3 key ways Australia can be more productive when delivering infrastructure

Stagnant productivity has been a longstanding issue holding back construction in Australia.

Delivering infrastructure more efficiently is vital for the government to achieve its strategic goals and meet the needs of Australians.

But productivity doesn’t appear to be improving.

In the last year, it was officially recognised as a critical issue by the national government in Australia:

• In June 2023, construction productivity and market capacity were defined as a national cabinet priority.
• In October 2023, the International Monetary Fund warned that a spending boom on infrastructure projects, mainly at state and territory levels, was pushing Australia’s economy beyond capacity and fueling inflation.
• In November 2023, the Australian government cut 50 projects from its Infrastructure Investment Program (IIP). The decision followed the findings of an independent strategic review. This determined that the cut projects didn’t have enough funding or a strong enough business case to justify their investment.
• In December 2023, the Infrastructure Australia Amendment (Independent Review) Bill 2023 became law. It responded to the recommendations of the 2022 Independent Review of Infrastructure Australia by clarifying its functions and reforming its governance structure.

How Australia approaches infrastructure

The IIP strategic review highlighted many issues with how Australia approaches infrastructure projects, noting that many IIP projects:

• didn’t demonstrate merit;
• lacked any national strategic rationale;
• didn’t meet the government’s national investment priorities; and
• were often at high risk of further cost pressures or delays.

The review also noted that the IIP was meant to fund projects that contribute to national productivity and growth.

However, many small-scale and local projects were urgently funded to boost employment in response to the COVID-19 pandemic.

Using infrastructure projects to boost the economy can push up costs and constrain productivity.

Also, rising costs, delivery delays, and changes to project scope were only addressed on an ad hoc basis.

Earlier this year the ICE launched a Next Steps programme to explore solutions to Australia’s productivity challenges.

In its new green paper, the ICE recommends focusing on three areas to raise infrastructure delivery productivity in Australia.

1. Define productivity

There needs to be a shared and comprehensive understanding of what productivity is in the context of infrastructure delivery.

The challenge with using economic measures, like labour productivity, to show the current state of infrastructure delivery is that they’re incomplete.

They don’t reflect improvements in outputs, as in the quality and variety of infrastructure being delivered.

In the past 60 years, infrastructure delivery has changed significantly in terms of sustainability, work health and safety (WHS), increased community engagement, and more.

This means that focusing on improving economic measures without a holistic look at our expectations for the sector misses many of the outcomes we want projects to achieve.

Through the lens of processes

The ICE has previously considered improving infrastructure delivery productivity through the lens of processes:

• A more effective process produces outputs of a greater quality or at a greater scale. Effectiveness means selecting the right projects, making the right design choices and choosing the right delivery models.
• A more efficient process is one which has a greater ratio of outputs to inputs. Efficiency involves a considered approach to the use of materials, effort, talent, data, energy, carbon emissions, land and ecosystems. This will also reduce costs and provide better value for money.

A better productivity measure would consider that infrastructure isn’t created solely for the sake of building something, but rather to serve the needs of the community.

Infrastructure investment should be driven by delivering better social, economic and environmental outcomes.

A more holistic approach, suggested by the ICE-convened Enabling Better Infrastructure programme, might focus on improving social outcomes rather than infrastructure assets created.

2. Improve project assessment

The ICE has heard from infrastructure experts that for Australia to achieve its long-term infrastructure goals, it needs a single, dependable, predictable pipeline of projects.

This would support government and industry to understand future demand and plan with certainty.

A major cause of pipeline instability is the ongoing cycle of infrastructure projects being announced, and then cancelled due to a lack of funding and workforce capacity.

This isn’t a sustainable model for infrastructure delivery.

In recent years, many infrastructure projects involving substantial public funds were committed to before Infrastructure Australia had fully assessed them.

This led to selecting projects that don’t meet desired outcomes or offer poor value for money – sometimes through a lack of due diligence, too much focus on low upfront costs, or politically motivated decision-making.

Proposed infrastructure projects must be subject to robust, transparent, independent assessment against long-term infrastructure goals to ensure they are worthwhile.

3. Use collaborative contracts

An essential part of unlocking greater infrastructure delivery productivity in Australia is increasing the government’s appetite for risk by using collaborative contracting.

For three years in a row, how risks are identified and allocated between parties during project procurement and contracting have been ranked as the greatest threats to market capacity.

Currently, due to their dominant position in the sector, government clients are unfairly (and unsustainably) offloading risk on to suppliers through bespoke contracts.

How a project’s risks are allocated and managed is at the core of the legal and commercial relationship established by its contract.

Collaborative contracts are structured around a relationship of mutual trust and cooperation between contracted parties, rather than an adversarial one.

They enable parties to share risks fairly and sustainably – and so share any project savings or overspends.

Using standardised collaborative contracts written in plain English for government projects would reduce delays and expenses from contract disputes, and support more efficient procurement processes.