Numerous examples of poor value for money arising from inadequate project selection are potentially costing Australia billions of dollars, and the nation must urgently and comprehensively overhaul processes for assessing and developing public infrastructure projects, a report has warned.
Released on July 14, the Productivity Commission’s final report into Public Infrastructure argues scope exists for Australia to plan and deliver projects much more effectively than is currently the case.
It cites developments involving some electricity networks and desalination plants at the state level as well as the decision to proceed with the National Broadband Network without a thorough cost benefit analysis at the federal level as examples of what could happen when things are not done well.
Furthermore, without radical changes in the way projects are chosen and delivered, the report warns beefing up infrastructure investment would actually decrease productivity instead of increasing it and would "financially burden the community for decades with infrastructure that is unnecessary and expensive to maintain."
“A key message of this report is that there is a fundamental need for a comprehensive overhaul of the poor processes currently used in the development and assessment of infrastructure investments particularly, but not exclusively, by governments,” the report states. “The costs of poor project selection and delivery will be exacerbated if governments decide to increase their infrastructure investment programs without reforming their governance regimes.”
The report comes amid efforts on the part of state and federal governments to increase spending on infrastructure notwithstanding challenges associated with the need to repair public sector finances.
The federal government, for instance, is set to spend $50.3 billion on projects over the next six years, while state governments in places like New South Wales and Victoria are spending billions on projects such as North West Rail Link, WestConnex and the East West Link.
The piece also follows an earlier report published by international law firm Ashurst in conjunction with Infrastructure Partnerships Australia and the Australian Constructors Association which found the ability of the construction sector in Australia to deliver significant dollar value projects on time and within budget was being held back by a number of factors including low productivity and high tender costs.
In its report, the Productivity Commission concluded that:
- Well-designed user charges should be used to the fullest extent that can be economically justified.
- Private sector involvement in projects was not a ‘magic pudding’ and would only deliver efficiency gains if well delivered.
- Whilst benchmarking was restricted due to data problems, there was evidence of a significant increase in the cost of public infrastructure projects throughout Australia in recent years.
- Labour productivity growth remained sluggish and the industrial relations environment in construction remained problematic, although there was no conclusive evidence our construction productivity was low by international standards.
- Despite significant concentration, the construction market was ‘workably competitive’.
- There was scope to improve tender processes and reduce the cost of public sector tendering for major projects.