Procurement push designed to get state moving

29/07/2020 - 12:00

Moves to sharpen procurement will speed up delivery of infrastructure, with more than $2 billion of road and rail work soon to be contracted.

Procurement push designed to get state moving
Bradley Farrell supports the state government’s rethinking of procurement processes. Photo: Gabriel Oliveira

Local infrastructure contractors are feeling optimistic as the state emerges from its COVID-19 contraction.

The Western Australian government has accelerated its process to allocate work for about $2.4 billion of upcoming road projects, while decisions are expected soon on about $2 billion of projects.

Insiders say it will increase pressure on contractors to position for work and procure the right staff.  

However, they know that’s a good problem to have.

(click here to view a PDF version of this special report)

Highways business lead WA at engineering business Arup, Thilanka Silva, told Business News the government had adopted a procurement method different from the traditional model. 

“Most of the design and construct contracts are no longer in play … most are now alliances,” Mr Silva said.

The big difference between those two systems was that, in an alliance, parties shared risk as partners, rather than operating in a hierarchical structure. 

The fast-tracking had meant moving from a two-step process of an expression of interest, followed by a request for proposal, to a one-step, amalgamated approach.

“The government is looking at a hybrid model,” Mr Silva said.

“I think it’s going to be a temporary thing.

“Alliance contracting, you’ll probably see it for another year or two.

“Governments want to control the risks … alliance contracting supports that.

“A design and construct [relationship] is too much of a risk.”

The Department of Main Roads and Public Transport Authority had used different approaches to forming alliances, with rail work closer to a traditional design-and-construct arrangement, Mr Silva said.

The new Office of Major Transport Infrastructure Delivery, which would bring road and rail projects previously managed by separate departments under central oversight, might introduce synergies and consistency, he said.

Arup is pitching for the Morley-Ellenbrook rail line as part of the Melconnx Consortium, led by Laing O’Rourke.

Mr Silva said Arup had been selective when choosing which projects to bid for, because so many were happening at once.

He added there was industry concern WA might not be big enough to handle them all.

“Perth is a small place,” Mr Silva said.

“It’s all in the aim of getting boots on the ground, but the design industry [might] struggle.”

That would lead to cost pressure.

Clough executive vice-president John Galvin said he was excited by the government’s program, although expressed some reservations.

He was concerned one or two dominant contractors may secure most of the upcoming work.

The alliancing model might favour larger, tier-one contractors, Mr Galvin said.

“It depends how you structure it,” Mr Galvin told Business News.

“If a certain percentage has to be in partnership with a tier two, it’ll be a great outcome for capability.”

He highlighted a potential squeeze of the local workforce, with some engineering work for rail projects already going interstate.

Blue collar construction work would be tight, particularly with potential resources projects, and a border closure preventing the introduction of fresh labour from interstate.

Others agreed with that assessment, including construction and engineering company Decmil’s chief executive, Dickie Dique, who said the biggest challenge for the industry would be getting the right people in a very tight market.

“The government is trying very hard to move [projects] forward,” he said.

“There’s a bucketload of work coming out in the months ahead.

“But it’s all coming out at a similar time … resources are going to be thin in coming months.”

With regard to contracting models, Mr Dique said WA could learn from Victoria, which had a more widespread panel system for bigger projects.

That was a hybrid of the alliance, and design-and-construct models.

Mr Dique said this model was quicker and more efficient, and reduced bid costs.

“[Under the existing system] these contracts are not cheap to bid on,” he said.

The WA government provided bidders with a stipend for the tendering process, although Mr Dique said contractors probably spent double that amount, sometimes into the millions.

A better model would be if contractors were paid fully to design bids, he said, rather than wearing half the cost.

Engineering company GHD general manager WA, Sheldon Krahe, said the government’s moves to fast-track the process would save six to eight weeks on procurement for big projects.

He said accelerated procurement meant time savings in terms of tender design, with projects awarded on less-detailed designs, and the process of fine-tuning left until after the contract was signed.

