Low productivity, a looming skills shortage and high tender costs are among a number of factors holding back the ability of the construction sector in Australia to deliver significant dollar value projects on time and within budget, a recent report says.
Published by international law firm Ashurst in conjunction with Infrastructure Partnerships Australia and the Australian Constructors Association (ACA), the Scope for Improvement 2014 report sourced from boardroom lunches and interviews notes that only around half of the significant construction and infrastructure projects undertaken throughout Australia since 2006 have been delivered on time.
The report goes on to say that while the country has developed greater levels of expertise during the resources boom, there has been little if any overall performance improvement with regard to areas of structural weakness and ‘pressure points’ in project delivery.
Of particular concern, the report noted:
- There are significantly lower levels of productivity in Australia compared with many other countries
- Skills shortages, though less of an issue now compared with a couple of years ago, are expected to surface again as infrastructure projects ramp up, especially in light of a generational shift at a project director level and a lack of training and expertise in project management
- The industry suffers from poor scoping practices, which have seen a number of developments not derived from master plans, improperly prepared specifications and inadequate or incomplete request for tender processes
- Continually rising tender costs are common as a result of complex and lengthy processes.
- Practices are worsening in risk allocation, bringing about greater levels of risk allocated to contractors amid tight conditions in tendering markets and increasing risk aversion on the part of principals and financiers in a post-GFC environment.
Interestingly, the report found that one problem in terms of productivity revolved around a push during the resources boom to ‘fast track’ projects – a practice which at first intuitively would seem conducive to faster completion times. In fact, fast tracking led to shortcuts whose impact was often not felt until either construction had commenced or operations staff took over and found completed infrastructure did not match their requirements.
Practices associated with making contracts before regulatory approvals had been granted, contracts being entered into on the basis of incomplete design and commencement of work before ‘issued for construction’ drawings had been fully prepared, for example, had led to situations in which contractors have had to be granted extensions of time and extra costs for complying with conditions not in contract documents, variations to contract scope and the need for substantial volumes of rework.
The latest study comes at a critical time for Australia, with the Business Council of Australia expecting a whopping $760 billion in real terms (public and private) to be spent on infrastructure in the next 10 years and the federal government alone having committed to spending $50.3 billion on road and railways over the next six years.
Ashurst Partner, Construction and Infrastructure Projects, Grant Rowlands encouraged all industry participants to carefully consider issues surrounding project delivery and identify opportunities for improvement.
“A 10 per cent increase in the delivery of those projects (the $760 billion BCA identified) would result in more than $75 billion in additional assets being able to be delivered into the Australian economy,” Rowlands said. “Obviously, that’s directly a very important impact but equally it’s the impact upon the productive capacity of the balance of the Australian economy that is really important.”
The latest report follows the release in March of the draft Productivity Commission report into public infrastructure, in which the Commission found “an abundance of flaws, mythologies and foregone opportunities in infrastructure financing, funding and procurement.”