Value of rail construction contracts fall in 2020

While governments have trumpeted major stimulus spending projects in rail to spur the economy out of COVID-19, the value of contracts awarded in 2020 has fallen significantly, according to analysis from Infrastructure Partnerships Australia (IPA).

In 2019, contracts to the value of $27.1 billion were awarded in the infrastructure sector. In the first eight months of 2020, only $6.7bn in contracts have been awarded, a quarter of the 2019 total.

Of the contracts awarded, rail has been overlooked, with roads, water, social infrastructure and other transport receiving more money.

According to IPA, as governments have turned to small-scale stimulus projects, approvals and signatures on contracts has fallen. In many cases, these projects were already funded and were brought forward to get money flowing into the economy and increase business activity to rebound after COVID-19.

“Over the last few months, governments have taken smart steps to accelerate small-scale quick to market projects to soften the COVID landing,” said IPA chief executive Adrian Dwyer, who noted that larger projects will sustain the economy for the long term.

“This data shows we now need to accelerate approvals of large-scale projects, add to the major infrastructure pipeline, and ensure we keep pace on delivery,” he said.

“As we governments prepare for the delayed budget season, this is the time to scale up for the long economic recovery ahead.”

With the third quarter of 2020 drawing to a close, contract values could pick up for 2020 in the final quarter, with the contract for the next stage of Sydney Metro expected to be announced. Other contracts, such as those for the Narrabri to North Star section of Inland Rail, could also contribute to the 2020 total.

While rail was the smallest infrastructure sector in 2020 by contract value, it was the largest in 2019, with $11.6bn committed to the sector. In 2018, $6.6bn of contracts were awarded to rail projects.

There is over $3bn of announced funding for rail as part of state and federal stimulus plans.

Transport infrastructure investment needed to decrease congestion

Investment in transport infrastructure is cutting congestion in Australia’s major cities, but in Sydney and Melbourne there is still more to do, highlights research from Infrastructure Partnerships Australia (IPA) and Uber.

IPA and Uber have used anonymised ride share data from Uber up to the final quarter of 2019 to measure peak travel times in Australia’s four largest cities and have found that as major transport projects come online, travel times are being brought under control.

Despite all cities seeing population growth, congestion has largely plateaued, with travel reliability maintained. IPA chief executive Adrian Dwyer put this down to the opening of new transport links.

“With the insights of Uber’s data, we can see that before COVID-19 hit, ambitious levels of investment in infrastructure and real-time travel information were starting to bear fruit.”

To maintain or reduce congestion levels, further investment in rail and public transport infrastructure will be needed, the IPA found. In Brisbane, commuters from the outer ring suffered most, but were better off compared to their counterparts in other cities.

As Brisbane continues to grow, rail projects will be key to keeping the city moving.

“The major pipeline of new projects like the Cross River Rail and Brisbane Metro are likely to further improve travel times when they open in the coming years,” said Dwyer.

In Perth, where commuters spent the least amount of time in traffic, recent increases confirm the need for major rail projects such as the Metronet works program. General manager of Uber Australia and New Zealand Dom Taylor said that investment needed to continue in public transport.

“We want to work with cities to ensure we have the infrastructure and policies in place to tackle congestion. These include continuing to invest in public transport and road infrastructure, promoting shared modes and technology, and managing network demand to alleviate congestion.”

Sydney and Melbourne commuters, particularly those travelling from the fringes of the city did not benefit from a plateau or lowering of travel times, and in fact saw an increase in time spent in traffic. This reaffirmed the need for major rail projects, said Dwyer.

“Sydney Metro, WestConnex, and other major transport upgrades will help release the valve on Sydney’s congestions when they open in the coming years.”

Similarly in Melbourne, where peak travel delays and reliability worsened, major projects are hoped to alleviate this congestion.

“The good news is the major pipeline of new projects like the Metro Tunnel, the North East Link, and the West Gate Tunnel are all likely to further improve travel times when they open in the coming years,” said Dwyer.

infrastructure

Industry groups welcome infrastructure fast-track, but say there is more to do

Groups representing the logistics and infrastructure sectors have welcomed the federal government’s focus on cutting approval times and increasing investment in infrastructure.

On Monday, June 15, the federal government announced an extra $1.5 billion for infrastructure projects as well as 15 priority projects, including Inland Rail, that would have approvals fast-tracked.

In his speech to the Committee for the Economic Development of Australia (CEDA), Prime Minister Scott Morrison said that the Commonwealth had a role to play in the environmental approval of projects. With delays under this legislation costing industry over $300 million in 2019, Morrison said the government aimed to reduce approval times from 40 days on average to 30, a 25 per cent cut over the 2020 year.

“Ultimately, our objective is the streamlining of Commonwealth and state processes to a point of ‘single touch approvals’,” said Morrison.

Australian Logistics Council CEO Kirk Coningham said these changes would be of great benefit to businesses that operate national supply chains.

“The Prime Minister’s commitment to addressing regulatory burdens that increase cost and compliance burdens on businesses that operate across multiple jurisdictions is especially welcome,” he said.

Coningham welcomed news that the Deregulation Taskforce will take a national leadership role in the removal of regulatory impediments from within the Prime Minister’s department.

“ALC agrees with the Prime Minister’s observation that many of our laws have not kept pace with the development of technology. There are numerous opportunities within the freight and logistics sector to more effectively deploy technology to advance the efficiency, safety and visibility of freight movement,” said Coningham.

Coningham said that ensuring continuing flexibility for freight operators will be key to the ongoing resilience of Australia’s supply chains.

Chief executive of Infrastructure Partnerships Australia Adrian Dwyer highlighted that enabling works to start immediately on priority infrastructure projects is a good step, but more should be done to revive the economy.

