Major hospital and healthcare projects which are coming up in Australia will face significant cost pressures and must be carefully managed to avoid cost blowouts, a leading consultancy has warned.
In its latest report, project and cost management consultancy Turner & Townsend warned that upcoming healthcare projects will have to compete for labor and materials with a large pipeline of real-estate and infrastructure developments, and that projects will need to be well-planned in order to be delivered on-time and within budget.
In its report, Turner & Townsend forecast that construction costs in Victoria and New South Wales will rise by five percent and four percent respectively during 2019 and will continue to increase by around four percent or above over the two years thereon after.
Construction costs escalation in Queensland, meanwhile, will be lower at 2.7 percent in 20119 but will rise to almost four percent by 2021.
The report also revealed significant pressures on labor and material supply.
Across both New South Wales and Victoria, it says supply chain capacity relating to structures, façade, fit-out and services are all either at or above capacity.
In the case of façades in New South Wales and structures in Victoria, it says supply chain capacity is almost critical.
This is driving up costs in numerous areas.
In Victoria, costs relating to reinforcement, forepersons and formwork have risen by 22 percent, 12 percent and 10 percent respectively over the last six months alone.
In New South Wales, foreperson costs and reinforcement costs have risen by 17 percent and nine percent over that same time.
This is being driven by a massive program of infrastructure spending on projects such as Sydney Metro, the Cross-River Rail project in Queensland, the Gold Coast Airport’s terminal expansion and significant rail developments in Melbourne.
All this, Turner & Townsend warns, will have implications for healthcare related programs and expenditure.
In total, the Federal Government expects to spend $1.3 billion on healthcare related infrastructure and community health programs over the next four years.
In New South Wales, the state plans to invest more than $10 billion over the next four years on 29 new and upgraded hospitals and health facilities.
Victoria, meanwhile, recently announced its intention to spend $1.5 billion redeveloping Footscray Hospital.
In Queensland, capital expenditure levels on hospital and healthcare projects have eased but the state still have two large metro developments as well as several regional facilities in its budgetary allocations.
To deliver these successfully, Turner & Townsend Director Simon Kearney said robust strategies in terms of asset management and supply chain management will be needed.
First, care must be taken to ensure that clever and functional design strategies are adopted.
As well, state governments need to look carefully at procurement procedures and cost planning.
Appropriate risk allocations will also need to be factored in to cost forecasts.
As well, depending on location, innovative procurement models may be needed to attract the best talent.
Finally, he says federal and state governments should promote training and apprenticeships. In New South Wales, he points to a disconnect between the state unemployment rate for 4.3 percent and a youth unemployment rate which exceeds twenty percent.
Kearney said the importance of such strategies should not be underestimated.
“As Australia’s $100 billion infrastructure building campaign moves into full swing, health infrastructure projects will compete for resources, potentially driving up pricing for common trades or commodity inputs such as structural trades, services installers, concrete and formwork,” he said.
“To appropriately manage the significant spend on infrastructure, we are witnessing a greater focus on asset management planning in most states. Asset management is the key to unlocking value for money on new projects.”
Pip McGlinn, National Health Sector Lead for Turner & Townsend, broadly agrees.
She says several trends surrounding healthcare infrastructure funding are evident.
Victoria, for instance, is using public private partnerships where appropriate to build new hospitals and renovate existing ones.
As well, there has been a push toward investment in regional areas.
In New South Wale, for example, 45 percent of the total healthcare capital budget is allocated toward projects in rural and regional localities.
Across all states, there is an increasing emphasis on mental health and aged care in budget funding allocations.
McGlinn says several strategies are needed to ensure funding is spent wisely and delivers maximum value.
Careful portfolio and local health service/district planning is needed to ensure the right projects come through for investment at the right time.
Robust assessments also need to be made about the capacity of the market as well as the capacity and maturity of the organisations to deliver upon projects. Lessons from past projects should be learned to help inform the selection of the most suitable procurement model and effective contract documentation in order to best manage project risks.
Finally, skilled professionals are required to manage program, budget, operational outcomes and risk on behalf of the health service/district will help ensure the end product meets the needs of staff, visitors and consumers.