shortfall of professions, skilled and semi-skilled people to meet the investment challenge.
2.12
The Business Council of Australia (BCA) cautioned that one in three advertised positions in the sector will go unfilled by 2023, indicating the critical need to focus on addressing the skills shortage and develop an understanding of challenges facing the sector in terms of maintaining and growing a skilled workforce. The Australasian Railway Association told the committee that some specialised skills in the industry can take up to 15 years to achieve.
2.13
Skills that are currently in a national shortage with moderate or strong future demand are noted in the Skills Priority List, which is maintained by the National Skills Commission (NSC). The Skills Priority List informs a range of government policy initiatives, including the targeting of skilled migration, apprenticeship incentives and training funding. Recent data from the NSC shows surveyors, urban and regional planners, civil, geotechnical and transport engineers are in national shortage with strong future demand. Construction project managers, project builders, engineering managers and engineering draftspersons and technicians are in national shortage with moderate future demand.
2.14
Various jurisdictions have recognised that with increased infrastructure investment there must also be an increase in training, education, and funding for up-skilling the sector. The main pathway into the industry is through the completion of an apprenticeship or traineeship, where 50 per cent of workers possess a Certificate III or higher VET qualification. However, the Australian Constructors Association commented that training would ‘not substantially help’ the capability and capacity of the workforce. Instead, it emphasised improving culture to attract back workers who have previously left the industry; and reducing waste and improving project productivity through procurement.
2.15
In addition to these issues, the construction sector is not viewed as an employer of choice, with the culture of the industry acting as a barrier to entry and to retaining the current workforce. The lack of diversity in the industry, in particular low female representation, is expected to create additional stress.
2.16
Since states and territories have responsibility for setting requirements for occupation registration and licencing, differences between jurisdictions can affect the portability of labour in working on projects throughout Australia, where licencing in one state may not be recognised in another. Infrastructure Australia recognised that states and territories experiencing workforce shortages would benefit from greater mobility, which could then lead to improved national productivity. Infrastructure Australia, in its Infrastructure market capacity report, noted a positive development in this area, with New South Wales, Victoria, the Northern Territory and the Australian Capital Territory recently establishing an automatic mutual recognition scheme for most electrician roles. Also, the Mutual Recognition Amendment Act 2021 (Cth) will enable licensed workers to operate across two jurisdictions (their home jurisdiction and one other) using automatic notification.
Enhancing planning, coordination and timing
Planning the pipeline
2.17
A rolling, continuously planned pipeline, in contrast to a ‘stop-start’ program, is a necessary foundation for improving coordination and the ability of the industry to deliver on the infrastructure pipeline in Australia. Infrastructure Australia viewed a longer-term pipeline—beyond 10 to 15 years to possibly 30 to 40 years—as ‘critical, both in terms of understanding future need, and, indeed, corridor reservation to support those needs and in terms of project delivery’.
2.18
Australia’s current approach to infrastructure delivery was viewed as ‘incremental’ and disruptive to business. The BCA highlighted better pipeline identification and coordination as an area for improvement. While acknowledging the work of Infrastructure Australia and state and territory bodies on mapping out future projects, the BCA believes that they ‘could go further with better coordination across jurisdictions to ensure there’s a longer-term view of infrastructure requirements’.
2.19
Taking a more holistic approach to planning will help avoid spending more time and money on works that may then have to be upgraded or duplicated within a few years. The Australian Institute of Quantity Surveyors commented that if planners are:
…not looking at what the economic growth or population growth or industrial growth, depending on the area, that's going to happen over the next 10 years. So, then they either have to spend a lot more money on road winding or duplications within a few short years, rather than necessarily spending a little more up-front for a longer-term strategic approach to infrastructure.
2.20
Roads Australia also supported better planning, where parties could consider their resources and jointly plan projects, so that they ‘dig up the road once and do the works in a more orderly fashion rather than in the way it’s being done at the moment’.
2.21
Corridor preservation is another area that can benefit from better long‑term and more holistic planning. In response to committee questioning, Infrastructure Australia confirmed that reserving the corridor from Melbourne to Sydney to Brisbane for an east coast high speed rail had been on its Infrastructure Priority List since 2016. However, while some work on associated proposals may have been undertaken, this corridor reservation has not yet occurred. In considering the benefits of preserving this corridor, Infrastructure Australia outlined that:
That reservation looked at the benefits of acquiring that corridor for delivery ahead of Australia's population exceeding 30 million by 2075. We identified the benefit at $2.8 billion, rather than having to acquire the corridor at a later stage. I would say the acquisition of the corridor should be a component of an integrated plan for the development of transport connections.
