29/07/2019 - 13:44

Contracting concerns as workflow expands

29/07/2019 - 13:44

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SPECIAL REPORT: Unprecedented transport infrastructure spending and an uptick in mining investment have buoyed the spirits of WA’s major contractors.

Contracting  concerns as workflow expands
Photo: Gabriel Oliveira

Unprecedented transport infrastructure spending and an uptick in mining investment have buoyed the spirits of WA’s major contractors.

Western Australia’s civil contractors remain an optimistic bunch, despite many in the sector only managing to hang on from contract to contract. 

In recent years, the sector has felt the brunt of the cyclical, resources-focused nature of the WA economy, with civil contractors facing an uncertain outlook as the overall value of construction work dropped from a 2013 peak of around $20 billion, to its current level of approximately $7 billion.

But while many would be forgiven for adopting a pessimistic stance, or packing up and moving interstate, WA’s contracting fraternity instead remains firmly focused on exploiting upcoming opportunities.

(click here to see a PDF version of the full special report)

And while an expected revival in the resources sector, particularly from the state’s iron ore giants, has helped boost business, it is the state government’s record commitments to upgrading transport infrastructure across WA that has had the most marked effect on industry sentiment.

Infrastructure Australia chief executive Romilly Madew, in Perth recently to present at a Property Council of Australia event, painted a picture of a rapidly changing environment for infrastructure in WA, particularly in roads and rail. 

“We continue to see a strong pipeline of business case submissions from WA, certainly the most number of submissions from any state or territory, reflecting the scale of infrastructure investment and planning currently under way in WA,” Ms Madew said.

“Over the next decade, the number of trips on Perth’s transport network is forecast to increase by more than 30 per cent to up to 7 million daily trips. 

“Trips by public transport are expected to grow by more than 40 per cent, a faster rate than by car. 

“This mode shift is a positive development, but congestion on Perth’s roads will still be a challenge as the city grows.”

She said in WA’s rapidly changing environment, selecting the right infrastructure projects was a complex task, but possibly the most critical one facing the state government.

In that regard, the implementation of Infrastructure WA, a key election commitment by the McGowan government, represents a crucial step to getting the project mix right.

Planning Minister Rita Saffioti said much of the state government’s transport infrastructure spending was focused on addressing the challenges of growth – reducing the costs of congestion as well as ensuring that communities were well connected to the centre of the city and other employment hubs.

Ms Saffioti described the state government’s commitment as unprecedented, with $4.1 billion committed in recent state budgets for Metronet, $2 billion to go towards regional road upgrades, $415 million to upgrade level crossings along the Armadale line, and $146 million in new cycling infrastructure the highlight initiatives.

“Another key priority from our perspective is working with industry and creating a pipeline of work,” Ms Saffioti told a recent Committee for Economic Development of Australia event.

“By having an agreed plan in relation to investment for our rail lines and investment in roads, we give industry the opportunity to participate over a longer term.

“Working with industry, we believe over the next six years we can create a pipeline of work that creates investment certainty and also creates new freight routes and reduces congestion across the metropolitan area.”

However, despite the increased confidence and improved sentiment, Georgiou Group chief executive Rob Monaci told Business News civil contractors were not without significant challenges.

Mr Monaci said while it was clear the overall levels of work were picking up, competition to secure a place on tender lists, and ultimately win work, remained as high as ever.

“People’s order books are filling up, but they’re not full yet,” he said.

“It’s still very competitive – for resources projects, to secure manpower and equipment is going to be tough in the future.

“You need to be strong in order to shortlist and hopefully you get the right price.”

Georgiou Group is one of the leading players in the newly established Australian Owned Contractors Association, a representative body dedicated to promoting a sustainable contracting sector.

One of the association’s biggest concerns is the structure of the WA contracting sector, and the capacity of WA-owned companies to win work among the state government’s upcoming list of high-value projects.

“The whole idea is trying to get Australian-owned contractors to have some share of those big projects, because most of those projects in Australia are being delivered by international companies,” Mr Monaci said.

“More than 85 per cent of projects worth greater than $500 million in the last five years in Australia have been delivered by multinationals.

“We’re not saying we don’t want internationals, the internationals are important, they bring a lot of experience.

“But how do we keep Australian content in there?”

Civil Contractors Federation WA chief executive Andy Graham shared Mr Monaci’s concern.

The two largest projects under construction in WA currently – the $1.9 billion Forrestfield Airport Link and the $417 million Northlink stage two – are being rolled out by joint ventures headlined by international groups.

