[+] Cautious Optimism Greets Infrastructure Pipeline Review

“Delivery of infrastructure is not like a tap—it can’t simply be turned on and off.” And that is what worries Australian Construction Association chief executive Jon Davies as news of the Federal government’s infrastructure project review broke, prompting a mixed reaction from the industry. Federal infrastructure minister Catherine King announced the review into the nation’s $120-billion infrastructure pipeline hot on the heels of a review into the Inland Rail project , which uncovered massive cost blowouts, governance gaps and mismanagement. But the review news has rattled some in the industry who fear projects being cut will have a knock-on effect for contractors or teams already engaged. The review and what it entails King has confirmed that the total funding for the infrastructure pipeline for the next 10 years will remain at $120 billion. But what will change is which projects of the 800 currently listed will go ahead. The number of projects in that pipeline when the ALP left government 10 years ago had been close to 150. King says that many of the projects were severely underfunded, some had not been started and, for many, proper cost-benefit analysis had not carried out. And for some, it was unclear what actual benefit there was to the public. ▲ The Inland Rail Freight Corridor, along with Snowy 2.0, tops the nation’s infrastructure projects. The ALP government says it is also concerned that many of the smaller projects with a federal government contribution of under $50 million were for key Liberal and National electorates with just 19 per cent in electorates held by the ALP before the election. The review will take 90 days and results will be presented as part of the mid-year budget in December 2023. No new projects or funding is forecaste for the budget announcement on May 9. Many of the projects under review are road and rail in urban and regional areas with 160 of them with funding of at least $5 million. The current economic situation is also a key factor affecting the pipeline and another reason for the review. Cost escalation and labour shortages have meant reviewing the projects was essential to ensure key projects were not at risk of being underfunded, according to the government, which said projects were due to be assessed as part of preparing for the May budget. Part of the work assessing the pipeline was carried out during the October budget, King said during a radio interview. “We did the work in the October budget where we did start to delay and we did cancel some projects because they just were simply not deliverable,” she told ABC Radio National. ▲ The Sunshine Station upgrade is part of the broader Melbourne Airport Rail Link project, which is being jointly funded by the Australian and Victorian governments. “But the scale of this has really come to light as we’ve started to investigate ... for the next budget.” She said that the increase in projects from 150 to 800 has been part of the issue. “There are now 800 projects in the pipeline—over 497 of those are under $50 million,” she said. “A lot of them are completely underfunded. “There’s billions of dollars that are needed to actually deliver all of the projects in the pipeline. That’s new money we would have to find.” Three experts with experience in transport infrastructure have been appointed to oversee the review—Reece Waldock, Clare Gardiner-Barnes and Mike Mrdak. State and territory governments will have an opportunity to indicate which projects they want to prioritise and get under way. King says that reviewing how the money will be spent and what projects go forward will help with the current economic crisis. “A properly functioning infrastructure investment pipeline means projects can be delivered with more confidence about timeframes and budgets,” she says. ▲ Federal infrastructure minister Catherine King. “Easing the pressure on the construction sector will help drive inflation lower and deliver more predictable investment and delivery outcomes from governments.” Construction sector worried The Australian Construction Association is worried that with construction industry accounting for more than a quarter of the nation’s insolvencies , the review could make things worse. “Construction currently accounts for 26 per cent of all business insolvencies in Australia and the implications of these failures on the wider economy are huge,” association chief executive Jon Davies says. Davies points out that some projects would be cut, including those contractors may have thought were previously adequately planned, prepared and budgeted for and would go ahead. “Developing teams and capabilities that are equipped to bid and deliver large projects can take years and, once assembled, it is difficult to reallocate them, particularly if there is a widespread deferral of projects,” Davies says. He says any review should include other stakeholders such as industry bodies. “It is vital that industry is consulted in the review to avoid inflicting further pain on an industry that is already doing it tough as a result of having to absorb significant rises in material and labour costs,” Davies says. ▲ The review could have the opposite of its intended effect, the Australian Construction Association warns. King’s office confirmed with The Urban Developer this will be the case with an email saying “the review will engage with relevant industry stakeholders”. Davies says compensation needs to be part of the review’s considerations for axed projects. “If projects are cut, governments must take action to reallocate a proportion of the saved funds to help industry by compensating contractors who have incurred significant additional costs without any fault of their own and currently lack contractual relief,” he says. “It is unethical and uneconomical for a government to pay less for an infrastructure project than its construction cost due to uncontrollable factors like a pandemic or distant war. “As contractors mitigate risk by subcontracting works, any relief provided at a head contract level will similarly flow through the supply chain feeding into areas of the market beyond government infrastructure that have no other opportunity for support.” King has indicated projects will survive the cuts. “Importantly for industry, projects under construction will proceed and we have committed to maintain significant infrastructure investment for the medium term,” she says. ▲ Engineers Australia’s Romilly Madew: review an opportunity to curb inflation. Review wins support Others are more positive about the plan Engineers Australia says it is an opportunity to ensure government spending does not drive inflation up rather than down. “This is critical to helping ensure spending doesn’t further fuel current economic challenges,” chief executive Romilly Madew says. “ Australia’s construction sector is already at a breaking point and rising materials costs and labour shortages has caused budgets to blow out and project slippage.” Infrastructure projects lead to more work for engineers but this is a group of workers within the industry who are now seeing a shortage of skilled labour . “Over the past two years, engineering vacancies have grown by 80 per cent nationally,” Madew says. “A significant contributor to this increase is infrastructure projects.” Weeding out unnecessary infrastructure projects via a review will result in better planned and funded projects, she says. ▲ The review cannot operate in isolation, according to Medew. That alone will ensure there are enough engineers available to get projects running smoothly and on time. But Madew also says the review needs to acknowledge the broader societal context when assessing the projects. “When reviewing the pipeline, it will be important to give due consideration to changing consumer behaviour and economic priorities,” she says. “Fiscal policy needs to balance tackling the cost-of-living crisis currently being experienced with investment targeted to support changing societal needs. “Any funding allocation should also match the importance of policy outcomes, such as sustainability and emissions reductions, rather than just individual projects.” The one thing all parties agree on is that Australia needs infrastructure, some of it is long overdue and that having a deliverable, transparent and appropriately funded plan for it is key. “What I want a very detailed knowledge of with every single project that’s in that pipeline at the moment is: can it be delivered, are states and territories stumping up the money and their share of the money to do so, and when can it be delivered?” King says. “This review will put confidence back into the investment pipeline, benefitting the states and territories and the communities we all serve.” You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. 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Construction
Marisa Wikramanayake
Mon 01 May 23

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