procurement

National approach needed for rail procurement

The dichotomy between building trains in Australia or overseas ignores the opportunities for procurement reform that would keep Australia competitive, writes Australasian Railway Association CEO Caroline Wilkie.

In recent months we have seen two very different approaches to rail procurement in Australia.

In New South Wales, the state government welcomed new rollingstock onto the network, after importing trains from overseas.

Meanwhile, in Victoria, the state government confirmed the order of the next tranche of V/Line trains, to be manufactured at Bombardier’s Dandenong facility.

As one state looked to promote local jobs in its own backyard, the other claimed doing so wasn’t really an option.

The truth is, both procurement processes highlight some of the challenges the industry is facing.

The NSW government’s erroneous claims that is wasn’t realistic to build trains in Australia were understandably met with disappointment from the industry.

We have – and always have had – a strong rail manufacturing industry in Australia.

We can be proud of our $2.4 billion rollingstock manufacturing and repair industry with capability and experience across the country.

Companies like Alstom, Bombardier, Downer, and UGL are leading the way in Australia, with over 900 businesses involved in rail manufacturing and supply nationally.

The industry can design, manufacture, maintain, and repair rollingstock to the highest standards, with capability in Cardiff and Broadmeadow in NSW; Dandenong, Ballarat and Newport in Victoria; Maryborough in Queensland; and East Perth in WA.

Metropolitan Sydney and Melbourne are the largest centres of rollingstock maintenance and repairs in Australia, and two of the three largest non-capital city employment bases for the industry nationally are in Newcastle and Lake Macquarie.

But the sector lacks the scale of its international counterparts and is hamstrung by the procurement processes that exist across the country.

While contract awards like those in Victoria do create jobs and support local businesses, more needs to be done to support the long- term health of the sector.

Victoria, like most state governments, applies local content requirements at the state level.

It is not hard to see why governments are prone to favouring a state-first procurement policy when awarding these contracts.

Research conducted by the ARA this year found that while the average business spends about twice their wages cost on intermediary inputs, the rollingstock manufacturing
and repair industry spends five times their wages cost.

It is understandable that governments believe keeping manufacturing in their state will realise these flow-on benefits and maximise the jobs and economic benefits generated from their investment.

But in practice, it really means there are fewer and fewer chances for the industry to win work, create jobs and support innovation and growth.

It means the team working on rollingstock in Victoria might not meet the local content requirements set by NSW, Queensland, or WA.

If the same team wanted to bid for a very similar contract outside of Victoria, they might need to have facilities and people located in the state where they are bidding.

For many companies, that kind of duplication – often for a single contract – is impractical, expensive, and difficult to manage.

Even if they do choose to establish a local presence, the costs can be prohibitive not just because of the need to be local, but because different states may favour different specifications to achieve the same outcome in their tender process.

In the end, this creates layer upon layer of complexity that drives up costs, makes it hard for rail manufacturers to work across jurisdictions and erodes the size of the project pipeline Australian businesses can work towards.

A national approach to rail procurement is the only solution.

We need an approach that recognises our manufacturing industry can only grow and scale up if we treat the whole of Australia as one single market.

We need to ask industry to deliver an outcome or solve a problem, rather than specify the individual components that must be used, even if they are not the best choice available.

We must consider the whole of life costs of an asset, and the additional economic and sustainability benefits our industry can deliver, rather than choose options that are cheap to produce but could cost much more to maintain.

If we take these simple steps, the industry will have greater certainty, increase its investment and training, and have access to a bigger project pipeline.

They will achieve new efficiencies and forge innovation that will make a difference for the industry and the people that rely upon it.

Ultimately, rail manufacturing will grow and increase its competitiveness, providing more jobs and opportunity than is possible right now.

We were heartened to hear NSW Minister for Transport and Roads, Andrew Constance confirm that he is willing to work on the issue with other state governments.

With more rail contractors and manufacturers looking to increase their use of Australian suppliers in the wake of COVID-19, there is no better time to act than now.

We look forward to working with Constance and his counterparts across the country to deliver better outcomes for the industry and the economy.