For Forrestfield, Italian infrastructure group Salini Impregilo is leading a joint venture with locally based NRW Holdings, while at Northlink stage two, United Kingdom-headquartered Laing O’Rourke is leading a JV with BGC Australia.

Mr Graham said while the project mix in recent years had been reflective of the capacity of local industry, the burgeoning pipeline of big ticket jobs was a mounting concern.

“You have to look at the structure of the WA contracting industry,” Mr Graham told Business News.

“This state government, and we applaud them for it, they are committed to WA jobs, they have an industry participation strategy that says you’ve got to provide opportunities for local businesses.

“The reality is that WA has a large and healthy civil construction industry but most of the WA businesses have the financial capacity to bid for contracts up to around $150 million.

“Once you get over that mark, there are very few companies that can bid.”

Mr Graham said CCF had urged the state government to explore ways it could de-bundle projects and split them into smaller projects.

Main Roads Western Australia applied that thinking with its $1 billion Gateway WA roads upgrade, requiring tier one contractors to joint venture with smaller firms to be eligible to win the works.

“Smaller projects are commonly regarded as more shovel-ready, because a smaller project is easier to get going than a large one,” Mr Graham said.

“With a road, it’s not so hard to break it into smaller pieces, but it’s a little bit harder with rail of course.

“But the federal government can help there, too, with the project mix.

“It is the major funder of big transport projects, and of course has some influence.

“I believe the federal Infrastructure Minister Alan Tudge was in Perth a few weeks ago saying things along the same lines – he’s working to get more $10 million, $20 million and $30 million projects onto the pipeline, which is good news.”

A relative newcomer to WA’s transport infrastructure space is civil and structural engineering consultancy Pritchard Francis, which pivoted towards the sector in 2016 to insulate itself from declining levels of activity in its more traditional markets of land development and resources.

Pritchard Francis transport principal Mike Rathbone said he saw the pipeline of transport infrastructure being pursued by the state government as ambitious, with procurement proving to be a major challenge.

“The number and diversity of projects that are being tendered at any one time raises issues around conflict and probity that are inevitable in what is still a really small pool of suppliers,” Mr Rathbone told Business News.

“Every new request for tender that comes across my desk has the requisite probity checks attached, so we need to think carefully about proceeding.

“On the other side of the fence are the resourcing constraints within client organisations that can lead to bottlenecks and delays.

“A lot of people will say there is too much red and green tape, but my own personal view is that most of it is necessary and important.

“If we can find efficiency and still achieve the objectives for a healthy society, then that would be the right balance.”

In terms of resourcing, Mr Graham said CCF remained concerned around the state government’s ability to roll out its massive pipeline of projects in a sufficiently timely manner to satisfy industry’s needs.

Mr Graham said in the 2018-19 financial year, the state government had budgeted to spend about $4.5 million in infrastructure projects, but only managed to invest about $3.6 billion.

“That’s a significant underspend,” he said.

“In the context of the economy, the Chamber of Commerce and Industry came out with its outlook recently, which showed state final demand declined in 2018-19, so the WA economy shrank last year.

“Yet at the same time, there was a $900 million underspend on public infrastructure, so imagine what a boost to the economy that would have been.”

Mr Graham said he believed one of the biggest challenges facing the state government was to keep those projects on track.

“That can be achieved in part by giving the infrastructure agencies, particularly Main Roads and PTA, the resources to manage their workload effectively,” he said.

“What we’ve seen over the past decade is the agencies keep getting handed massive capital budgets, but their operating budgets have either stayed the same or been reduced.

“Sometimes the agencies just struggle to get the projects out the door on time.

“We need to invest in the capability of those agencies, give them all the people they need to procure projects and manage them effectively and keep them on track.

“The federal government can help, because one of the major causes to delays on projects is getting Commonwealth environmental approvals signed off.”

The other major challenge for industry, according to Mr Graham, was labour.

With WA’s resources sector once again on an upswing of activity, Mr Graham said he expected skilled workers to be in hot demand to carry out major infrastructure works.

Business News recently reported that WA companies were likely to need to find an additional 9,000 workers within a year to carry out approved expansions in WA resources, placing considerable pressure on civil contractors.

Mr Graham said many workers had migrated from the eastern states in WA’s previous construction boom, however, with hundreds of billions of infrastructure projects under way on the east coast, attracting those workers would likely be difficult.

“There are big concerns, and we’re already seeing it in some skills,” he said.

“Labour is a perennial problem because construction is a cyclical industry and in many ways WA is a cyclical state.

“So understandably it’s hard to plan and certainly there is no easy fix.

“But I think there is an acknowledgement that government and industry can work together and do more in the short term.”

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