The Productivity Commission will dissect the way government and industry work together to deliver infrastructure in order to pinpoint weaknesses in the system.
The inquiry will focus on the following:
- How infrastructure is funded and financed in Australia, including by the commonwealth, the states and the private sector;
- The rationale, role and objectives of alternative funding and financing mechanisms;
- Examine the cost structure of major infrastructure projects in Australia, including where infrastructure project costs have increased considerably, compared with other countries;
- Provide advice on ways to improve decision-making and implementation processes to facilitate a reduction in the cost of public infrastructure projects; and
- Comment on other relevant policy measures, including any non-legislative approaches, which would help ensure effective delivery of infrastructure services over both the short and long term.
In announcing the inquiry on Wednesday, Abbott said the overall cost of infrastructure and engagement with the private sector on financing were key economic challenges that needed addressing.
“Australia must ensure that private investment is as attractive as possible by reducing the cost of building infrastructure by driving efficiency and removing red tape,” he said.
But with changes may come consequences and Abbott said the government was mindful of the financial risks posed by alternative funding and financing mechanisms.
“In this respect, the terms of reference also ask the Productivity Commission to consider these risks to the commonwealth, as well as their possible impact on the budget and fiscal consolidation goals,” he said.
“This inquiry will be crucial in identifying how we can lower construction costs and develop a partnership with the private sector to build the infrastructure of the 21st century that Australia needs.”
The start of this probing into infrastructure costs was applauded by the Australian Constructors Association.
ACA executive director Lindsay Le Compte said the ACA welcomed the inquiry, explaining there had to be a fundamental re-think about how infrastructure projects were funded and managed through the project development, tendering and operational phases to support construction contractors.
“The industry is no longer able to bear the project financial risks that have been thrust upon it over a long period, nor the financial impact of poorly developed and managed projects,” he said.
“An example of unnecessary cost is the requirement that contractors tendering on major projects must develop responses to extensive tender documentation that adds tens of millions of dollars to the cost of each tender.”
On some projects, Le Compte said the tender costs alone could exceed $30-$40 million for each respondent.
“And often there will be three or more tenderers required to carry these costs. This is not sustainable, particularly in the current financial climate faced by the industry,” he added.
Le Compte said another aspect the inquiry should focus on was the recurring lack of certainty around the pipeline of infrastructure projects. Ideally he said reforms should aim to make the pipeline more long-term, sustainable and respective of announced timeframes.
“When projects are announced those projects [should] actually proceed within stated timeframes,” he said.
Le Compte also said that the Productivity Commission should examine the implementation of key performance indicators, as suggested by Infrastructure Australia, for governments to be able to assess their own performance.
The Productivity Commission will work with the Commission of Audit created last month to assess the role and scope of government, how much money it spends and what it spends it on.
The Productivity Commission will hold public hearings and release a draft report for public comment before delivering its final report to the government within the next six months.