With record levels of infrastructure spending underway, how are Australia's major projects being governed?
Australia is in the middle of an infrastructure boom with multibillion-dollar projects around the country. But infrastructure is a mix of moving parts — logistics, politics, design, construction, community concerns, finance — and the key is in the planning. The success or failure of an infrastructure project is determined long before any concrete has been poured or any sods turned.
While there are undoubtedly projects that run to time and budget, it’s not difficult to find a report about an infrastructure project cost, time blowout or under-delivery.
In November alone, there were reports of another cost blowout to the much-delayed Sydney light rail project, Lendlease announced a multimillion-dollar provision due to tunnelling issues on the Sydney NorthConnex road project, and ASX-listed engineering group RCR Tomlinson went into administration after delays on several solar ventures. In South Australia, the $2.3b Royal Adelaide Hospital has been plagued with delays and cost overruns. In WA, the $1.1b Perth Stadium also ran over time and budget.
Australia’s infrastructure boom is adding to the difficulty of project governance for directors as projects compete for limited resources — and there is little sign of this diminishing in the coming years.
David Larocca, Oceania managing partner in transaction advisory at Ernst & Young, describes the amount of infrastructure building as “unprecedented in recent times” and expects it to continue for the next five to 10 years. While Australia has always had a lot of infrastructure activity, he says two things set the current boom apart.
The first is that in the past, infrastructure building was spread across transport and social infrastructure — hospitals, prisons and schools — but the current wave of construction is centred around transport and is dwarfing ongoing social infrastructure projects. Secondly, construction is concentrated on Sydney and Melbourne. The complexity of undertaking major transport projects in large cities — balancing environmental and community concerns, and the large amount of tunnelling required — has added to the costs.
“A megaproject used to cost $500m. It’s now $5b and there are lots of them,” says Larocca. “The projects are more complicated. Most of them, particularly in the transport space, have to interface with an existing network, which creates complexities. It’s not like you’re starting something from scratch.”
Infrastructure Australia, the federal statutory body with a mandate to prioritise and progress nationally significant infrastructure, seeks to provide a consistent evidence base to steer funding decisions. It has also developed guidelines to drive greater transparency and accountability in infrastructure decision-making and reduce instances of major projects receiving funding before appropriate planning and assessment.
Established under the Infrastructure Australia Act 2008 (Cth), the body was given the power to have an independent board with the right to appoint its own CEO in 2014. Infrastructure Australia is chaired by former Brisbane Airport CEO Julieanne Alroe MAICD, In January, it appointed former Green Building Council CEO Romilly Madew as its new CEO.
Infrastructure Australia has a regular Australian Infrastructure Audit, which examines submissions from governments, stakeholder groups and the community, and then draws up an Infrastructure Priority List of nationally-significant infrastructure investments Australia needs over the next 15 years, based on the business case.
“We’re advocating for more rigour, firstly in planning, to identify genuine gaps in infrastructure and the problems our communities are experiencing,” says Alroe. “We have successfully established a credible long-term view of our collective needs as a nation — one that enables our leaders to look beyond elections and budgetary cycles and make evidence-based investment decisions. This longer-term view of our infrastructure investment needs is vital because the challenges facing Australia — population growth, congestion in our cities and on our major roads, and the need to improve our regional connectivity — go beyond the challenges of the present.”
Infrastructure Australia would like to see a system of project review to capture lessons learned, thereby ensuring an awareness of what went well or what went wrong remains with the organisation after a key person leaves. “Can we find some way to capture that knowledge? That process is really important,” says Alroe.
Trigger-happy politicians also present dangers. The Grattan Institute, which analysed the performance of 836 large-scale transport infrastructure projects planned or built since 2001 in a report released in 2016, noted taxpayers had paid $28b more on transport infrastructure in the previous 15 years than governments had promised.
