Australia can derive billions of dollars’ worth of gains through better contracting and procurement practices on major construction projects, industry leaders say.

During separate recent interviews, Robert Bryant, Executive Vice President, APAC at construction project management software provider InEight, and Jon Davies, Chief Executive Officer at Australian Constructors Association (ACA), told Sourceable that current contracting practices for major projects are often based on lowest cost and promote an adversarial approach toward project delivery.

Instead, processes should be collaborative, transparent and equitable in how risks are allocated.

Davies says potential benefits from better practices should not be underestimated. Over the past thirty years, he says construction has had a productivity gap compared with other industries of around 25 percent. Apply that to the industry’s overall contribution to the economy (as measured by Gross Value Added) and you get an annual shortfall of $37 billion. Were the industry to bridge that gap by half, an additional $15 billion plus worth of assets could be delivered each year at no additional cost – an amount equivalent to one Inland Rail or three Western Sydney Airports.

According to Bryant and Davies, current procurement too often:

  • Place excessive emphasis on fastest possible delivery at lowest possible price
  • Promote an adversarial approach toward procurement and project delivery and contribute toward an adversarial industry culture.
  • Do not facilitate or encourage either transparency or sharing of information about project risk, timeframes and cost.
  • Transfer excessive risk onto contractors.

Consequences are serious.

According to Bryant, the emphasis on fastest delivery and lowest price often leads to unduly optimistic expectations about timeframes and budgets within which projects can be delivered.

Whilst this can generate optimism in initial project stages, it can lead to overruns in both time and cost – a phenomenon he says has occurred on several recent major projects.

On the lack of transparent information sharing, meanwhile, Davies says this has held back adoption of concepts such as BIM and lean construction. Whilst both technologies have been shown over decades to help deliver better project outcomes, they both require open and transparent sharing of information. As things stand, however, many current procurement models encourage parties to guard information in their possession.

On risk management, Davies says notions that clients can absolve themselves of adverse consequences by transferring risk to contractors are misguided. Whilst the transfer of contractual risk may be technically possible with good lawyers, clients who fail to deliver on timeframes and costs face risk to their reputation and disgruntlement from stakeholders. This is especially the case where contractors who face potentially heavy losses on the project seek to mitigate this – perhaps through measures such as slowing down.

On Sydney Light Rail, for example, anger over delays and business interruption from stakeholders such as George Street retailers was directed toward the delivery agency and the state government more so than the contractor.

Such risks, Davies says, cannot be abrogated through contractual arrangements.

Indeed, Davies says that in many cases, project owners wind up needing to go back and work with contractors to find solutions.

Finally, Davies says the adversarial culture is affecting the sector’s ability to attract and retain workers with the right skills. It is one contributing factor, for example, toward the stubbornly low participation of women in the construction workforce.

Going forward, Bryant would like to see a more collaborative approach based around open sharing of data and engagement with stakeholders when making decisions.

He says several contracting methodologies coming out of Europe try to address these issues. One such contract which is gaining in popularity is the NEC 4 contract. This is a form of contract which is intended to promote partnering and collaboration and which seeks to provide transparency about likely costs and deliverables throughout the project.

In addition, greater use of data could help to provide a more realistic view of likely project costs and timelines. Here, Bryant says project management software solutions such as InEight can provide a clearer view of likely timeframes and costs across the project lifecycle. When preparing tenders for upcoming projects, for example, contractors can compare their assumptions with data extracted from the software showing actual costs and timeframes achieved on similar projects in the past. This can highlight areas where expectations for upcoming projects may not be realistic.

Third, stakeholders need to be agile and remain focused on broader outcomes. No matter how well projects are planned, unexpected challenges are likely as work progresses. Where this happens, project team members must work together to resolve issues and be flexible about budget and timeframe adjustments which may be needed.

Asked about the role of technology, Bryant says the growing number of datapoints which are available can provide greater visibility about project progress and where labour and materials and being deployed.

By helping to promote greater visibility and transparency upfront about likely costs and timeframes meanwhile, technology can help to instil more confidence among investors and help to unlock a wider pool of those willing to fund projects.

Whilst he acknowledges that change must ultimately be driven by project owners, Bryant says contractors themselves have opportunities to establish a point of difference by providing greater openness and transparency about costs and project deliverables when tendering.

He expects the industry in coming years to become more data driven, more sophisticated, more predictable and more cooperative.

Davies, meanwhile, would like greater collaboration and more equitable sharing of project risk.

This, he says, is critical part of a sustainable construction industry – a notion he says must be based on equitable and aligned commercial frameworks, improved industry culture and capability and skills.

He says leadership is needed from the Commonwealth, which provides funds to large projects but attaches few stipulations on how these are managed.

In particular, he would like to see adoption of something similar to the United Kingdom Construction Playbook. Developed in collaboration with the construction sector, this outlines expectations of how contracting authorities and suppliers should engage with each other and sets out in fourteen policies about how public works projects should be assessed, procured and delivered. Central government departments and their agencies are expected to either follow these policies or explain their reason for not doing so.

Davies says the ACA has received positive feedback about this idea. The organisation hopes to submit a formal request about this to the National Cabinet Reform Committee on Infrastructure and Transport and is trying to build a broad industry coalition to call for this.

Whilst Australia differs from the UK in that the Commonwealth cannot force states to comply on state-run projects, Davies points out that national governments in countries such as Canada and the US have stipulations on funding provided to provinces/states.

Moreover, states could be encouraged rather than coerced to adopt such a playbook through incentives. This could include being allocated a percentage of efficiencies gained through such processes to construct additional infrastructure.

Davies says the importance of governments as clients should not be underestimated. Governments, he says, should move away from a focus on lowest cost and toward procurement which is based on best value. Practices such as final offer rounds to ‘screw contractors down’ and issuing tenders two weeks prior to Christmas, meanwhile, should give way to those which help to deliver positive project outcomes.

Both Bryant and Davies talk of progress. Davies points to the Sydney Metro project, where an open and transparent process for risk allocation and identification during tendering has been trialled.

He is optimistic that COVID will be a force for change.

“I think COVID is going to be a disruptor,” Davies said.

“I think we are going to look back in years to come and say that was the turning point – we are getting our act together and that is when we started to develop a more sustainable construction industry which is more focused on innovation and doing things better.”

“Today, we have an industry which is focused on staying alive from one project to the next.”

“We can change that.”