Australia plans to spend a record $120 billion on infrastructure over the next decade. However, while this is a much-needed investment to help correct decades of under-spending in the sector, there is a huge risk of large-scale infrastructure projects going over budget. Aldous Mitchell and Csaba Jancsovics from Partners in Performance outline how billions can be better spent.
In light of population growth and the growing use of transport, and a large base of assets up for replacement, Australia’s infrastructure sector is gearing up for change. A massive $120 billion (estimation) will be spent on infrastructure in the coming ten years, with the largest portions to be spent in New South Wales and Victoria.
This boom will provide a material boost to the economy, but there is a high risk of critical failure in delivering these projects. In fact, at Partners in Performance, we estimate that implementation challenges could cause half of these major projects to overrun their budgets, costing taxpayers as much as $40 billion over the next eight years.
Moreover, schedule overruns will have direct capital impacts and, perhaps more importantly, delay the delivery of publicly promised economic benefits. This diminishes community utility and convenience with local businesses often hit hardest due to lost revenue from reduced traffic and accessibility, at a time when fiscal stimulus is more important than ever.
The Sydney light rail program is a particularly acute case. Fiscal stimuli from infrastructure is projected to be 2.5x the investment. However, overruns cut that figure nearly in half, representing a loss of economic opportunities worth $23-$48 billion over the next decade.
The good news is that financial and execution risks can be mitigated with effective controls and a focus on a culture of continuous improvement to positively impact readiness, productivity, claims and contingencies. The result is safer and better projects that could potentially save taxpayers billions of dollars.
Five steps towards success
Set up success with smart contracting strategy
Traditional contracts usually focus on establishing price and deliverables rather than building alignment and driving project performance. This approach can lead to hostile confrontation – as evidenced by the acrimonious standoff for the Melbourne Metro Tunnel project.
Projects are more likely to be delivered on time and within budget when mutually beneficial contracting strategies are developed that focus on mutually reducing risk and position both the project and contractors to be successful.
For example, a contract can provide stipulations for incorporating systems and tools that incentivise and reward contractors who deliver high-level performances. Mutually beneficial contracts typically increase infield productivity as contractors and subcontractors are aligned and working toward a common goal.
Reduce drag at transition points
Significant time and value are often lost at transition points, such as moving from design to construction, then again moving from construction to operations. Maintaining a laser-like focus on the readiness of key work packages and the rate of work on these packages helps deliver a smooth and effective transition.
This can be achieved by establishing disciplines and systems that drive thorough and proactive planning. When done well, sources of delays and overruns can be mitigated early.
Drive performance with strong project management
Silos can be broken down and roadblocks removed when a dedicated team works directly with contractors and stakeholders to manage a critical project path. This is useful for ensuring all core work packages and sub-contractors remain on target and able to meet and exceed their performance targets.
Establish performance transparency
In managing a diverse set of project teams, it is crucial to have a forward-looking single source of truth. This makes performance transparent and ensures that cascaded targets show progress. Visual boards should be supported by regular planning and progress reviews to quickly identify tasks that are falling behind. This gives teams the best chance to recover and deliver the next milestone on time.
These focused forums encourage teams to actively challenge the status quo throughout the entire process while also providing execution assurance to internal and external stakeholders.
Identify where there are gaps
Competition for talent and construction capacity is expected to continue, bringing the risk of unfilled roles and gaps in capability. Because of this, it is critical to understand the need to fill gaps in your project or adjust your plans.
Furthermore, project leaders should act as coaches to help their managers understand their roles and achieve success. This requires a fundamental shift from managing progress simply to meet contractual requirements to reinforcing an understanding of broader project goals.
Now is the time to take action
The upcoming tsunami of capital investment presents substantial risks to establishing crucial infrastructure and economic opportunities. These risks can be mitigated by selecting appropriate structures, partners and disciplines to challenge and manage these projects. Use the provided tips to ensure mutually beneficial results for contractors, governmental stakeholders and Australian taxpayers.
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