“Fast-tracking projects that respond to population growth and sectoral transformations in energy, transport, and resource recovery should be the priority moving forward,” he said.

“If the federal government wants to supercharge aggregate demand it should use its balance sheet capacity to deploy more money into new infrastructure projects.

“The federal government can and should redeploy the $60 billion saving from its recalculated JobKeeper program into a bold new infrastructure agenda.”

Major projects

Community engagement key to rail project success

The successful delivery of the $150 billion rail infrastructure pipeline is at risk if community engagement best practices are adhered to, a new report from Infrastructure Partnerships Australia (IPA) has found.

With $20bn worth of infrastructure delayed or cancelled due to community opposition in the last decade, the current acceleration of infrastructure investment will need to take local attitudes into account.

Chief executive of IPA, Adrian Dwyer, said that rail has particular issues to confront in the construction and operation of infrastructure.

“Even though the construction impacts of a project may be short-term in nature, the long-term operational impacts of rail infrastructure means that social licence needs to be thought about early and often.”

The report, produced in partnership with LEK Consulting, found that to be effective, community consultation and engagement needed to be embedded throughout the project and be an active ingredient in decision-making processes.

Two major rail projects were highlighted for their effective engagement with community. The report noted that the active involvement of the community in the design of Sydney Metro and the Level Crossing Removal Project were best practice examples.

“The Level Crossing Removal and Sydney Metro projects have shown how extensive community engagement, underpinned by clear and simple messaging and genuine opportunities for co-design, can build trust and win over communities to the value of a project,” said Dwyer.

In both cases, community input led to changes in the design of the project, ongoing works were communicated clearly, and, where there was community opposition as in the case of the Level Crossing Removal Project, the benefits and costs were honestly communicated.

These case studies demonstrated the unique dynamics that rail projects will have to grapple with as further major projects are announced.

“The linear and long-term nature of rail infrastructure means the impacts are highly localised to rail corridors and station locations while the benefits are diffuse,” said Dwyer.

Rail industry ready to lead recovery

If the current project pipeline is maintained, rail could lead Australia’s economic recovery after the shocks of coronavirus (COVID-19), the results of a survey of the rail industry show.

The Australasian Railway Association (ARA) has released the results of a survey of its members which has highlighted that major players in the rail sector are looking to local manufacturers and producers to strengthen their supply chains.

The turn to local suppliers comes after the rail industry identified the biggest impact of COVID-19 as being constraints on international shipment of goods.

ARA chief executive officer Caroline Wilkie said that the survey results highlight an opportunity for Australia.

“Many businesses are looking to change their supply chains in the future and this presents a real opportunity for Australian manufacturers and suppliers.”

In a sign of positivity for the sector, the survey respondents said that most of the negative impacts of COVID-19 such as deferred investment, workforce expansion, or capital expenditure would only be in the short to medium term.

“A third of respondents could be back to full capacity within a month of the return to normal operations if the policy settings and project pipeline is right,” said Wilkie.

“Suppliers and contractors stand ready to bounce back quickly to support the recovery.”

Wilkie said that while the survey results were promising for local suppliers, government action could be the make or break factor. A firm commitment to the current infrastructure supply chain and additional stimulus measures would enable the rail industry to work with local suppliers.

“This is the perfect time for governments to streamline procurement processes and boost local content policies to support the generation of new jobs in the rail supply chain,” said Wilkie.

The insights from the ARA survey come after a number of bodies have highlighted the importance of infrastructure spending to lead Australia out of the COVID-19 crisis. On May 20, Engineers Australia released a nine-point plan, with point number one being “Keep the focus on infrastructure projects”.

Infrastructure Partnerships Australia noted that the $60 billion difference between the estimated and actual cost of JobKeeper could be directed into productivity-boosting infrastructure.

“Now the federal government has additional balance sheet capacity it should look to investments that can deliver the most bang for stimulus buck,” said CEO Adrian Dwyer.

“Infrastructure investment supported the national economy before COVID-19 and it’s the right policy tool to support our way out of this crisis.”

Federal government assessing projects for infrastructure spending

The federal government is currently assessing infrastructure projects to see what initiatives will receive funding.

Minister for Infrastructure, Transport and Regional Development, Michael McCormack said in a webinar with Infrastructure Partnerships Australia that the government was looking to the infrastructure sector to kick-start the Australian economy.

“The federal government has recently called on our states and territories and the 537 local governments to ask them what infrastructure can be brought forward. We are now assessing that infrastructure with responses received from three-quarters of the local councils.”

McCormack also highlighted that already funded projects would continue.

“Designing and constructing infrastructure is vital to Australia’s immediate and long-term future and we are committed to ensuring our record $100 billion pipeline stays on track during this time.”

As construction was deemed an essential activity, most projects around Australia have continued despite coronavirus (COVID-19) restrictions. With some restrictions now being lifted, further spending in infrastructure will be part of the government’s response, as Minister for Population, Cities and Urban Infrastructure, Alan Tudge.

“We have been working closely with industry since the outbreak of this pandemic to ensure a considered and responsible national response, whilst ensuring the health and safety of employees and the broader community.

“We want this crucial job sector to be maintained and remain as strong as ever so we are in a much better position to come out of COVID-19 and get our economy back on track.”

Infrastructure Partnerships Australia CEO Adrian Dwyer said that further investment would enable the sector to continue to support the wider economy.

“By maintaining a focus on the pipeline of existing projects and supporting the acceleration of new investments, the Federal Government has been able to keep the wheels on the construction sector,” he said.

“It’s not just about the 1.3 million people employed in the sector, it’s the flow-on effect to their families and the broader economy which makes it so important that we maintain a strong and viable sector through the COVID-19 crisis and out the other side.”