Out-Law News 3 min. read

Australia looks to reform infrastructure with new plan

Cost would no longer be the determining factor of whether construction companies win public contracts to deliver major infrastructure projects in Australia under planned reforms that have been announced.

The move away from a ‘lowest cost’ model is advocated by Infrastructure Australia in its new 2021 Australian infrastructure plan. Its new plan sets out a vision for what the market should look like in 2036 by delivering infrastructure for a stronger, more resilient Australian infrastructure sector.

“Infrastructure Australia’s vision for 2036 is to have infrastructure that improves the sustainability of the country’s economic, social, environmental and governance settings, builds quality of life for all Australians, and is resilient to shocks and emerging stresses,” it said.

The wide-ranging plan addresses core areas of the infrastructure market, from energy and transport, to social infrastructure – included for the first time in an Australian infrastructure plan – as well as water and waste and digital and telecommunications. Detailed sector plans are to follow, but the new plan foresees an integrated transport network across Australia, increased participation of businesses and consumers in a smart energy grid, a circular economy for waste, and equitable access to resilient, superfast broadband, among other things.

The use of digital technologies and data has been identified as core to delivering better infrastructure and outcomes for people and businesses. These are considered particularly important for boosting industry productivity and innovation in the infrastructure sector.

The plan also recognises the need for “a more commercially and financially sustainable infrastructure industry” and observes that the current focus of federal and state government procurement agencies on “delivering infrastructure for the lowest cost must evolve into a more mature approach that considers value for money and optimum public value”. Infrastructure Australia has recommended “a coordinated project pipeline with a mature approach to procurement and risk management”. 

This approach would see a shift away from delivering infrastructure for the lowest cost and on a project-specific contract with “inappropriate apportionment of risk” to a greater focus by all levels of government on value for money, optimising public value and consistent use of ‘best practice’ government procurement, a greater use of collaborative contract models and more upfront, informed due diligence to inform contracting and decision making. 

“The benefits of more effective infrastructure decision-making will improve community outcomes, a healthy and productive industry, attractive markets for supporting local and foreign investment, and reduced economic, social, environmental and political risks,” said Infrastructure Australia.

Earlier this year, Melbourne- and Perth-based experts at Pinsent Masons, the law firm behind Out-Law, said public sector bodies need to work with contractors, not against them, to deliver the greatest value for taxpayers from major infrastructure projects. They were responding to a controversial report published by policy think tank the Grattan Institute, describing the adversarial approach the report promotes to negotiating the price of major infrastructure contracts as misguided, adding that it would only serve to increase costs to the taxpayer in the long-run.

Tom Heading of Pinsent Masons said: “This is an ambitious and commendable plan. I am particularly encouraged by the plan’s recognition of the importance of a commercially and financially sustainable infrastructure industry and doing away with inappropriate allocations of risk.” 

Adam Perl, also of Pinsent Masons, said: “The inclusion of waste as part of the plan for the first time is an important step in Australia’s transition to a circular economy.”

Catherine Bendeich, also of Pinsent Masons, said: “The plan provides welcome recognition of the need for novel approaches, including a greater focus on ’front end engineering and design’, to respond to current challenges and to meet the anticipated stresses to develop resilient infrastructure and a sustainable industry in Australia.

Julieanne Alroe, chair of Infrastructure Australia, said: “Tomorrow’s infrastructure is likely to look very different to today’s, and the way infrastructure is planned needs to embrace this uncertainty. Historically, infrastructure planning has sought to project future conditions as an extension of today, then provided infrastructure to meet anticipated demand. In 2021 and beyond, the approach must be more robust. Rather than simply projecting forward the status quo, infrastructure planning must set an ambitious vision for the country. It should anticipate and adapt to change, manage risk and deliver infrastructure that works towards – rather than against – the current and future needs of the community.”

Additional input from Melissa Molloy of Pinsent Masons.

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