2.22
Looking beyond rail, the BCA noted that the government’s failure to preserve corridors is a source of frustration for industry. The BCA suggested that preserving corridors would be an important signal to the private sector about the government’s commitment to a project—not necessarily rail related—that might encourage private investors to explore how they might engage with the project.
2.23
While there was no consensus on whether a 20, 30 or even 50-year pipeline should be established, it was evident that a longer pipeline would provide greater certainty and strong benefits for businesses. The BCA explained that the stability of a long-term pipeline acts as a ‘critical enabler’ to the growth of local companies, local capability, and skills by providing an outlook of consistent expenditure. The BCA clarified that:
While there will always be a need for some short-term top-ups, how do we get the education system to put out those critical skills? How do we get businesses to invest in them? How do we end up with the smaller contractors growing and developing? They will only do that if they believe the tap won't be turned off again, that there is an industry that is well-coordinated across multiple levels of government and that there is a level of stability.
2.24
Another benefit of a longer-term pipeline is that it encourages sustainability and innovation in procurement practices by giving businesses the opportunity to know the intended development of regions over the long-term. The Australasian BIM Advisory Board used Brisbane, Sydney and Melbourne as an example of where better understanding of the infrastructure pipeline across the south-east coast would allow for better planning and preparation for the extensive services required to match their planned urban extensions.
2.25
For an efficient supply chain, long lead times in the pipeline are important. Infrastructure Australia highlighted, for instance, that manufacturers require a ‘significant number of years’ to plan and implement changes to manufacturing operations and import-export activities. The Australian Industry Group (Ai Group), a peak national employer organisation representing traditional, innovative and emerging industry sectors, noted that inconsistency in the program of works create barriers to the investment of new skills, technologies and products.
2.26
The committee heard that having a ‘connected plan’ between federal, state and territory governments, as well as factoring in private sector involvement, will be an important step in achieving real longer-term pipeline planning.
2.27
While the Civil Contractors Federation conceded that looking past 15 years was important, it stressed that the 10 to 15-year period was ‘typically what investors and our construction companies require us to address in the here and now’.
2.28
However, Infrastructure Australia noted that investment and funding certainty in the shorter-term were distinct from planning needs. Infrastructure Australia viewed the 10-year pipeline as focusing investment by providing a ‘clear signal to industry to invest in its own capacity and capability’, noting that many relevant qualifications required several years to complete. It further outlined that:
We need to lengthen a view around funding beyond the forward estimates to 10 years in the future. We do see jurisdictions pointing towards that sort of outcome. We see 10-year budgeting within New South Wales, for instance, and the transport agency. We see a focus in other jurisdictions in that way as well.
2.29
The Georgiou Group encouraged improving the transparency and reliability of published pipeline forward programs. The inclusion of project descriptions, scope outlines, expected contract value, and planning procurement models and timing, would enable contractors to prioritise, prepare and position to bid and engage the supply chain.
2.30
A more detailed infrastructure pipeline could also allow for the earlier identification of opportunities for investors. IFM Investors identified that there were opportunities to improve procurement processes and fund the pipeline and ‘strongly encouraged’ earlier consideration of what projects in the expanded infrastructure pipeline might be suited for private financing, so that opportunities are not lost. IFM Investors shared that:
We have seen multiple examples, in the past, where projects progress to the point of almost the button being pushed on procurement and then somebody puts their hand up and goes, 'This would be really good from a private financing perspective' but by that stage it's too late; the wheels have turned so far that shovels are almost in the ground and it's too late to start a different process of bringing private capital into those projects.
2.31
The potential benefits of taking a ‘go slow to go fast’ approach to pipeline planning and delivery were also discussed. This approach proposes that time spent planning and understanding the risks of a project will ultimately lead to a faster and more economical outcome. Consult Australia outlined that:
If we are faced with complex infrastructure projects, it is perhaps unrealistic to expect the parties to accurately price a project that's going to last for some five or more years at the start of that project. We really do need to take a more sophisticated approach, at the start of the project, to work collaboratively across the parties to talk openly about price and risk. In sympathy with the contractors, if they price upfront, they don't know necessarily all of the risks they're walking into, and that's going to cause commercial pressure for them, which then ultimately results in some of the behaviours we are seeing.
Coordination and timing
2.32
Greater coordination and staged timing of projects were viewed as essential to ‘smooth the pipeline’ and provide a range of benefits to the industry—removing peaks and troughs in the availability of key skills and materials, allowing for more certain project delivery timeframes, and providing better value for money outcomes. This need for greater coordination and timing extends to coordination with local government, state and territories, and industry—all key players in infrastructure procurement and delivery.
