Paul Fletcher MP

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Speech - Consult Australia’s Asian Pacific Leaders Conference

Portfolio Speeches Thursday, 04 May 2017

I am very pleased to be here today at this important conference organised by Consult Australia.

The sector you represent is large, vibrant and important.

Consult Australia represents the business interests of firms operating in the built and natural environment.

There is an almost unprecedented level of infrastructure activity in Australia at the moment.  In turn, that means heavy demand for the skills and talents of architects, engineers, planners, environmental specialists and many other professionals working within your membership.

You speak for 48,000 consulting firms with members who employ more than 240,000 people.  Their combined revenue exceeds $40 billion a year.[1]

The volume of business done by your members in part reflects the economic impact of government infrastructure policies in Australia – and that is the issue I want to discuss today.

I want to talk first about the importance of planning – and in turn the demand for services this generates.

Next I will discuss approaches to infrastructure procurement – and how important this can be to maximise value for money for taxpayers, and also to secure the highest quality outcome possible.

In the final part of my remarks, I will turn to the way that infrastructure spending in Australia has important economic multiplier effects – including through developing a strong infrastructure services sector which in turn can deliver its services around the world.  Your members demonstrate this every day.

 

The Importance of Planning

Let me turn firstly, then, to the importance of planning for infrastructure.

The Turnbull Government is investing at record levels in infrastructure projects all across Australia - $50 billion in public infrastructure through to 2019-20.

Infrastructure Partnerships Australia records infrastructure spending by all State and Federal Governments across fifteen years.  IPA's online data shows spending across 2016–17 and 2017–18 to be the biggest years for Commonwealth infrastructure spending ever.[2]

Data compiled by respected research firm BIS Shrapnel shows a gathering tide of major infrastructure projects around the country, producing a year of record infrastructure spending in 2019.[3]

This is also seen in the Commonwealth budget figures. If you compare support for state infrastructure across the four-year forward estimates period of Labor's last three budgets and the Coalition's first three budgets, the average under the Coalition was $27.9 billion—a 54 per cent increase on Labor.

Since coming to government in 2013 the Coalition has committed to a wide range of new projects.

But in addition to the scale of our investment in infrastructure, a key theme for the Turnbull Government is the importance of planning infrastructure.

There is an ever-present risk in politics of making big announcements before the planning work is done. This is something former Chair of the Productivity Commission Gary Banks highlighted in a recent speech to Infrastructure Partnerships Australia, wryly noting that the NBN, announced in a dramatic flourish by Kevin Rudd in 2009

…continues to affirm the wisdom of doing the numbers before announcing the policy.[4]

That is why it is very important to have a thorough approach to planning projects – before committing taxpayers’ funds to them.

Of course the work done at the planning stage very often draws on the expertise of the members of Consult Australia, for example in developing designs for projects.

At a national level the Coalition Government has substantially strengthened the role of Infrastructure Australia.  It has become a completely independent body tasked with identifying and prioritising significant projects nationally through its Infrastructure Priority List.

As the Government’s independent infrastructure advisory body, IA has a key role in the assessment of business cases for major infrastructure projects where $100 million or more in Australian Government funding is sought.

Another key role is providing independent policy advice about how to deal with current and future infrastructure challenges.

Last year it issued the Australian Infrastructure Plan.  The preparation of this plan, together with the regularly updated Infrastructure Priority List, mean that IA is providing both a vision for reform and a pipeline of projects for investment over the next 15 years.

The Priority List assists federal, state and territory governments in their decision-making concerning infrastructure projects – and in particular the ones which are at a stage where they are suitable to receive funding.

An update to the Priority List was released on 25 February 2017.

The List currently contains 100 high priority and priority projects and initiatives.

Of the 18 high priority and priority projects in the latest update of the Priority List, the Australian Government has committed funding towards 15.

Infrastructure Australia is playing an important role by engaging with state and territory governments, as proponents of particular projects, at an early stage in the development of business cases for those projects.

This is a means by which the Turnbull Government’s broader policy priorities, such as increased housing supply and greater urban amenity, are being addressed through the planning phase of major projects.

In recent years a number of states have established their own state based infrastructure bodies, modelled on Infrastructure Australia.

Generally these bodies – such as Infrastructure NSW, Infrastructure Victoria and Building Queensland – have responsibility for the preparation of long term state infrastructure plans.  These set out the priorities for the stage over the short, medium and longer term. 

