What’s really needed to achieve infrastructure procurement reform

It was encouraging to see contracting reform feature so strongly in Infrastructure Australia’s roadmap to address the challenges facing Australia’s infrastructure sector. 

The roadmap – titled “Delivering Outcomes” – contains five key reform recommendations.  The two that captured my attention were:

• Shift from current, combative contracting models to longer-term, collaborative models that integrate the supply chain; and

• Support the financial sustainability of the infrastructure industry by adopting principles of fair return, improved benchmarking, reviewing payment terms and risk allocation.

These aspirations aren’t new.  Infrastructure sector participants – whether they be owners, head contractors, subcontractors, operators, maintainers or consultants – have been calling for such reforms since I started in the industry in the 1990s, and probably earlier.  Progress has waxed and waned, generally in line with economic cycles and demand (vrs supply) for infrastructure design, construction, operation and maintenance services.  

Reforms of this nature need to be driven by the buyers of these services, the largest of whom is government.  They need to be embraced not only when excess demand causes tendered prices to exceed the owner’s budget, but also when the market conditions allow owners to transfer risks that are beyond everyone’s control for minimal (if any) increase to the price.

Owner’s need to adopt longer-term thinking.  Using a competitive tender process to drive prices below, and risk transfer above, a level that can generate a fair return for the tenderer is short sighted.  It generates a short term win for the for the owner, if it can avoid variations and hold its contractor to the tendered price, but the contractor (or industry, if the contractor becomes insolvent) must ultimately recover the loss from the owner (or other owners) over the longer term.

Infrastructure owners that continuously require design, construction, operation and maintenance services will be better served by recognising this, and working with their supply chain to develop commercial and risk sharing arrangements that enable all participants to win together, or lose together, based on project/program/asset performance against the outcomes that the owner is seeking.

Governments seem to accept this.  For example, the NSW Government’s 2018 ten point plan for the construction sector committed to procure and manage projects in a more collaborative way, and to adopt partnership-based approaches to risk allocation.  Other governments have expressed similar aspirations.

But the progress that infrastructure procuring government agencies have made against these aspirations has been marginal, at best.  This is not through lack of will, but rather lack of investment.  They simply don’t have the updated tools, guidance and training needed to delivery on the aspirations.  The funding needed to overhaul contracting suites, procurement templates and guidance material, hasn’t been made available.  Instead, procuring government agencies have been expected to adjust their approach on an ad-hoc basis as they procure each project, within the relevant project’s budget.  The lack lustre results of this flawed approach are evident.

To achieve the desired step-change in construction procurement efficiency, we need greater uniformity in how different government agencies procure infrastructure services.  The current approach, where each agency develops or tailors its own contracting suite and procurement templates, based on personal preferences of the author, and his or her desire to do it better than others, is terribly inefficient and consumes significant industry resources during tendering processes.  Continuous improvement in contracting and tendering approaches must be encouraged, but not continuously reinventing the wheel.

This is where our Federal Government can help – by funding a process to jointly develop, in collaboration with State and Territory infrastructure procuring agencies, a contracting suite, template tender documents, guidance material and training programs, that will enable government procuring agencies to actually implement the reforms that the sector needs.

The Federal Government can also show leadership through embedding best practice in the projects they deliver themselves, through its Government Business Enterprises (GBEs) (eg nbn co, ARTC, Western Sydney Airport Co, Moorebank Intermodal Terminal Limited), and through the projects delivered by its Significant Projects and Investment Delivery Office (SPIDO), such as the Inland Rail Intermodal Terminals.