New procurement process for Inland Rail contracts

The Australian Rail Track Corporation (ARTC) will speed up and de-risk the procurement process for Inland Rail in a new procurement and packaging plan.

Inland Rail CEO Richard Wankmuller said the plan was developed in response to feedback from industry.

“Industry has clearly sent a message that Inland Rail needs to work more closely with project proponents to accelerate project tenders, maximise opportunities to participate and de-risk procurement processes. Doing so will deliver the greatest benefit for government, industry and small and medium regional businesses,” he said.

The plan will provide to industry opportunities on a number of projects, and the ARTC is currently seeking registrations of interest in civil works packages on three sections, Narromine to Narrabri, North Star to Border, and Border to Gowrie.

The procurement plan will cover other sections of Inland Rail, including:

  • Albury to Illabo
  • Illabo to Stockinbingal
  • Stockinbingal to Parkes
  • Narromine to Narrabri
  • North Star to NSW/QLD Border
  • NSW/QLD Border to Gowrie
  • Kagaru to Acacia Ridge and Bromelton

Wankmuller said that the project has opportunities for large and small businesses.

“By investing now and getting tenders out faster, this mega-project is offering tender packages ideally suited to a range of suppliers and contractors, big and small,” he said.

“Inland Rail is also being predominantly delivered – 90 per cent – in regional Victoria, New South Wales and Queensland away from the overheated metropolitan infrastructure markets meaning there is greater opportunity for regional Australia to reap the rewards.”

Chief Executive of the Australian Contractors Association Jon Davies said the procurement approach improve social and economic benefits that come from investment.

“It has never been more important for industry and Clients to work together collaboratively in order to efficiently deliver projects and leverage their social and economic benefits”, he said.

“We welcome ARTC’s new approach to procurement and our members look forward to working with ARTC and the Inland Rail team as these new opportunities arise in coming months.”

Deputy Prime Minister and Minister for Infrastructure, Transport and Regional Development Michael McCormack said the works packages would spread the benefit of the project.

“Inland Rail’s construction is providing a boost for local businesses and communities at a time it’s most needed,” said McCormack.

“By dividing this nation-building project into smaller parts, more local businesses can bid for this valuable work, contributing to Australia’s future.”

Construction of the Parkes to Narromine section was recently completed, and a contract for the construction of Narrabri to North Star is expected in the coming weeks.

Procurement reform a vital step for economic recovery

ARA CEO Caroline Wilkie makes the case for procurement reform in rollingstock and signalling to assist infrastructure spending to stimulate the economy.

Governments in Australia have indicated that they will continue to fund committed infrastructure projects and have begun to bring projects forward to further stimulate the economy to support job growth and investment due to the impacts of COVID-19.

The Australasian Railway Association (ARA) commends this sensible approach. Infrastructure spending is in the long-term national interest, stimulating multiple parts of the economy, not just construction. Stimulating rail manufacturers and suppliers would be of immense benefit, particularly in regional Australia, where many are located.

However, there are other areas where governments could go further to identify and act on measures that could be introduced to support further cost savings and improve the delivery of new rail projects.

Reforms in the area of tendering and procurement would deliver better, faster, and cheaper projects in the rail sector. While this debate is not new within the infrastructure portfolio, the economic impact of COVID-19 has highlighted the importance of pursuing efficiencies to ensure the rail infrastructure construction sector and rollingstock supply chain remain in a position to support the government’s infrastructure agenda and further stimulate the economy during
these difficult economic times.

Australia’s tendering practices are significantly costlier and more time consuming compared to international benchmarks. The tendering costs in Australia are estimated to be around 1-2 per cent of a project’s total cost, which are double the world benchmark of 0.5 per cent. Increased tender costs are immediately reflected in the project pricing, so reducing the costs of tendering should be important to all parties. High tender costs also increase the risk profile for tenderers and thereby tend to discourage participation.

The ARA proposes that significant benefits could be realised if improvements were made to current Australian industry procurement practices. Substantial improvements can be achieved through more streamlined and consistent tender processes that improve efficiencies for both suppliers and purchasers, from pre- qualification right through to contract award.

