The construction industry is a major contributor both directly and indirectly to the Australian economy.
It is an industry that employs around 1 million Australians, and had turnover of $233 billion in 2013-14, equating to 14 per cent of GDP.
Yet the construction industry in Australia commonly wastes over 30 per cent of its efforts. This is not a uniquely Australian issue. Rather, it is a product of the structure of the industry, the increasing complexity of its services, and the creation and operation of “silos” within that structure.
If that wasted effort were to be reduced by only one third, it would lift Australian residential and non-residential construction output by more than $10 billion annually. If the changes required to achieve that reduction were to “ripple” through the industry, it is conceivable that within a few years the improved output would be substantially higher.
This challenge has been the subject for numerous studies, reports, reviews and inquiries over at least three decades, most recently the Productivity Commission inquiry into Public Infrastructure Costs (2014).
These landmark studies point to a diverse range of common denominators in reducing wasted effort. In particular, three key themes are evident: depth of procurement and project management skills, better supply chain integration and the use of technology to improve project outcomes.
Yet despite these themes (and many particular recommendations) reappearing in study after study, there has been slow (if any) adoption of better practice. This is despite evidence from other jurisdictions (including the UK) or industries (including the resources sector), that adopting these recommendations results in massive productivity uplifts, less waste, lower costs and happier industry participants.
The Australian Construction Industry Forum (ACIF) and its members believe there is no need for more inquiries or reports. The imperative is to act on a handful of potential drivers of improvement that are developed collaboratively by governments, clients and service providers.
The Role of Government
The importance of governments is twofold. As policy makers, governments have ultimate influence over the legislative and regulatory arrangements governing the industry. Even more important, however, is government’s role as a client. As major and ongoing clients of the construction industry, the ways in which governments and industry interact have a profound impact on both the health of the industry and the success of governments in delivering their capital programs.
Leadership from government in both these roles is critical if we are to turn the dial on Australia’s construction productivity.
Recommendation 1: Establish an independent Procurement Centre of Excellence
With large amounts of public funds being spent on infrastructure, it is incumbent on governments to ensure they get maximum value for money through the procurement process. To buy wisely, you need wise buyers; there are substantial opportunities for governments and business to share expertise, and identify and deliver solutions that improve productivity and value for money across the procurement process.
To overcome persistent deficiencies in procurement skills and practices, ACIF is proposing a whole of government approach supporting the establishment of an Australian Centre for Procurement Excellence, building on the work of the Australasian Procurement and Construction Council (APCC).
The Procurement Centre of Excellence will expand the APCC’s role and remit, broadening government engagement and building on work across jurisdictions considering efficiencies in procurement. The Centre would be tasked with building a stronger relationship between government and business and supporting best practice procurement in Australia at all levels of government. The Centre should:
- be established as independent of government
- build stronger linkages between government and with industry sectors
- provide transparent expert advice to all levels of government
- develop guidelines, build capability and improve standards.
The Board of the Centre for Procurement Excellence should include equal levels of representation from industry and government.
Recommendation 2: Increase standardisation in procurement and contracting
Devolved responsibility for agencies has resulted in greater autonomy, but also significant re-inventing of wheels. Bespoke approaches to project definition, initiation and contracting have increased the regulatory burden (or at least the administrative burden), decreased trust and certainty and increased waste.
ACIF believes a ‘leading practice’ approach to can be reflected in a consistent public sector framework of capital works procurement policies and practices, used by all government agencies.
ACIF recommends a suite of leading practice procurement policies, delivery strategies and contract conditions be developed by the Centre for Procurement Excellence, to be used by government agencies on an “if not why not” basis that would:
- provide best fit between end user and project requirements and delivery strategy
- reduce the cost of contract administration and of providing appropriate procurement and commercial skills whether in house or by consultants
- minimise wasted effort and disputes
- embody equitable risk allocations whilst ensuring best value for end users and owners.
Recommendation 3: Promote BIM
Building Information Modelling (BIM) is being used around the world to complement better collaboration and coordination between the supply chain participants in construction. Using technology as a facilitator to bring project teams together and design a virtual prototype of an asset is helping to enhance collaboration, test and re-test business case objectives, and plan for more efficient asset delivery.
Moving an entire industry to a new way of doing things, however, is not an easy task. There are up-front capital investments, significant industry up-skilling, regulatory frameworks, standards to be developed and changes to culture to be considered. However, the productivity dividend is undeniable. Numerous reports, experience from other countries and existing Australian examples provide a significant evidence base to substantiate making the change.
Thus it is imperative that governments, through their significant purchasing power and whole of industry influence, lead the way.