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Infrastructure projects in Australia require procurement rethink

Out-Law Analysis | 01 Jul 2021 | 1:30 pm | 2 min. read

A rethink is required of the way in procurements are run for major infrastructure projects in Australia. Current procurement processes are not delivering the best outcomes – either financially or in terms of quality.

With procurement a topic of discussion at the 2021 transport summit hosted recently by Roads Australia , it is timely for project owners to look at the changes they can make to avoid their infrastructure projects running into delays and other problems.

Demand for infrastructure

The emphasis placed on the infrastructure industry to reboot the post-Covid economy has resulted in a surge of new construction projects. Transport for New South Wales has annonnced it will invest AU$72.2 billion ($54.4bn) over the next four years on infrastructure projects. Whilst an increase in projects is overwhelmingly positive news for industry, current procurement methods will need to change in order to service this demand.

Competition for sourcing contractors will be vigorous and procurers will likely encounter resourcing issues that could delay construction and push back completion dates. If these projects are to be delivered on time and to standard, procurers will have to offer additional incentives and not merely rely on the size or significance of a project to attract tenders.

Solving the resourcing problem

With strong competion between projects, procurers will need to ‘sell’ their projects to contractors. Attracting contractors to tender is not merely about throwing money at projects but rather requires a reasonable risk-sharing philiosophy. Lump sum contracting does not guarantee better project outcomes, rather it inflates the size of the project budget and guarantees inefficiency and a focus on cost recovery. Instead, procurers should exercsise greater project transparency and engagement with industry so that contractors are able to appropriately tender and fill the necessary demand. Additional sales points could include guarantees in relation to swift and timely payments or genuine efforts to reduce contractors’ exposure to risk.

Buchanan Rob

Rob Buchanan

Partner

Whilst an increase in projects is overwhelmingly positive news for industry, current procurement methods will need to change in order to service this demand

Procuers can also make better use of small to medium sized contractors who typically possess specialist expertise but are unable to tender for projects as the main contractor, given the scale and scope of the contract work. Procurers taking interface risk without deploying a ‘divide and conquer’ strategy would encourage more capabiity to enter the market.

General labour shortages from international and state border closures have exaccerbated contractor supply issues. Making tendering processes accessible for small and medium sized contractors will improve the portion of available labour available to a project. Of course, with more contractors on site, proper project management will need to be affected to ensure proper coordination between contractors so projects stay on track and on budget. Government agencies need to play a leading role in managing the risks inherent in the necessary interaction of multiple contractors.

Actions for procurers

Smart procurers will take steps to secure their supply chains early. Demand for contractors is high and procurers should look to attracting contractors to tender. Contractors are best sought by offering a transparent procurement process, which offers incentives and includes small and medium sized contractors. Securing your own supply chain to deliver on the renewable energy drive applicable to mining development, gas, social infrastructure and commercial development is also vital. The smarter procurement agencies are taking this more seriously than others, with Sydney Water among the examples of "smarter" in that regard. Dogmatic adherence to a lump sum full risk transfer approach will start to mean you will struggle to find anyone reliable to build your projects.