infrastructure

Early costings on infrastructure projects leading to inaccuracy: Grattan report

Governments and project authorities need to improve costings on transport infrastructure, and megaprojects in particular, a new report highlights.

The Grattan Institute’s The rise of megaprojects: counting the costs report found that Australian transport infrastructure projects over the past two decades cost $34 billion more than initially expected. Read more

infrastructure

Why the industry must spend resources wisely to drive Australia out of the current economic crisis

Rudolf Rose, associate director at DCWC, explains how the current COVID-19 crisis should influence Australia’s thinking on infrastructure.

THE IMPORTANCE OF KEEPING INFRASTRUCTURE JOBS
It’s an age-old economic principle. When people earn, they spend; when they do this, funds are further distributed, enabling even more spending. Infrastructure is one of the biggest employers in Australia, so the more we invest in keeping people in these jobs, the better the economy performs as a whole. With COVID-19’s economic fallout, it has never been more critical to ramp up impetus across our beloved industry.

For the most part, infrastructure jobs have been more secure than in other industries, with sectors such as construction deemed an ‘essential service’. But what other security is out there? For workers restricted by current pandemic measures, there is a big appetite to get people back into the workplace. According to surveys conducted throughout the construction industry, civil contractors are prepared to make significant investments in employment if government infrastructure projects are fast tracked. So capacity is there – especially for tier 2 and 3 companies with significant ability to create these employment opportunities. But what else do we need to consider?

While we’ve all been following recent government stimulus packages aimed at boosting infrastructure growth, the trick now is where to spend to achieve maximum benefit.

LinkedIn- Construction Variations

SPEND WISELY AND WITH PRUDENCE
Instead of ‘clustering’ projects in a small area, it may be more beneficial to spread the projects into rural and regional areas. The communities in these areas would benefit greatly from infrastructure investment by creating employment, as well as opportunities for training. Ultimately this translates to community spending filtering down to local businesses. This sentiment is echoing throughout our industry.

Treasury Secretary, Steven Kennedy, told a Senate hearing in October 2019, that spending big on large infrastructure projects is not the way to stimulate the economy. This point of view may have some merit, insofar as large-scale projects take significant time to plan to get the business cases and budget right. Spending more on smaller projects to match demand would make more sense – particularly when planning through to shovelling can be done within a much shorter timeline. This would allow for the main focus on larger projects to remain on planning, scoping and budgeting accurately.

Having said that, larger projects must not be abandoned in favour of the smaller ones. The smaller ones would merely provide shorter term relief in economic downturn, whereas the larger projects would stimulate the economy in the longer run. Mr Kennedy appears to reject the idea of extra spending except “in an emergency”.  That was before COVID-19 became what it is now – an emergency.

WHY IS THE COVID-19 CRISIS DIFFERENT AND HOW MIGHT IT INFLUENCE HOW INFRASTRUCTURE IS DELIVERED GOING FORWARD?
What COVID-19 has taught us so far, is that we are very adaptable. With a significant number of people getting used to working from home (and many coping well with this scenario), people may start to consider whether travelling to an office is really needed. They may think; why bother if they can achieve the same amount of work (and more) from the comfort of their own environment? This may be considered a radical approach and certainly is not without its own pitfalls, but still could be a consideration. This new dynamic also raises a number of questions around the allocation of industry resources in general.

Are train lines into the city from all around the metropolitan areas really going to be used for current or planned increased capacity? Should the spending on these planned projects be channelled to developments where digital connectivity can be vastly improved (let us face it, the NBN still struggles somewhat)? Should we invest more in renewable energy sources instead? Should there be a larger focus on innovation perhaps, and what does this look like?  Maybe if local rail network spending gets pushed back to a lower priority, intercity or fast rail could get more funding to compete with domestic air travel. Or now there could be less spent on transport and more on other forms of infrastructure. These are all alternative options if funds for planned transport projects get redistributed.

But what about the flow on? Although these proposed infrastructure opportunities may lack similarly skilled resources as for civil road & rail construction projects, they could open up training and upskilling for people to work in these industries.  This will promote increased capacity of tertiary educational institutions – again more infrastructure spending, creating more jobs.

WHO PAYS FOR ALL THIS?
While we can promote and encourage big spending on infrastructure to stimulate the economy in times of crisis, people will rightly ask where the funding for these planned projects will come from?

Both federal and state governments have already spent significant amounts of money on cash stimulus packages including JobKeeper allowances. This may well be unplanned and we, in the general public, may not really know whether funds earmarked for other areas of the economy, including infrastructure spending, have been redirected to pay for the various cash stimulus packages introduced. They may have come from some form of contingency fund in the government coffers. We certainly do not know.  However, if funds from other projects were redirected, including planned infrastructure investments, and those projects required ‘new’ funding, all levels of government may have to rethink where the capital would come from to pay for these projects. Let us face it, short term cash stimulus only goes so far – what happens if that runs out or gets wound back early?

