Scope for Improvement 2015 – Construction and Infrastructure

Foreword

In the Australian construction and infrastructure sectors there are many existing and potential projects. The resources available for these projects, particularly those of significant scale, are limited and their allocation is the subject of intense competition. It is imperative that both public and private sector participants in these projects continue to strive for efficient and effective project development, execution and completion. Less than optimal delivery outcomes generate waste, compromise stakeholder benefits and put at risk not only the future prospects of industry participants but also the productivity of the Australian economy.

The reports in the Scope for Improvement series have since 2006 provided insight on the obstacles and pressure points which project participants face and work to overcome to deliver successful projects. This report – Scope for Improvement 2014: Project pressure points – where industry stands – reflects industry views on how well the Australian construction and infrastructure industry is responding to these challenges and which issues persist, and provides guidance on approaches to resolving them. Ashurst, the Australian Constructors Association and Infrastructure Partnerships Australia believe this report will support continuing debate and generate greater awareness of critical issues, and assist industry to examine current practices. Importantly, this will facilitate improved approaches to achieve better project outcomes for all stakeholders.

Background

Since 2006, Ashurst has undertaken industry wide research into construction and infrastructure projects worth more than $135 billion. Only around half of these projects were delivered on time, on budget and to the required quality, and disputes were prevalent. The research formed the basis of Scope for Improvement reports in 2006, 2008 and 2011. The 2006 Scope for Improvement report focussed on pressure points which arise during projects. The 2006 report indicated that scoping practices and risk allocation were two major pressure points for projects. The 2008 report was devoted to scoping practices, and the 2011 report focussed on the specific issue of risk in projects. In 2013 and 2014 Ashurst has undertaken further research with industry to gauge the extent to which improvement is evident in the delivery of major projects. The research for this report was sourced from a series of boardroom lunches and interviews with industry participants representing a cross section of public and private sector principals, contractors, consultants, financiers and industry bodies. More than 120 industry representatives, representing the spectrum of participants in Australian construction and infrastructure projects, attended the boardroom lunches around the country. Ashurst prepared detailed notes at those meetings, and analysed the discussions to identify significant issues or themes which emerged as common across the country. In addition, interviews have been conducted to discuss those significant themes and issues with industry figures from both public and private sectors.

Why this research is necessary

In a country that must import most of its capital, high cost infrastructure carries a very significant opportunity cost to the rest of the economy. Adverse project outcomes in respect of time, cost or quality lead to:

• Inefficient use and waste of resources
• Time delays, which add cost
• Disputes, often leading to delayed completion, both of which affect the balance sheets of principals and contractors
• Compromised stakeholder outcomes, adverse community reputational and political impacts.

In the interests of promoting approaches which improve project delivery, developing a more efficient and effective infrastructure network and avoiding waste of scarce capital, the objectives of Ashurst’s research are to:

• Promote a deeper understanding of challenges and constraints in construction and infrastructure projects
• Assess their impact from a variety of stakeholder perspectives
• Encourage broader participation in the debate about how industry participants can improve project approaches
• Identify solutions to issues which have been encountered.

“A 10% reduction in the cost of delivering infrastructure – a conservative estimate of the potential savings from implementing sensible reforms – would amount to a current annual saving of around $3.5 billion.” – Productivity Commission 2014, Public Infrastructure, Draft Inquiry Report, Canberra

Financial commitment to infrastructure development

• In the 2014-15 Federal Budget, the Australian Government committed $11.6 billion to establish the Infrastructure Growth Package, which will deliver $40.8 billion between 2013–14 and 2018–19.
• It has been estimated that, when combined with State and private sector funding, the Infrastructure Growth Package will stimulate additional infrastructure investment of over $125 billion nationwide by 2019-20.
• The 2014-15 Federal Budget includes record investment in infrastructure for all States and Territories, including $14.9 billion for New South Wales, $7.6 billion for Victoria, $13.4 billion for Queensland and $4.7 billion for Western Australia.
• Separately, the 2014-15 State Budgets include significant investment in infrastructure, with commitments of $23.7 billion by the Western Australian Government, $27 billion by the Victorian Government and $59.7 billion by the New South Wales Government.
• The value of private sector commercial construction work is expected to rise at a rate of 4.3% p/a in 2014-15 (Source: Construction Outlook Survey – October 2013).
• The Business Council of Australia has projected total real spending on infrastructure to be over $760 billion over the next 10 years, with around 60% of the infrastructure spend by the private sector (Source: Securing Investment in Australia’s Future: Infrastructure Funding and Financing).

Key findings

“The widely held industry view is that there is still significant scope for improvement in many aspects of project delivery in both the public and private sectors.”

To access the full report, please contact us.