These changes would minimise the consumption of resources on redundant and non-productive outcomes, reduce procurement cycle times, further reducing costs and releasing industry capacity for delivery. Further, tendering on the basis of appropriate and more standardised contracting models and risk allocation frameworks for delivery will also reduce tender development and negotiation costs. Creating a consistent and well understood delivery environment will also lead to more successful project delivery outcomes.

The ARA commends the recent procurement-related initiative in NSW, embodied in the NSW government’s Action Plan: A 10-point commitment to the construction sector. The plan reduces the red tape for firms with a proven track record and supports streamlined prequalification schemes for contractors, tiered according to their size and capacity. It reviews existing pre-qualification schemes to ensure they focus on capacity and capability and do not impose unnecessary costs and administrative burdens on suppliers; and minimise the number of project-specific bidders that are required to generate and submit prior to the selection of a preferred tenderer.

The ARA believes that all states should adopt similar principles.

The benefits arising from any process optimisation and standardisation are multiplied when adopted across Australia’s procurement agencies. The ARA supports the convergence and the maximum practical standardisation of procurement practices on a national basis as an urgent and worthwhile objective.

Under the auspices of its Rail Industry Group, the ARA has convened an expert committee of suppliers, consultants, and other interested parties to make specific recommendations for improvement.

The Best Practice Guide to Rolling Stock and Signalling Tendering in the Australian Rail Industry analyses present deficiencies in current tendering frameworks that add unnecessary cost and complexity to already complex tender processes. It makes recommendations for improved practice by procuring agencies in eleven thematic areas.

The ARA has written to Transport and Infrastructure Council ministers with the Guide and is meeting officials to advocate for its implementation.

Procurement – similar to standards, specifications, and training – particularly in regard to rail systems, are areas where Australia has suffered due to its colonial legacy, with differing policy and arrangements in place throughout the six states acting as a deadweight against a national industry.

States, territories, and the federal government have demonstrated their ability to work collaboratively on issues of national significance where there is clear benefit to doing so during this pandemic. This cooperative model should be utilised for other key matters where federation has imposed challenges for industries, where significant savings can be achieved through harmonisation such as rail industry procurement.

ARA calls for tender changes to maximise benefit of rail

The Australasian Railway Association (ARA) has called for an update of tendering procedures around Australia to accelerate job-creating rail projects.

Releasing a new tendering framework, the ARA included 21 recommendations to improve the procurement process for rollingstock and signalling equipment.

ARA CEO, Caroline Wilkie said that implementing these recommendations would extend the benefits of rail infrastructure and supply contracts.

“Australian tendering costs are higher than global benchmarks and that makes it harder to get projects out of the planning phase into delivery,” said Wilkie.

“As governments look to bring on new projects to speed our post-pandemic economic recovery, simple and fast tendering processes will be needed to get people quickly back to work.”

In the framework, the ARA’s recommendations include changes to market sounding and pre-project engagement, a one-time national pre-qualification scheme, a simplified probity management process, clear requirements at the point of early contractor involvement, a harmonisation of specifications, and a cost recovery process for rollingstock design.

“Small measures like a one-time-only pre-qualification process and standardised templates, terms and conditions would make a big difference and reduce costs for both government and the private sector,” said Wilkie.

The ARA commended the NSW Government Action Plan, which it said set the standard for procurement and should be the benchmark for other states.

“A nationally consistent procurement process would cut red tape and focus tender discussions on the all-important project outcomes,” said Wilkie.

Today, Australian tendering costs are approximately 1-2 per cent of a project’s total cost, well over the international benchmark of 0.5 per cent. Bringing Australia into line with other countries would allow for reduced project pricing as well as improving participation by reducing the risk profile for tenderers.

“It is important tender processes are fit for purpose and resourced to succeed so projects can move from planning to delivery as soon as possible,” said Wilkie.

In a speech to the shadow cabinet on May 11, federal opposition leader Anthony Albanese’s call for more local content in rollingstock. Albanese said that trains should be built in Australia, and pointed to examples in Queensland, Victoria, and WA.

Wilkie noted that well-managed procurement processes can create employment in Australia.

“Now more than ever we need government and industry working together to get projects up and running to deliver jobs for all Australians.”