Marion Terrill, transport program director with the Melbourne think tank, says premature announcement of projects by politicians before they have been properly assessed, and inconsistent cost estimation are part of the problem. While the major political parties have committed to sound analysis and planning to avoid waste, and to making decisions with broad social benefit, “in practice they continue to announce projects before they’ve been properly assessed”.
Yet despite their sometimes staggering size, cost overruns attract little public attention. There is little apparent interest in understanding and fixing the underlying causes.
Adding to the complexity of infrastructure building are substantially shifting community expectations, from a project being a single-purpose asset to an asset that also needs to have a social purpose, says Maria Atkinson AM GAICD, a director and governance strategy consultant. Because many are funded either fully or partly with public money, the social purpose takes increasing precedence.
A water reservoir is a good example. Atkinson says there’s now a trend for reservoirs, formerly, off-limits to the public, to also be purposed as parks or public spaces. “That’s a different model to just producing a piece of infrastructure,” she says.
The traditional infrastructure funding and contracting model involves someone “clipping the ticket” (taking a fee) for finding the investment, then “clever contracts” that push the risk all the way down the supply chain and don’t take account of the whole life of the infrastructure asset.
We see the procurement side of the construction industry squeezed on margin, higher risk, project blow-ups... the model is broken.
“And then we see the construction industry and the procurement side of the construction industry squeezed on margin, and we’re seeing higher risk and project blow-ups,” says Atkinson. “The model we’ve traditionally used is broken.”
In fact, the entire conception of project management and project governance has shifted. There is more recognition that it goes beyond the construction or implementation stage, but just as importantly, that there is a huge amount of work in preparing a project — conception, planning, funding, stakeholder management, securing of planning and environment approvals, and so on.
“The most successful projects are undoubtedly those pre-planned to the greatest extent,” says John Grill AO, founder and chair of WorleyParsons.
Grill says it’s important the design of a project is sufficiently advanced before it gets underway to allow for reasonable certainty over price and timing. As much as governments might try to “fast-track” a project, he says the number of successful fast-tracked projects is actually small because unforeseen problems emerge as the project progresses. Likewise, risks need to be fully identified and accounted for in the project contract, and boards need a director who can speak to the financial and legal aspects of the contract.
Boards need to get enough information about a project to properly assess any issues and ensure management is taking appropriate steps to get them under control, says Grill, adding they also have to resist trying to manage the project itself. They must also ensure enough contingency in the initial project to allow for occasional cost overruns. “When they occur, the board needs to be assured everything is being done to bring them under control and limit the effects as much as possible,” he says.
Project managers need to find a sensible way of allowing the board to get at the key data, extracted from an often complex, dense mass of information.
Dr Stuart McGill, former ExxonMobil executive, and a governor of the Committee for Economic Development of Australia, says the foundations of a successful project are laid long before the project is conceived — with the development of individual and organisational competencies. “If they start off with a deficit in individual competencies, it is unlikely they will be able to compensate for that after the project is underway,” says McGill.
Where individual competencies relate to staff members’ project development capabilities, organisational competencies are around the company’s systems of project oversight — and this crucial role must be kept in-house. “You cannot contract out the overarching responsibility or component, says McGill. “You can contract out individual pieces, but somebody has to make sure that piece one joins seamlessly to piece two, to piece three. The owner has to integrate all these pieces.”
Directors have their best opportunity to contribute in a project’s early stages. “Directors need to get energised all the way from conceptualisation stage,” he says. “By the time people are pouring concrete, it’s less likely a director can ask a question that would have an important positive impact.”
Many businesses measure their success by outputs — how many buttons are made in an hour and how many are defective? But McGill says this is the wrong approach to oversee an infrastructure project. For management reporting, telling a director that the project is 15 per cent complete and on target, or 60 per cent complete and three per cent behind target doesn’t really impart the information directors need to ask informed questions. McGill says it is better directors are told: “The project is nearing the completion of the conceptual phase; the deliverables at the end of this phase are A, B, C; the state of those deliverables is complete/incomplete.”
