“[T]here are underlying systematic issues that mean that most of the projects were subject to an environment needing improvement and reform.”
So read page 9 of the final report of the Special Inquiry into Government Programs and Projects conducted in Western Australia by John Langoulant AO and published in February this year.
Arguably, the inquiry was a political stunt. Set up shortly after the McGowan Labor Government was elected, the dates in its Terms of Reference ensured that only projects entered into during the three terms of the previous Liberal government were considered. This has given Labor ammunition to attack the record of their predecessors – with taxpayers paying for the privilege.
Nevertheless, the inquiry uncovered serious issues. Whilst many of these were related to fiscal and public sector management, those which affect designers and builders relate to contracting; project planning, evaluation and public sector skills in project management; and contract management. There were capability gaps in public sector management surrounding project planning and evaluation, Langoulant found.
More oversight was needed on contract development and contract management. Procurement practices needed to be strengthened. The leadership of major projects and public works management needed to be centralised. Members of Parliament and public servants alike needed training in business case analysis, risk management, procurement, project and contract management, negotiation and commercial and financial management.
Common concerns among the design and construction industry were outlined in a joint 32-page submission to the Inquiry prepared by Consult Australia, the Association of Consulting Architects, the Australian Institute of Architects and Master Builders Western Australia. This called on the government to act as a ‘model client’ in procurement. It made 23 recommendations across areas such as public policy; contracting; project planning; project evaluation; and monitoring, research and reporting.
Speaking from a design and consultant viewpoint, Steven Coghlan, state manager WA at Consult Australia, says concerns revolve around three areas.
First, an adversarial culture within government in contracting and procurement has driven a legalistic and confrontational tone when dealing with architects, builders and others and has led to unfair terms being inserted into contracts.
Instead, Coghlan says a more collaborative approach is needed.
Second, many contracts are being used to allocate risk on a disproportionate basis. This is a sensitive issue for designers such as architects and engineers who often find themselves subject to unlimited liability even though their fees may amount to only five or 10 per cent of the project cost, Coghlan says. This also means that designers are being exposed to liability beyond the extent to which they are reasonably able to manage the risk in regard to which that liability may manifest itself.
A particular concern involves the ability to ‘contract out’ of proportionate liability – a legal concept instituted throughout all states under different legislation which specifies that individual parties within a lawsuit involving multiple defendants are liable for damages only to the proportion of the damages which they caused.
In WA, the Civil Liabilities Act enables parties to ‘contract out’ of this and specify that the concept does not apply to their agreement. With relatively little bargaining power, design firms often face little choice but to agree to do this. They can find themselves liable for 100 per cent of damages even where they are either not at fault or only partly at fault. This drives up professional indemnity premiums and can leave them with liability beyond what their insurance covers (liability which is assumed by way of contract rather than common law is sometimes excluded by professional indemnity policies). Apart from being unfair, this may leave taxpayers exposed to risk where designers have insufficient assets to cover the loss. It may also dissuade firms from bidding for work and thus narrow competition.
In response, Coghlan says the Act should forbid contacting out, as is the case in Queensland.
Finally, Coghlan says a more collaborative approach toward contracting is needed which would see not only head contractors but also architects, engineers and others sit down with the client. This, he says, would encourage communication and enable issues and problems to be identified and addressed before they arise. This is difficult to achieve under a design/construct model where the client deals predominately with the head contractor, who is then in a unique position to advance their own agenda.
Speaking from the viewpoint of builders, Charles Anderson of Master Builders Western Australia, agrees that risk management is a concern and supports eliminating the ability to contract out of proportionate liability.
Furthermore, Anderson points to other harsh contract terms. Several contracts, he said, contain ‘catch-all’ phrases which require builders to pick up the tab for any extra costs incurred in which errors in design documentation or the bill of quantities mean that construction costs are higher than what was anticipated and allowed for in the contractor’s bid.
Beyond that, Anderson says perceptions among many builders remain that bids are being awarded according to lowest price. Whilst he acknowledges efforts from Building Management Works to incorporate qualitative criteria into bid selection, he says feelings remain that this is largely lip service and that lowest priced considerations remain paramount. A consequence is that taxpayers end up with the cheapest builder as opposed to the best builder, he said.
Rather, he said, further use of criteria such as past experience, capacity to deliver and levels of work currently underway would help ensure that the best builder overall is selected.
Finally, Anderson says a hollowing out of skills within procurement departments has led to poor planning, poor documentation and disputes. He supports Langoulant’s recommendations that the Department of Finance become the lead agency for all project management and provide training and on-project management, project evaluation and procurement.
The submission argues that better practices are imperative.
“Approximately 40 per cent of our industry’s work is undertaken for public sector clients, and our members have played vital roles in the creation of some of Australia’s iconic public infrastructure, including road, rail, hospital, airport, educational facilities, water and energy utilities, justice, aged care, sports stadia, and urban renewal projects,” it says.
“Procurement of government infrastructure is therefore an issue of particular importance to all our members, as well as the wider industry we collectively represent.”