The Biggest Weaknesses in NSW Infrastructure Procurement

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Friday, February 26th, 2016
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Whether it’s the WestConnex road project, the North West Rail Link, Sydney Light Rail, or the new hospital at Northern Beaches or the upgrade to the existing Westmead Hospital, the volume of investment currently flowing into public infrastructure projects in New South Wales at the moment is phenomenal.

In this context, efficient and effective program delivery is critical. Toward this end, the state government is running a inquiry looking into ways in which procurement practices and documentation can be improved, costs associated with tendering can be reduced for contractors and competitive tension can be maximised.

While the current processes and procedures generally work well, industry leaders say the system still has a number of ‘pain points.’

In terms of the process itself, Consult Australia NSW state manager Matthew Trigg says consultants and contractors continue to face a number of issues. Since New South Wales does not use the Australia standard contract for consultants, consultants and contractors find themselves confronted with a variety of different contracts for different public sector clients. As a result, they have to allocate greater amounts of time and costs to understanding contracts as opposed to completing work than should need be the case, Trigg says.

In terms of liability, meanwhile, thanks to a clause in the NSW Civil Liabilities Act which allows for the ‘contracting out’ of proportional liability (where the court apportions liability for damages claims against each party on a proportional basis in accordance with the extent to which the party in question was responsible), contractors and consultants are finding themselves coming under pressure from government clients to assume a disproportionate share of liability for damages. For smaller and medium sized clients, this was creating a situation in which professional indemnity costs were such that bidding for some projects was becoming unviable.

Finally, in many cases, projects are not being packaged appropriately so as to enable smaller firms to effectively bid for work, Trigg says. The upshot of all this is a reduction in competitive tension during the bidding process and a higher cost of program delivery than would otherwise be the case.

“Overall, procurement is done well in New South Wales,” Trigg said. “But there are persistent issues particularly around understanding and managing risk by the public sector, and we are generally spending more than we need to and falling short on maximising the project outcomes and end user experiences as a consequence.”

In terms of broader challenges, Greg Ewing, Sydney general manager of Engineers Australia, says not just New South Wales but Australia in general had suffered from a ‘boom-bust’ type of scenario in terms of infrastructure spending which was making it difficult for the industry to maintain a consistent skill base.

“In Australia, we tend to have a boom bust cycle where we do not have anything going for a while and then it is all guns going,” he said. “That can have a significant impact in terms of the ability to deliver projects; it can lead to demand spikes and also to a situation whereby we do not have the full suite of skills and experience where we need it and when we need it. That can have an impact not only on cost but also on delivery of the project to expectations of time and quality.

“It takes a long time to grow and develop experienced engineers. Engineers are not alone in that. In all the professions, it takes a long time for people to get to the peak of the profession. We want people at the peak of their profession for delivery of our key infrastructure. So we need to develop a consistent program of projects that allows us to grow our engineering workforce and grow the skills of our engineering workforce.”

Beyond that, Ewing said progress in terms of planning and delivering infrastructure in a systematic and integrated manner was patchy and that recent years had seen a significant loss of informed buyer capacity within the public sector which was leading to a dearth of expertise within the decision making process for an engineering perspective.

With regard to the latter point, Trigg says it is imperative that decision makers are able to appreciate the broader picture of the value of infrastructure to the community and economy, evaluate the benefits and drawbacks of different options and have a clear grasp on what to buy, when and how to buy it and why you are doing so.

In terms of what should come out of the inquiry, Trigg would like to see strong recommendations about how the public service should operate from an infrastructure procurement perspective along with what had been a long standing recommendation amongst leading engineering bodies for a direct centre of excellence.

Also, he would like to see the state follow Queensland’s lead in refusing to allow the contracting out of proportionate liability along with a commitment for the government to act in the long-term interest of the community and the industry when going about infrastructure planning and delivery.

Ewing, meanwhile, wants more consistency in capital works programs as well as greater efforts to rebuild the capacity of government to act as an informed buyer.

He says it is imperative to maintain focus upon the bigger picture.

“It’s not just the quantum or the amount of infrastructure that we have, it’s the quality of the infrastructure which is critical to the productivity of the overall society and economy,” he said. “It’s really critical that we get effective infrastructure delivery. This is not just for New South Wales; it’s for the whole of Australia. New South Wales is not stand alone in that regard; it’s a much bigger puzzle.

“It’s important to be aware of not just Sydney and not just NSW but for Australia as a whole. We really need to get good value for that (infrastructure spend).”

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