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Meeting Australian infrastructure demand in a post-Covid world

Out-Law Analysis | 03 Mar 2021 | 10:24 am | 4 min. read

With infrastructure widely anticipated to lead the global post-pandemic recovery, the sector can expect serious competition on access to skills, assets and the supply chain.

The New South Wales government plans to invest A$107.1 billion (US$84bn) over the next four years in transport infrastructure alone as part of its rolling infrastructure plan, while recent state and federal governments are expected to spend a combined A$225bn (US$175bn) over the same period. While the scale of this investment is not new, it is evident that the next four years will be frantic for procurers and the service industry and that competition for a reliable supply chain will be intense.

Australia, like many countries, is currently experiencing a shortage of skills across the supply chain while the trades and tradespeople required for infrastructure projects are also in high demand, in competition with the renewable energy and mining sectors. These factors have led to escalating costs for wages, materials, plant and equipment - a trend that will only continue as the volume of work to be carried out increases.

Previous economic crises have seen a flood of projects pushed to market at an accelerated rate by politicians seeking the easy political wins and boost to GDP that can result from new infrastructure. However, experience shows that without sufficient scoping and consideration of risk allocation, the promised benefits to both the public and private sector will not materialise. Careful consideration of the best contracting models will be needed as part of any governmental drives to manage post-pandemic capacity.

Closing the skills gap

The public and private sector will need to come together to bring more capability and capacity to the market. Australia's skills gap is not without precedent, and the country can look to other jurisdictions for examples of successful strategies.

Buchanan Rob

Rob Buchanan

Partner

Without sufficient scoping and consideration of risk allocation, the promised benefits of increased infrastructure investment to both the public and private sector will not materialise

Hong Kong, which experienced a similar infrastructure boom in the past decade, focused on school leavers and re-skilling. The government invested substantially in trade-focused training camps, promoting construction techniques requiring fewer workers, while also encouraging young people into construction-orientated trades and degrees. It also advertised globally, seeking to attract experienced contractors and individuals from overseas.

Similarly, in London, Crossrail created a tunnelling and construction skills 'academy', aimed at training 3,500 people to work on the project and to provide a lasting skills and employment legacy.

Australia has followed a similar path in terms of attracting overseas skills and training up the construction professionals of the future. Transport for New South Wales (TfNSW), for example, has put measurable requirements for training junior members of the workforce in place for its contractors. The Victorian Major Projects Leadership Academy, which was established in 2019 to train the people needed to deliver the complex infrastructure projects of the future, was rebranded in 2020 to take on participants from across Australia.

Re-skilling will also be important as employment support schemes end and the longer-term impact of Covid-19 on industries such as airlines, retail and hospitality becomes clearer. The Australian Constructors Association (ACA) has been looking into potential transferrable skills from those in such 'Covid-displaced' industries, and is engaged with the Federal Skills Commissioner about this issue.

The industry should also be seeking to attract a more diverse pool of potential candidates. Women are particularly underrepresented in construction roles worldwide, as the industry struggles to shake off its reputation as 'man's work'. The reasons for this are multiple, but include the long-running disparity in the numbers of women studying and seeking careers in the science, technology, engineering and maths (STEM) fields; a lack of visible role models and mentors; and rigid shift patterns and unsocial hours being unable to accommodate those with caring responsibilities.

One easy win would be to focus on those already working in the construction sector. There is a lot more that could be done to improve mental health in the sector, with its associated impact on availability for work. The effects of financial hardship and stress on the smaller contractors who are more vulnerable financially also needs to be addressed.

Addressing capacity through contracting

While peaks and troughs associated with economic fluctuations are unavoidable, the construction industry operates best when responding to a steady and sustainable project pipeline rather than a 'boom and bust' mentality.

The situation is further complicated in Australia as it is each individual state, rather than the federal government, which is responsible for infrastructure. Given the unprecedented and global impact of the pandemic, however, Australia needs to develop cohesive, workable national strategies aimed at stabilising the infrastructure market. Without a national approach, a solution will be difficult.

Australian contracts used for mega-projects are generally bespoke risk transfer documents, which lack practical utility. For contractors and the supply chain, collaboration will be key to success in this new landscape. Procurement models which support and encourage such collaboration should be encouraged and both sides of the negotiating table need to be committed to working towards the success of the project for a collaborative construction model to succeed.

Instead of focusing on one particular form of procurement, or one form of contract, the solution is likely to be some sort of hybrid model – going to market on the certainties of the project, and considering a target cost or provisional sum approach for the uncertain components. The advent of the NEC4 contract in Australia is an exciting development, and should be seen as a piece of the jigsaw needed here. Pinsent Masons, the law firm behind Out-Law, has just finished work on the Australia-specific 'Y Option' clauses in support of the forthcoming launch of this standard form in Australia.

Sydney Water has recently gone to market on the basis of a 10-year framework let under the NEC4 suite, which it is calling Partnership For Success (P4S). This collaborative, long-term approach will secure its access to the supply chain over a period when capacity and capability is at a premium.

Capacity post-pandemic is one of the topics that will be addressed during the Pinsent Masons global infrastructure law review of the year series of events. The events are free to register for and address both sector-wide pivotal issues of global impact and local construction law issues affecting the infrastructure industry.