The new Western Australian Government has come to power with a commitment to establish Infrastructure WA as an independent advisory body to establish priorities for infrastructure planning and investment across Western Australia.[5]  This is a good development and the Commonwealth welcomes it.

Modern procurement practices in infrastructure

I want to turn now from how we plan projects to how we procure projects. 

The Australian market has been responsible for a lot of innovation in procurement.

Over the years, models such as traditional contracting, alliance contracting and public-private partnerships have been used.

A more recent trend is the use of collaborative procurement models. These mean that contractors are involved in projects at an earlier stage.

Under the traditional approach, you get the design done first – and then appoint the contractor.  There might have been a subtle change to the design that made construction quicker or cheaper – but under the traditional approach that would have been missed.

By involving the contractor at an early stage, you avoid that problem.  At the same time, you can retain competitive tension – by doing this with two contractors.

Recently for example the Queensland Government has used a Double Early Contractor Involvement model on two projects the Commonwealth is part funding, the M1 Pacific Motorway and Bruce Highway Sunshine Motorway projects.

These innovative procurement approaches are essential to ensure that governments are receiving the ‘best bang for the infrastructure buck’. 

The days of everything being done in house by government agencies are long gone.

Governments now turn to the private sector for expertise, innovation and the latest technological advances in the design of major infrastructure projects.

Another good example is the NorthConnex project right here in Sydney. 

NorthConnex is the longest road tunnel project in Australia and will bypass 21 traffic lights along Pennant Hills Road. It will make a huge difference to road users in northern Sydney when it is completed in 2019.

The procurement process was run by a consortium led by Transurban.  Let me quote from an assessment of the process by Infrastructure Australia.

The procurement process run by Transurban has focused on specifying outcomes, which has allowed tenderers to provide innovations in design and resulted in a 46 per cent cost reduction compared to previous submissions to Infrastructure Australia. The Government’s exposure to risk is also substantially lower because of the delivery of the project by Transurban.[6]

This is a good example of the benefits that can come through careful attention to procurement.  Of course, engineering consultants and other members of Consult Australia are typically heavily involved in procurement processes – as members of a bidding consortium, as advisers to the party doing the procuring, or in other ways.

Another project where we are drawing heavily on consulting expertise is Western Sydney Airport.

Just two days ago, following the announcement by Sydney Airport Group that it would not take up its ‘right of first refusal’ to build and operate the new airport at Badgerys Creek, the Turnbull Government announced it will build Western Sydney Airport.

The Western Sydney Airport will be a ‘game changer’ for Sydney and the nation - driving jobs, growth, economic activity and aviation capacity.  The consulting sector has been at the forefront of progressing the planning of this critical major infrastructure. 

We are committed to Western Sydney Airport being operational in 2026, and to earth moving works commencing on the 1800 hectare site at Badgerys Creek by the end of next year, and we have clear plans to achieve those outcomes.

Ernst & Young has led a project management consortium of several firms including LEK, GHD, and Landrum and Brown to provide specialist aviation, design and commercial expertise to support the government on the airport development.

Work undertaken by this team included patronage forecasting, airport operation and design concepts, market sounding, and airport costing and valuations.

We have also engaged a team headed up by SNC-Lavalin—a leading engineering, rail and construction company with recognised international rail expertise—to develop a feasibility design for rail access through the airport site.

We have engaged specialist environmental and legal consultants as well.

And to ensure easy access, major road upgrades to provide connectivity are underway, through the $3.6 billion Western Sydney Infrastructure Plan.

We are also conducting a scoping study into the rail needs of Western Sydney and Western Sydney Airport: what is the right route, when should it be built, how much will it cost and how should it be funded.

Beyond this major government investment, the airport is already attracting further private investment, such as the science park in Luddenham and a new luxury resort hotel in Twin Creeks.

Infrastructure as an economic multiplier

This leads me to the final issue I wanted to speak about - the importance of infrastructure as an economic multiplier.

One obvious way this occurs is through all of the jobs that are created on a major infrastructure project. 

For example, the Turnbull Government is working with the NSW Government to upgrade the Pacific Highway to four lanes all the way from Sydney to the Queensland border – a $5.6 billion commitment.

This work will continue until mid-2020. It will create on average up to 4,500 direct and 13,500 indirect jobs during peak construction, which is well underway.