One of the major contributors to reinvestment in infrastructure could be the sale of assets, as NSW did when they sold the state’s electricity assets. This provided a major boost to infrastructure spending and could be done again. Alternatives to this could be increased borrowing, higher taxes (GST), print more money, etc. All these have their own pros and pitfalls and identifying the healthy balance would be the key to getting this right. No option will be perfect, but some may be more perfect than others.

In any case, in our current environment loaded with uncertainty, some surety remains. As a historically vital player, infrastructure continues to play a pivotal role in boosting our country’s economy during economic downturn. The key is not only to spend wisely, fairly and equally, but to embrace the potential redistribution of funds across fresh opportunities arising out of this novel landscape.

Contact Rudolf Rose at: https://www.dcwc.com.au/contact-us

Striving for certainty

Donald Cant Watts Corke infrastructure lead Peter Gill tells Rail Express about his biggest concern during the rail sector’s growth phase, and how governments and the private sector can improve their approach.

Peter Gill doesn’t mind being the bearer of bad news. In fact, he makes it his business. As managing director of the infrastructure division at Donald Cant Watts Corke (DCWC), Gill says the most valuable thing he can provide is certainty.

Like many working in and around the rail sector, Gill is aware of the level of rail spending proposed, planned or underway by state and federal governments in Australia and New Zealand. But he is also aware of the frequency with which such projects overrun their budgets and the public damage which can be caused.

He says as spending goes up, accuracy and accountability will be critical to ensuring governments continue to commit to such projects in the future.

“We have some real concerns in the infrastructure sector about cost overruns which can be easily overcome by abiding by the guidelines of Treasury and Finance in Victoria, New South Wales and other states,” he tells Rail Express.

Gill says too often in Australia guidelines are being ignored, and sign-off on the final budget has, on several key projects, resulted in a figure far higher than the original. “The problem of underestimated budgets is created when advisors to governments do not abide by these guidelines,” he says.

“It’s essential that engineering and quantity surveying firms become acquainted with relative guidelines and be required to sign off that they have complied with these requirements. With the lack of assurance currently, some in our industry are hiding behind the inadequacies of others. This is causing governments to lose faith in professional services firms, leaving a bad taste, and it is hurting our industry as far as reputation goes.”

Gill believes that the professional sector needs to work closely with governments to establish a workable set of assurance criteria making it mandatory for design engineering firms and quantity surveyors to sign off when they have completed services to the required guidelines. This means that they can be held accountable when there are significant cost overruns to the original budget.

“We need to stop repeating the mistakes of the past, perpetuating the same mistakes over and over again. Somewhere we need to draw a line and put an end to this – we can’t just keep having cost blowouts because of bad advice with no fear of retribution.”

Work carried out by DCWC on Victoria’s Suburban Roads Upgrade Project meant that the works required were more expensive than previously advised to government and additional funding was sought from Treasury and Finance. DCWC believes that future related advice from the market will prove that this initiative was the correct one.

“Providing appropriate design and cost advice can be done, and it should be done in the very early stages,” Gill said.

“We aim to provide an integrated quantity surveying team, not just to provide cost advice, but to actually challenge the design, and where it is lacking, provide design assumptions and practical construction solutions. We are raising the bar by abiding by well thought out guidelines, and we are happy to sign off that we have done so.

“If I were asked to sign off on the services provided to recent government projects, I would have no hesitation whatsoever,” he says. “The advice that is coming back from the market is in line with what we prepared for these projects.”

A white paper presented by Gill in 2019 suggested transport infrastructure projects too often suffer from a lack of flexible cost options and proper benchmarking and market testing. He told the conference the total outturn cost for major transport- related projects is often underestimated by as much as 15-20 per cent due to these factors.

When asked what it’s like to essentially break bad news to a project proponent – ‘This project is going to cost more than you thought’ – Gill says providing such a reality check is an interesting part of what he does.

“We approach each project by challenging the design and constructability issues based on our experience with past projects,” he says. “We don’t just look at the estimate of costs, we actually take the design itself and provide additional advice based on how we think that design will actually be constructed. And that’s grown our reputation significantly.”

BRINGING TOGETHER DESIGN AND COST

Gill believes that the best way to provide end-to-end support and to ensure a project is properly budgeted throughout design and delivery, is to have better- integrated management teams.

“Fully integrated project teams – rather than a separate design and a separate cost team – we think are the answer to saving time and cost blowouts in the future,” Gill says.

“We advocate that our clients focus very heavily on the constructability and operational requirements prior to projects going to the market. We’re trying to encourage governments now to do that work upfront, before they go to market.”

DCWC has eight divisions in its Group, including Infrastructure, Project Management, Advisory, MEP Services and four Quantity Surveying divisions, and Gill says a diverse talent pool like this is critical to performing such an integrated role.

“We can’t claim all of the success on these major projects for our Division, we share this success with the other divisions. In our experience, such integrated project teams can provide assurance of documentation and cost impact by up to 20 per cent.”

To find out more, visit dcwc.com.au.