A partner from one of Australia’s major advisory firms says the ‘dysfunctional’ engineering, procurement and construction model is driving cost blow-outs on a substantial portion of major infrastructure projects.
In an opinion piece published in the Financial Review this week, KordaMentha Restructuring partner Scott Langdon advocates for more of a shift towards Alliance-based models for major project delivery, and a move away from the traditionally “confrontational” EPC model.
“I speak to contractors regularly and they find the contract process to be confrontational, litigious and dispute driven, as opposed to collaborative and outcome driven,” Langdon writes.
“This modus operandi is baked into our psyche in the way we build mega infrastructure projects and, unfortunately, generations of management in Australia only know this self-defeating, and expensive, way of operating.”
A 2016 report from the Grattan Institute analysed 836 infrastructure projects over a 15-year period worth more than $20 million, and found almost a quarter of them blew out their budget.
Rail is no stranger to this trend, with a notable and recent example being Sydney’s CBD and South East Light Rail project, where the state faced litigation from construction contractor Acciona over a major, costly contract dispute.
“Problems are inevitable on mega projects – there are, after all, large undertakings and highly challenging constructions, completed over many years with many different stakeholders,” Langdon writes.
“But the real issue is that these problems are dealt with in a litigious fashion, rather than a consensus-seeking one.”
Describing an Australian culture of ‘fighting your corner’, Langdon says too often sides are heading to their lawyer’s office, rather than the construction site.
He says an Alliance approach to major projects, the kind more often seen in Europe, not only keeps everyone on the same page contractually, but also works better in a practical sense.
“If both the contractor and the principal had an ‘identify-and-remedy-first’ approach, the delays to construction completion would be mitigated alongside cost overruns,” he wrote. “Alliance-style contracts … will materially mitigate the cost overruns by reducing construction delays. They involve the shared responsibility of bringing a project to fruition, and involve government and the private sector working in partnership on big projects.”
Recent major projects in Victoria have been signed up as Alliances, and the New South Wales Government in 2018 – in the midst of its Light Rail stress – committed to manage projects in a more collaborative way.
But Langdon says governments need to work harder to make procurement “more vibrant and creative”.
“Simply going with cheapest and quickest is not good enough, and condemns mega projects to failure,” he writes. “The government needs to be a partner in construction with the contractor; not opposition party.”