Infrastructure Australia Calls For Increased Investment Over Next 15 Years.

Legal News & Analysis - Asia Pacific - Australia - Energy & Project Finance

22 August, 2019

 

Australia must keep up "historic" levels of investment in new infrastructure and maintenance if it is to support the needs of the country, according to the independent infrastructure advisory body.
 

Infrastructure Australia has published its second infrastructure audit (642-page / 55.8MB PDF), setting out Australia's infrastructure needs over the next 15 years. The report covers the energy, transport, telecommunications, water and, for the first time, social infrastructure and waste sectors. The first Australian infrastructure audit was published in 2015.

 

Julieanne Alroe, chair of Infrastructure Australia, said that Australia's governments had made "important progress to promote reform, improve planning and address infrastructure gaps" since the publication of the 2015 report. The priority now was to "deliver long-term changes to the way we plan, fund and deliver infrastructure", rather than focus on immediate gaps, she said.

 

"Rather than a short-term boom, the historic level of activity we are seeing in the sector must, and is likely, to continue for the next 15 years and potentially beyond," she said. "This must be the new normal if we are to meet the challenges and opportunities ahead."

 

There are opportunities for foreign contractors to enter the Australian infrastructure market to take advantage of the steady flow of infrastructure work not only in Australia but in growing economies around the region, such as Indonesia.

 

Infrastructure Australia is seeking feedback on the 136 challenges and 44 opportunities identified in the audit, until 31 October 2019.

 

More than A$123 billion ($83bn) worth of construction work has begun since publication of the 2015 report, while Australian governments have committed to over A$200bn worth of future projects. However, infrastructure is failing to keep pace with rapid population growth, particularly in the major cities of Sydney, Melbourne, Brisbane and Perth; with the cost of road congestion in particular anticipated to increase by A$18.9bn to A$38.8bn by 2031.

 

While smaller 'satellite' cities had high quality infrastructure and the capacity to support growth, additional investment would be needed to ensure services were appropriate in scale to support the needs of the population, according to the report. It also called for urgent investment in social housing, transport, telecommunications and utilities in more remote parts of the country, where infrastructure service provision often "falls below what is acceptable for a highly developed nation".

 

The report also noted that the growth in so-called 'mega projects' larger than A$1bn in value was increasing the burden on Australia's infrastructure sector, in some cases exceeding industry skills and capacity. These projects "require new approaches if they are to be effectively delivered", according to Infrastructure Australia.

 

Infrastructure law expert Tom Heading of Pinsent Masons, the law firm behind Out-Law, said that other bodies, including the Reserve Bank of Australia, had recently called for the government to increase its infrastructure spend to boost productivity and stimulate the economy.

 

"The audit demonstrates a need for continuing high levels of investment in infrastructure," he said. "There are opportunities for foreign contractors to enter the Australian infrastructure market to take advantage of the steady flow of infrastructure work not only in Australia but in growing economies around the region, such as Indonesia."

 

I think the Australian government needs to accept that only it can manage many of the risks that are routinely pushed onto the service side of the infrastructure community. 

 

Heading said that Australia's infrastructure sector faced many structural problems, such as too much of the risk of projects being pushed down to contractors.

 

"There is a growing chorus calling for more collaborative contracting such as adopting the new engineering contract (NEC) for delivering large infrastructure projects," he said. "Some Australian contractors are also criticising the letting of large and difficult packages, which should be broken down to more manageable portions."

 

Infrastructure expert Rob Buchanan of Pinsent Masons said that other jurisdictions had moved away from forms of contract designed solely to effect risk transfer, towards forms which are designed to support the delivery of difficult and sophisticated projects and allow parties to more equally share in the risk of cost overrun or benefit from efficiencies and cost savings.

 

"The new NEC contract, NEC4, is one of these forms in use in Australia, and is likely to become more widely employed," he said. "Pinsent Masons is working with NEC to achieve this, as it has in many other jurisdictions."

 

We're seeing a smaller pool of capable Australian contractors who are able to deliver these massive or 'mega' projects.

 

"I think the Australian government needs to accept that only it can manage many of the risks that are routinely pushed onto the service side of the infrastructure community. Sending a main contractor to the wall as a result of difficulties encountered while delivering a project is not a 'win' for the public - all it achieves is a reduction in the pool of organisations able to deliver at a time when we need more capability, not less," he said.

 

Matthew Croagh, head of Pinsent Masons in Australia, told The Australian last week that Australia was heading for an "infrastructure delivery crisis" if state governments did not begin to adopt more collaborative models of contracting.

 

"We're seeing a smaller pool of capable Australian contractors who are able to deliver these massive or 'mega' projects," he said.

 

"They are fraught with an onerous risk allocation, which makes it very difficult for the contractors to profitably carry out these projects. If they can't profitably carry out these projects they won't continue to bid, and if they don't continue to bid then we are going to have real problems delivering much-needed infrastructure," he said.

 
This article was published in Out-law here

Pinsent Masons

 

For further information, please contact:

 

Matthew Croagh, Partner, Pinsent Masons

matt.croagh@pinsentmasons.com