Mr Krahe hoped there would be longer-term reform to procurement practices.

“A lot of the contracts are quite onerous,” he said.

“We need one form of contract for every department.

“That would help unlock greater consistency, familiarity.”

In the short term, changes have also been designed to support private investment and smaller public projects, particularly for road works.

The government had been working hard to enable these, according to Bradley Farrell, director of program advisory at project management consultancy Turner and Townsend.

For example, an April announcement included $140 million of road and maritime work expedited under panel contracts, and a streamlined process for contracts under $20 million. 

“A continual focus of government is delivering the most effective outcomes, and improvement of government processes is a continual task,” Mr Farrell said.

“I applaud all efforts by government to fast-track approvals processes, including looking at new or alternative models of procurement.”

GHD’s Mr Krahe was cautiously optimistic, believing WA had managed the response to the pandemic well, so far.

“Our market is certainly a lot stronger than others … there’s been a lot of attempts by governments to fast-track projects,” Mr Krahe said.

He said there was a healthy pipeline of road and rail projects, but acknowledged it would need to be maintained longer term.

“There are some great projects now for us all to bid on, let’s make sure it doesn’t dry up,” Mr Krahe said.

GHD is in a consortium led by CPB Contractors for the Bunbury Outer Ring Road, and part of the Tonkin Gap Alliance selected for the Tonkin Gap project.

Political and business leaders inspect the airport rail line tunnel last year. Photo: Gabriel Oliveira

Broadening

Business News understands the government’s recent focus on transport projects could be broadened to other infrastructure in weeks ahead.

Design firm Stantec’s buildings regional business leader Brett Davis, who is a director of industry group Consult Australia, said the stimulus had been heavily targeted towards transport.

“We don’t want a whole flood of work and then not a lot again,” Mr Davis told Business News.

“The danger we have with Metronet is that the larger firms win, and there’s really not a lot of work for small firms.

“While Metronet provides work to the industry, it’s mostly larger businesses.”

He agreed there could be limits to the capacity of companies to undertake all the work available at once.

“If we bring too much work to market too quickly, it’ll open the door for eastern states contractors to come in,” Mr Davis said.

He said there would be benefits if the government spread the stimulus in a way more accessible to smaller businesses, specifically through school and hospital projects.

Long distance

Among a series of potential major projects are the Westport outer harbour in Kwinana, a new runway at Perth Airport, and at least one desalination plant.

Infrastructure WA recently released a discussion paper for the state’s long-term infrastructure strategy.

Turner and Townsend’s Mr Farrell said it was good the strategy focused on a breadth of topics.

While it was important planning and building was done well, he said it was also valuable to have a whole-of-life view of infrastructure and assets.

That meant maximising returns from the infrastructure already in place, by maintaining and optimising the assets currently in operation.

“There’s a big focus on building things … and we have very big things that have been built,” Mr Farrell said.

“Infrastructure exists to serve a purpose.

“There are interesting things that can be done around consumer behaviour, demand management.

“There are other ways to meet needs than just a new bit of kit.”

Congestion was not only found on the road network, he said, but also in rail and telecommunications.

Shifting or changing demand could help to ease this.

A good example of this was in electricity markets, Mr Farrell said, where the usage peaks had moved later in the day thanks to the uptake of rooftop solar.

That had sparked new thinking in investment, operation and maintenance strategies, he said.

“It’ll be great to see the state develop richer capabilities in a whole-of-asset view,” Mr Farrell said.

Mr Farrell highlighted the use of technology in the industry, with the use of computer vision to track construction progress.

“The applications of photo and video analysis of construction sites are very interesting,” he said.

Mr Farrell said the increased use of automated image processing to track construction against design blueprints meant a more efficient and detailed assessment of progress.

“This has been in use for a number of years, but it’s hitting the broader public and business consciousness,” he said.

“It’s a glimpse into the future.”

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