Clayton Utz Insights
21 June 2012
By Katherine Mallik.
As Australian governments increasingly turn to public private partnerships to deliver infrastructure and social services, a new report from the Business Council of Australia explores the challenges to their successful delivery and ways to improve project delivery.
The Business Council of Australia's report Pipeline or Pipe Dream? Securing Australia's Investment Future identifies a $921 billion pipeline of investment projects which are currently being considered, in planning or underway in Australia. This is the biggest pipeline of projects ever undertaken in Australia and includes some of the largest projects in Australia's history.
What puts these projects at risk?
The Report suggests that many of these projects are at risk of either not being delivered or of being delayed or delivered at an unnecessarily high cost, because:
- Construction costs in Australia are high. On average, Australian projects cost approximately 40% more than projects carried out in the United States. Skills shortages in many industry subsectors, competition for labour, and a lack of available workers in regional and remote areas have increased labour costs for many projects, and poor exchange rates, industrial relations, occupational health and safety and environmental laws and low productivity adversely affect other construction costs.
- There is often a lack of community support. Many projects lack support from the community. This may be because of a range of factors, including a perception within the community that it will not benefit from a project or environmental or planning concerns.
- There may be a lack of resources. As more projects are delivered at the same time, competition for capital, labour, materials and equipment is high, particularly in regional or remote areas. A shortage of labour and skilled tradespeople, rigid migration policies, a lack of appropriate training at a tertiary level and an inability to source complex machinery within Australia contribute to this problem.
- It is difficult to obtain planning approval. Multiple, inefficient planning regimes at the Commonwealth, State and local government levels significantly add to project costs and can result in delays to the commencement of projects.
- There may be a lack of supporting infrastructure. It can be difficult to provide sufficient transport, water and communications infrastructure to support new projects, particularly in regional and remote areas.
- It can be difficult to obtain funding. As the pipeline of projects increases, government spending on public infrastructure has decreased. While private sector financing can help, it is not a solution to this funding problem.
- There is a lack of investor confidence. Foreign investors have lost confidence in Australia as a place to invest because of our complicated tax laws and lack of stable long-term policies.
Six ways to fix the problems affecting infrastructure delivery in Australia
However, it's not all bad news. The Report also suggests six ways to improve Australia's ability to deliver infrastructure projects:
- Increase community acceptance. Governments can increase community acceptance for large projects by making their population growth strategies available, providing long-term plans for infrastructure and fast-tracking much needed infrastructure in areas of high population growth. Community engagement processes could also be developed to increase engagement with community groups and provide information.
- Increase Australia's workforce. The Commonwealth Fovernment should undertake an analysis of the shortfall in skilled workers and tailor its migration policies and training initiatives to address skills shortages.
- Reform the planning approval process and increase productivity. The approvals process could be streamlined across all jurisdictions and new timeframes for approvals could be implemented to ensure that approvals are granted as quickly as possible and at the lowest possible cost. Workplace legislation could also be amended to allow employers greater flexibility in agreeing the terms and conditions of employment with their employees.
- Provide sufficient economic and social infrastructure. Governments should formulate long-term strategies for land use and prioritise the provision of utility services to growth areas. Private sector investment in water, energy, communications and transport infrastructure should also be encouraged and public infrastructure assets should be sold to raise funds for other projects where the private sector already owns similar assets or provides similar services. Private ownership of infrastructure should also be encouraged where an appropriate and transparent price for the infrastructure service can be established.
- Build investor confidence. Government procurement processes should be reviewed and restrictions on the cancellation of projects during the tender process should be implemented. Competitive tax regimes should be established with a focus on indirect taxes such as consumption tax and land tax.
- Implement supportive government policies. A national investment strategy should be implemented to ensure that Government policies are coordinated and that a consistent approach to major infrastructure is taken.
Much of this work is already underway within Government as is evidenced in the infrastructure policies and priorities highlighted in the recent NSW budget.
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