Introduction

The IPA released a national reform paper last year entitled “Australia’s Infrastructure Priorities: securing our Prosperity” (the “IPA paper”) which discusses the public sector procurement experience in Australia.

The IPA paper emphasises the underlying importance of infrastructure to the Australian economy (describing it as the “oxygen that will sustain Australia’s economic prosperity”) and outlines the need for reform to the public sector procurement of infrastructure to ensure “timely, forward looking and decisive infrastructure investment in Australia”. In its case for reform, the IPA put forward the following strategies (amongst others):

• the need for a “national leadership” of public sector procurement within a federal structure,
• the modernisation of government procurement processes through developing on past experience, including the continued use of the Public Private Partnership (“PPP”) model with increased refinements, such as more champion outcomes based specifications and use of “whole-of-life” risk management skills in the private sector,
• the implementation of streamlined legislative approvals processes for critical infrastructure to ensure the timely delivery of projects,
• the need to invest in skills by retaining and attracting new labour to the infrastructure industry, and
• the market-wide shaping of various key industries (such as transport and freight) to improve logistics as well as the establishment of more competitive utilities markets to promote service cultures through increased competition.

This Construction Alert article summarises the recommendations for reform described above. A full text of the IPA paper can be obtained by clicking on the following link: http://www.infrastructure.org.au/research/publications.htm

The need for a more “national approach”

The IPA paper identifies three major areas for growth for infrastructure in Australia, those being the energy, water and transport sectors. In each of these sectors, significant cross jurisdictional issues arise and the IPA recommends a move away from the “ad-hoc” state-based approach to a model based on Federal government leadership. The IPA sees this reform as the “best investment Australia can make towards infrastructure and securing our prosperity”. A major step has been taken by the Rudd government in respect of this reform initiative since the date of the IPA paper’s publication, with the appointment of the first ever Commonwealth Minister for Infrastructure (Anthony Albanese) and the approval for the creation of the statutory body of “Infrastructure Australia”. For more information on the role of Infrastructure Australia, please see the article entitled “Infrastructure Australia” in this edition of the Construction Alert.

Whilst the Federal government will need to assimilate the many dimensions of state interests (which the IPA concedes at times can be diverse and complex), the IPA believes that this national leadership will establish a national framework for infrastructure delivery that will standardise procurement models and capture the benefits of the various “maturing procurement models in the states”.

Modernisation of the procurement process

The IPA paper outlines the growing importance of the PPP model for public sector procurement in Australia for “suitable projects”. As the following extracts from the IPA paper show, the IPA affirms the view that the use of the PPP delivery model in both Australia and aboard has been a success:

• PPP procurement is a maturing model in the Australian market, and it has been overwhelmingly successful. When properly scoped and clearly executed, PPPs allow for the best share of resources, skills and risk between the public and private sectors in the delivery of public assets…
• The use of PPPs to procure health campuses, prisons, public housing, classrooms and public spaces allows government to capture the skill and innovation of the private sector…
• The UK National Audit Office findings were that 73 per cent of traditionally procured projects were over budget, and 70 per cent were delivered late. By comparison, just 20 per cent of PPP Projects were over budget and a mere 24 per cent over time…
• The use and operator experience has also been very sound…

In order to ensure that PPPs are used for “suitable projects”, the IPA supports the establishment of a “central depository of knowledge and skills in each state” to consolidate experience and equip relevant decision makers “up-front” with the knowledge required to make informed decisions about the suitability of projects for either traditional procurement or PPP style models.

In addition, the IPA argues that presently used PPP models can be further refined to focus even more on long term outcomes such as “whole-of-life objectives”, have increased transparency and incorporate more clearly defined partnership principles.

Streamlined approvals processes

The IPA also states that reforms are needed to the legislative approvals processes for critical infrastructure projects to ensure more timely delivery of projects. In the IPA’s view, it is imperative that the government be “armed with suitable powers to allow for the decisive deployment of critical infrastructure”. The IPA paper also states that a system that fails to quickly deploy critical infrastructure “squanders economic and future living standards”. Accordingly, the IPA recommend the implementation of consistent inter-jurisdictional planning instruments to streamline the approval process to make it less timely and more “user friendly”.

The IPA also advocates a rather “hard-line” approach by recommending a central framework for approvals by only the relevant Minister with the removal of individuals’ rights to “time consuming” appeals in the courts for critical projects.

Investment in skills

The IPA paper identifies yet another key area for reform to ensure continued economic prosperity in Australia as the skill set of the Australian workforce. In the IPA’s view, the present skills shortage in Australia is “exacerbating the challenges facing the infrastructure industry”. To address this issue the IPA recommends a “two-pronged approach”, the first being to retain the existing workforce and the second being to attract new employees to the infrastructure industry. To ensure this occurs, the promotion of flexible work practices and stability are key.

Shaping and creation of markets

The IPA paper also outlines the need for a “market-wide shaping” in the freight and transport industry sectors to improve ‘end-to-end’ inter-linkages and improve the logistics chain as between rail, road and port industries.

The IPA also argues for the establishment of more competitive utilities markets to promote service cultures through increased competition. For example, the IPA states that a national electricity market would reduce the risk of outages and would attract competitors into the market. The IPA sees the state-based ownership of electricity as a significant impediment to competition in that sector.

Conclusion

The IPA paper provides a useful insight into the challenges that are presently facing the Australian economy, and more particularly, the public procurement sector in Australia. The strategies and reforms put forward by the IPA seem to be based heavily on underlying economic theory and whilst some of the strategies for reform require no more than a “fine tuning” to the status quo (for example, the “fine tuning” of the use of the PPP model for suitable projects in Australia) a number of other reforms are highly ambitious and require dramatic change (for example, the reshaping of various economic markets to fuel growth and competition).

The appointment of the first ever Commonwealth Minister for Infrastructure (Anthony Albanese) and the approval for the creation of Infrastructure Australia since the publication of the IPA paper likely means that the recommendations for reforms that the IPA paper outlines are now firmly on the agenda of the Federal government.