You’ve got to understand what your project risk profile is and go through that rigorous process of trying to manage and share the risk.
McGill says risks also need to be identified before the project is underway, with a risk register. “It will list the options if the risk cannot be satisfactorily mitigated,” he says. “It will also list the options available to proceed and avoid that risk. If the risks continue to appear on the risk ledger, stage after stage, then that’s a red flag for anybody interested in the project.”
As with all major construction projects, directors need to closely monitor infrastructure projects’ WHS systems and performance. Alroe says project owners cannot offload all their risk onto other parties. “You’ve got to understand what your project risk profile is and go through that rigorous process of trying to manage and share the risk,” says Alroe. “But as the project owner, you can’t ever say, ‘I’ve outsourced my risk’. You’ve still got to manage who is dealing with your risk.”
Managing risk also involves management of stakeholders, of which there are many in a big infrastructure project — government, builders and designers, the community where the infrastructure is being built, and its eventual users.
The first step is to map out who the stakeholders are. “In a proper risk management process, you’ve identified those people, understood what the implications are to those people, and created frameworks in which to manage each of those stakeholders — what you need from them, and what they might need from you,” Alroe says.
During construction, there will almost certainly be downside risks on the community. “We hear a lot about the problems of the project, but we often fail to sell a vision of why we’re going through this pain and what are the ultimate benefits are,” she says. “The board needs to ask: ‘Is that well-managed, well-understood, well-communicated? Is the community sharing the upside?’”
Building the Nation
Infrastructure spending is helping to drive the Australian economy. Deloitte Access Economics lists $324b worth of private and public infrastructure projects as at September 2018. Infrastructure Australia has identified $55b worth of projects on its national priority list over the next 15 years.
Light Rail 12km link northern Canberra to Gungahlin ($1.3b–$1.6b). Completion 2019.
Sydney Metro 31 metro stations, 66km rail line in three stages: North-west 2019; City and South-west 2024; Metro West Sydney–Parramatta investigation ($12b).
WestConnex road, interchange and tunnel projects 2015–2024 for Parramatta Road, M5 and north-south corridors ($16.6b).
Western Sydney Airport Badgerys Creek Stage 1 single runway, capacity 10 million passengers per year ($5.3b). Projected cost over three stages to 2064: $38b.
Darwin regional water supply Dams, water supply, distribution, consumption. Completion 2025.
Darwin City Deal investment in education and civic precinct ($200m).
Central Arnhem Highway upgrade ($180m).
Buntine Highway upgrade ($100m).
Brisbane Metro inner-city public transport network ($730m).
Gold Coast M1 Pacific Motorway upgrade ($197.5m).
Adelaide North-South Corridor ($1.4b).
Gawler rail line electrification ($220m).
Joy Baluch Bridge duplication ($160m).
Hobart Science and Technology Precinct ($400m). Completion 2021.
Bass Highway upgrade ($400m).
Bridgewater Bridge replacement ($461m).
Tasmanian Rail ($60m) freight revitalisation.
Scottsdale Irrigation Scheme ($24.5m).
North East Link ($15.8 b).
West Gate Tunnel ($6.7b).
Melbourne Airport rail link ($5b). Construction begins 2022.
Metro Trains ($2.3b) 65 high-capacity trains for the network.
Murray Basin Rail Project Remove capacity constraints, standardise gauge and increase load limits. Forecast to replace 20,000 truck trips from an area that grows 70 per cent of the state’s grain ($435m+).
Metronet Includes Thornie-Cockleburn rail link and Yanchep rail extension ($1.1b).
Tonkin Highway ($580.5m).
Bunbury outer ring road ($560m).
Roe Highway ($144m).
Mitchell Freeway extension ($107.5m).
Bindoon bypass ($220m).
Myalup-Wellington Water Project to reduce salinity in Wellington Dam, the state’s second-largest reservoir ($396m).
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