5 ways Australia can improve how it delivers infrastructure

Improving productivity in how we plan, design, build and operate infrastructure is key to delivering prosperity and a high quality of life.

In Australia, productivity hasn’t risen in some time, a longstanding issue that’s holding back progress.

Many major infrastructure projects are over budget, over schedule or aren't deliverable. Building firms are entering administration at more than twice the rate of other industries.

These issues have led Australia’s government to define construction productivity and market capacity as a national cabinet priority.

What are the trends?

In June 2024, an ICE consultation found that:

• Design and construction practices in Australia are inefficient.
• Uncertainty around which projects will get built makes it difficult to build and maintain a skilled workforce.
• Procurement processes are often rushed, rigid and focus on the lowest cost, which can stifle innovation.
• Infrastructure investment decisions centre around initial capital spend and fail to consider total value over an asset’s life.
• Infrastructure contracts create adversarial relationships between the government and private sector. They don’t allow for collaborative problem-solving to unlock efficiencies.

The government is attempting to prioritise its infrastructure projects.

But it’s struggling because it needs to deliver essential infrastructure to service the growing population – particularly in the eastern states.

Decision-makers must take action to boost productivity so Australia can deliver on its current and future needs.

The ICE has made recommendations on how this can be achieved.

1. An updated definition of productivity

You can’t manage what you can’t measure.

Current measures of productivity are too narrowly focused on inputs, and market capacity constraints, such as labour, time, and materials.

There’s more to learn from a balanced outlook of the total value and benefits delivered to the broader public.

There needs to be a shared and full understanding of what productivity is in the context of infrastructure delivery in Australia.

The ICE recommends that an advisory group, for example the Australian Productivity Commission, be tasked with reviewing and updating this definition.

This would move beyond traditional input versus output metrics to consider how projects are delivering better social, economic and environmental outcomes.

Once this definition is agreed, it should be adopted and then assessed and monitored as part of Australia’s annual infrastructure review process.

2. Infrastructure investment decisions need to support the national vision

For Australia to achieve its long-term infrastructure goals, it needs a single, dependable, predictable pipeline of projects.

This would support government and industry to understand future demand and plan with certainty.

Australia has a history of announcing projects and later cancelling them due to changes in political leadership, funding or market capacity for delivery.

This isn’t a sustainable model.

Without a clear national vision, Australia’s infrastructure plans are a collection of unrelated projects that make little overall impact.

A long-term, strategic approach moves beyond individual, siloed project assessments. It requires system-wide change to plan for entire infrastructure networks that benefit the nation.

On the path to progress

Australia has taken steps in the right direction:

• The 2023 Infrastructure Policy Statement, which set out the themes the government wants its investments to deliver on; and
• Infrastructure Australia’s Infrastructure Priority List, which outlines nationally significant projects in the pre-funding and pre-delivery stages.

The state and territory governments have committed to developing annual infrastructure plans in consultation with local governments.

Yet, there’s an opportunity to develop a more sophisticated portfolio of national projects.

To achieve this, the ICE has recommended that Australia develops a long-term national infrastructure strategy.

It should outline a 20-year vision and planned and projected investments over the next 10 years.

To champion the strategy and cut across short-term political cycles, a new leadership role needs to be created.

3. Learn from completed projects

There’s no single route to improving infrastructure productivity.

Too often, there’s a push for the lowest project prices through competitive tendering processes.

The current prescriptive approach reduces chances to collaborate, innovate and optimise.

When projects are completed, there should be more thorough reviews and opportunities to learn lessons. This would ensure that processes that work are repeated on other projects.

To this end, the ICE recommended that infrastructure reporting includes completed projects, including an assessment of the benefits.

This will provide more accountability and transparency and the ability to track trends.

4. Develop a workforce strategy

More broadly, one of the key challenges in delivering infrastructure continues to be workforce shortages.

The federal government has acknowledged that there aren't enough construction workers. It has introduced 20,000 fee-free technical and further education places in 2024.

However, there’s still a lot of work to do to boost the pipeline of engineers in Australia.

Historically, Australia has relied on internationally trained engineers, but there’s growing competition for global talent.

The ICE has recommended that Australia develops a workforce strategy, aligned with the national infrastructure strategy.

This will help ensure the country has the right skillsets to deliver on its infrastructure commitments and improve productivity.

5. Use collaborative contracts

Collaborative and more standardised contracting could help increase the Australian government’s appetite for risk. This could then unlock greater productivity in infrastructure delivery.

Currently, an uneven amount of risk is placed on contractors through the bespoke contracts often used in Australia.

This results in higher prices to account for unexpected events, a preference for known solutions over innovation, and adversarial relationships that cause delays.

Also, bespoke contracts are often signed and then put aside until litigation arises.

Any adjustments to address cost rises, delivery delays or changes to project scope are usually addressed on an ad hoc basis.

How collaborative contracts work

Instead, standardised collaborative contracts, such as the NEC4 contract, are designed to be in use for the duration of the project.

This is because the contract owners must play an active role in administering the contract through to completion.

This approach ensures all parties communicate, agree on and share responsibilities for the outcomes of the project.

The ICE has recommended that Australian states, territories and federal government encourage the use of standardised collaborative contracts on infrastructure projects.

There are some major projects in Australia that have used a standard collaborative contract, such as those carried out by Sydney Water and Queensland Hydro.

It’s important to review and assess the benefits, efficiencies and outcomes achieved because of the collaborative approach.

This will help to build a business case for using them more widely.

Read more in the ICE's policy position statement