2.33
A lack of coordination in procurement and the timing of delivery activity is resulting in constraints in key resources and skills. Infrastructure Australia observed in the Australian Infrastructure Audit 2019 that despite increased transparency of the infrastructure pipeline, coordination on the timing and release of projects into the market has not improved, leading to stretched resources. In its submission, Infrastructure Australia commented that better coordination and timing of projects entering delivery ‘will be essential to manage cost and time pressures’.
2.34
The Grattan Institute commented that the strategic timing of partnerships with state or territory governments—particularly with large transport infrastructure projects—could ‘constrain the costs to the taxpayer’.
2.35
Early market engagement was raised by various witnesses as a way to better coordinate the timing and delivery of infrastructure projects. The BCA viewed premature government announcements of project timings and estimated costs as a barrier to undertaking due diligence and early market engagement. It recommended that by allowing time for due diligence and early market engagement in procurement processes, it would be possible to refine the timing, scope, and structure of the project—potentially providing better outcomes overall.
2.36
Better coordination between government and industry could also provide a range of benefits to infrastructure procurement and industry’s ability to deliver the pipeline. According to the Australian Chamber of Commerce and Industry, knowledge sharing between government and industry can enable better decisions on risks, procurement models and contracting models, as well as providing an understanding of capacity and capability in the market. Better coordination in this regard can reduce the overruns in budget and timing and allow for a better allocation of resources by considering capabilities and capacities.
Harmonisation
2.37
There is a distinct lack of harmonisation across the infrastructure sector in areas such as contracts, technical specifications, competency requirements, training needs, industry engagement and approaches to procurement. Promoting better harmonisation was brought to the attention of the committee, as improvements in this area would provide significant benefits across the supply chain, reduce costs, and improve efficiency and sustainability—all critical to the industry’s ability to deliver the pipeline of infrastructure.
2.38
The Australasian Railway Association, told the committee that there would be ‘significant benefits’ from a greater harmonisation of requirements, policies and processes relating to procurement:
This improved harmonisation would really enable local suppliers and contractors to have more consistent sustained operations. It would foster larger economies of scale, build local expertise and really expand opportunities for growth and further investment. For the government client, a strong focus on harmonisation would actually reduce project risks and costs and would enable new innovations to be adopted.
Committee comments
2.39
Key to delivering Australia’s ambitious pipeline of infrastructure projects is the industry’s ability to improve its productivity, reduce existing practices that are creating frictions, and encourage the development of essential skills to mitigate issues in the supply chain. The committee received evidence that emphasised the importance of better coordination, collaboration and harmonisation across the industry and jurisdictions. Australian governments need to improve the way they approach infrastructure procurement.
2.40
The committee strongly supports adopting a longer-term view of infrastructure planning in Australia that goes beyond the current 10 to 15 years—extending Australia’s strategic outlook beyond political cycles and taking into consideration the future of its cities and regions, and how people will live, travel and work.
2.41
The committee notes that the 2018 Building Up & Moving Out report highlighted the need to refine project appraisal, embrace technical innovation in procurement, improve procurement skills for officials, and enhance engagement with tier two and three contractors. However, the indifferent government response to these recommendations reflected the piecemeal approach taken by government to infrastructure planning and procurement in Australia.
2.42
State, territory and local governments, industry and stakeholders all have an important role in pursuing best practice in the procurement of infrastructure. The committee acknowledges how crucial it is to facilitate better coordination of the pipeline with these groups to ensure the best outcomes and to mitigate stressors impacting the industry’s ability to deliver the significant pipeline of projects.
2.43
The committee encourages the use of tools such as the Australia and New Zealand Infrastructure Pipeline (ANZIP) portal to help ensure infrastructure projects are efficiently prioritised and sequenced.
2.44
It is the committee’s view that a ‘go slow to go fast’ mindset should be encouraged within infrastructure planning to facilitate collaboration and better procurement and project outcomes.
2.45
The committee recommends, with a view to addressing Australia’s historically piecemeal approach to infrastructure planning and project delivery, the Australian Government investigate, in consultation with state, territory and local governments, and relevant industry bodies and stakeholders, how to facilitate better planning and coordination of the infrastructure pipeline. As part of this work, consideration should be given to:
the effectiveness of planning, and stakeholder and industry engagement prior to project commitments being made
avenues for enhancing cooperation with existing bodies, and/or bolstering independent expertise, to support more integrated and holistic infrastructure planning
extending governments’ approach to long‐term infrastructure planning from a decade to a strategic outlook of 20 to 50 years, as applicable
periodic reporting on priorities and progress on the 2021 Australian Infrastructure Plan items for which the Australian Government has been identified as the proposed lead agency.