The jobs impact of Western Sydney Airport is similarly very large. But as well as thousands of jobs in the construction phase, an airport provides even more jobs once operational.

By the early 2030s, Western Sydney Airport is expected to provide nearly 9,000 direct jobs and over 4,000 in on-site business parks.

This is projected to grow as the proposed airport grows, with around 750 jobs expected per million passengers handled by the airport annually.

By the early 2060s, this would mean over 60,000 direct jobs and a further 30,000 in business parks.  This is a powerful example of infrastructure as an economic multiplier.

As well as creating thousands of jobs, infrastructure spending can be leveraged to direct employment to particular segments of the workforce including those at the start of their career, those making a career transition and those otherwise facing challenges in entering the workforce.

The massive WestConnex project in Sydney, for example, will generate about 10,000 jobs directly and indirectly – and this includes hundreds of opportunities for apprentices and trainees.

An academy has been established at Homebush Bay to provide training and support for workers employed on WestConnex.

One of the key objectives is to provide training and employment opportunities for long term unemployed workers, indigenous Australians and those from disadvantaged backgrounds.

The project also has a focus on engaging people who have been retrenched from other heavy industries such as manufacturing and mining by providing them with a transition to the construction program.

In March this year, the first 14 Indigenous trainees graduated from the academy and have started work on the WestConnex project.

Overall, the academy will deliver training to more than 1500 workers over the life of the project including hundreds of apprentices and trainees.

The Training Academy is a joint activity of the consortia delivering the M4 East and the New M5 – CPB Contractors, Samsung and John Holland (in the case of M4E) and CPB Contractors, Samsung and Dragados (in the case of New M5).

Let me mention one other way the multiplier effect of infrastructure investment can work.  It can foster the growth of the infrastructure services sector – including the consulting firms who are members of Consult Australia – and firms in this sector can take their expertise to the world.

Australia’s infrastructure expertise is well recognised globally. One example is what is sometimes called the ‘Macquarie Model’ – the infrastructure financing expertise developed by Macquarie Bank  that has been deployed by that company in markets around the world.

I saw another example of Australia’s global reputation for infrastructure last year when then US Transport Secretary Anthony Foxx visited Australia.  In his meeting with me and my colleague Darren Chester, he expressed a keen interest in learning more about the Australian approach to public private partnerships.

The interest seems to be continuing under the new administration, according to recent press reports.  Steven Roth, co-chairman of President Trump’s infrastructure task force, told a Bloomberg panel discussion in New York that he was looking carefully at Australia’s model for infrastructure financing.[7]

Australian companies such as QIC, Transurban and IFM investors are well established participants in the US infrastructure market.

Australian consulting firms having played a big role in promoting PPPs into India and parts of Asia.[8]

During the mining boom, consulting firm Port Jackson Partners issued a report which highlighted the growth of the mining services sector – and the way in which companies in this sector were providing services around the world.[9]

Exactly the same argument can be made about infrastructure services.  With a high activity level in infrastructure projects, then that helps to build the scale of the infrastructure services sector – and in turn the capabilities that can be deployed in markets around the world.

Conclusion

Let me close then with the observation that the record level of infrastructure activity we are seeing has many consequences. Some are very direct and obvious: as new road and rail projects come on stream, that means people and goods can move about more quickly and efficiently.

But others are less direct – the downstream economic multiplier benefits, including through building up the scale of the Australian infrastructure services industry.

These are some of the beneficial consequences of our record level of infrastructure activity.

Through careful planning, and shrewd procurement, we are working to get the best value for the taxpayer dollar – and to maximise the economic benefits of our infrastructure investment.

Everybody in this room has an important role to play in that – and so I close by thanking you for what you do.


[2] Infrastructure Partnerships Australia (2017) Australian Infrastructure Metric, http://infrastructure.org.au/chart-group/infrastructure-metric/

[3] BIS Oxford Economics (2017), Major Transport Projects—Wave, Tsunami or Higher Tide?, https://www.bis.com.au/im-major-transport-projects-feb17.html

[9] Port Jackson Partners, ‘Earth, Wind, Fire and Water: Economic Opportunities and the Australian Commodities Cycle’

Authorised by Paul Fletcher MP, Level 2, 280 Pacific Highway Lindfield NSW 2070.

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