August 14, 2014
Fix infrastructure governance and save taxpayers over $4 billion per year
Australia can be the best in the world in delivering better value for money infrastructure should governments choose to make that a top priority.
The nation as a whole has the potential to save between $4 and $5 billion per year (or around 6 per cent of total public investment) through better long-term planning and more sound governance of infrastructure.
SMART CEO Garry Bowditch said, “What is encouraging about the Australian infrastructure performance is that the nation has the appetite to fix a range of legacy issues that has driven higher costs over the past decade."
"While it is disappointing that these higher costs were to a large extent avoidable, we should be cautiously optimistic to the future."
Australian governments more recently have sought to develop integrated plans for their future infrastructure needs and to establish agencies to improve project selection methodology and achieve more overall rigour in the system.
But there is much more to do; urgent reform is required and every jurisdiction must maintain their focus on getting these basics right.
“For example, when committing to a major infrastructure project governments need to be front footed to dealing with changing costs, and the implications of that for the scope of the project,” Mr Bowditch said.
That means, if costs escalate to a point where the tipping point for net benefits becomes negative, governments should exercise their responsibility to take this into account in terms of reviewing the scope and the timing of the project.
These are principles applied in the private sector, and have much to offer policymakers.
The SMART Infrastructure Facility has undertaken an analysis of the potential savings from comprehensive infrastructure reform and the way major projects are procured and managed by government.
The analysis from Australia’s only dedicated research and policy development institution concerned with integrated infrastructure planning and management points to the fact that Australia has a strong global record for competent infrastructure management.
But complacency to reform in areas of value for money will hold back the attractiveness of Australia as an infrastructure investment destination in the future. “Australia must better balance its competing obligations to deliver infrastructure in a timely way with its responsibility to ensure value for money for Australian taxpayers,” Mr Bowditch said.
The SMART Infrastructure Facility’s analysis that spans more than a decade shows that the avoidable costs have been driven by a combination of four factors:
- Excessive public construction during booms: that exacerbates existing shortages and drives up the cost of skilled labour, access to raw materials and equipment. While this was a major problem during the resources boom, a hang over of high skilled labour costs for design and engineering persist today well after the boom has finished.
- Red and Green Tape: the cumulative build-up and impact from both state & Federal governments has significantly raised costs and delayed projects. For instance, more burdensome technical standards, planning and design requirements as well as duplicative environmental, health and safety requirements have added significantly to costs over past decades.
- Lack of long term planning: Absence of corridor reservations and land use planning especially with transport infrastructure has seen an over reliance on tunnels and other expensive construction methods, compared with what could have been provided on the surface.
- Political Ribbon Cutting: Pursuit of the Mega Projects over the renovation of existing infrastructure (decongesting and debottlenecking) where often costs are significantly lower for a similar outcome.
Mr Bowditch believes major infrastructure programs are in need of greater transparency and accountability to reflect ‘value for money’ principles and help disinfect past practices.
Infrastructure Australia, INSW and similar bodies go some way to addressing the four factors our analysis has identified but they are far from fixed.
“Australia cannot afford to continue its practices where poor value for money year after year result in a level of inefficiency that could if corrected fund the equivalent of at least the entire annual capital expenditure program of two large states,” Mr Bowditch said.
The results are based on a “top-down” analysis of publicly available data (including ABS National Accounts data and State and Federal Budget Papers) and previous reports (including the recent Productivity Commission Inquiry into Public Infrastructure), as well as interviews with key stakeholders across the infrastructure sector.
Survey: Australian infrastructure decision makers show qualified optimism about the sector's direction
Photos: High resolution images from the Infrastructure Business and Policy Dialogue 2014 are available. Please contact UOW Media and PR officer Jacqueline Wales on jwales@uow.edu.au or on 4221 4582.
Media Contact: Mr Bowditch is available for media comment, please call Tania Brown on 0447 611 481.