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More ladders, fewer snakes and a proven approach in a new era of opportunity

By Steve Abson

This article was featured in IAQ’s 2016-2017 Yearbook

With governments around Australia poised to embark on significant infrastructure reforms, Flagstaff Consulting Group Senior Associate and IAQ Chief Executive Steve Abson comments on new and unprecedented opportunities available to the savvy infrastructure company.

You’re a well-conceived but still-to-be detailed infrastructure project, meeting a critical social, community, or economic need for Queenslanders.

Those who formulated your strategic business case have worked tirelessly to match demand with investment, and now you’re about to display yourself to a higher government authority for the apportioning of coveted funding.

But wait, what’s this? You’re ushered to an obscure side door marked ‘Options Assessment’, along with a handful of other unsuspecting projects. As the door slowly opens, a firm push to the back launches you headlong into a controversial board game called ‘Infrastructure Snakes and Ladders’ – a contest in which winning eventuates through sheer luck.

From the first square to the winning last, the journey facing you is nothing short of perilous, full of slippery snakes that, if not safely negotiated, can set back your sod-turning day by months, years, or even decades.

To make the game more interesting, some of the snakes masquerade as ladders, with competing projects regularly extinguished in humiliatingly public ways that would do Suzanne Collins, author of The Hunger Games, proud.

Sound far-fetched? It’s not. This is the scenario facing fatigued project-sponsoring agencies around Australia, as their decision-makers seek political and funding support from their respective state and Commonwealth Ministers, treasuries and government stakeholders.

Worse still, the game becomes more volatile at election time (we go to the polls a lot in Australia), and electioneering just wouldn’t be the same without an infrastructure announcement or two in the swinging states and electorates. It’s little wonder that project sponsors and infrastructure companies alike are jaded by the whole infrastructure process.

Rearranging the games grid

Project sponsors can take heart.

The game has undergone serious review by a reinvigorated architect; Infrastructure Australia is an independent statutory body with a mandate to prioritise and progress nationally significant infrastructure, and this independent body is now intent on changing the rules forever.

The Australian Infrastructure Plan was released on 17 February 2016. It is Australia’s first- ever 15-year rolling infrastructure plan. It recommends fundamental changes to the way we plan, pay for, deliver and use our assets by reforming the funding and operation of transport infrastructure, completing the national electricity market, improving the quality and competitiveness of the water sector, and delivering a telecommunications network that responds to user demand.

To be effective, the Plan will require courageous reform decisions by all levels of government. Consider road-user charging, which would likely involve the replacement of fuel excise, vehicle registration, driver licence fees, and also potentially other costs such as stamp duties, taxes on third- party insurance and car-parking levies.

In the short term, we can expect to see the Turnbull Government attach more and more reform strings to future Commonwealth funding commitments. Prime Minister Turnbull’s interest in ‘value capture’ to fund public transport links by requiring property developers to contribute to construction costs is the focus of a new Commonwealth ‘innovative financing unit’, looking for ways to broker private investment in major infrastructure.

But if the bigger reforms being mooted get traction, such as a version of the United Kingdom’s ‘City Deals’, things start to get really interesting. Supporting the United Kingdom’s devolution agenda, this imported model of urban development was originally designed to give more power and freedom to localities so that they could do what they thought best to achieve growth in their area. With well over 20 Deals now agreed, it still remains to be seen whether these Deals will actually lead to improved infrastructure. Retrofitting this concept into Australia will prove dif cult and require the drawing up of deal boundaries, new governance arrangements and appropriate failure mechanisms to ensure accountability. It’s also worth remembering that City Deals don’t create new government infrastructure funds, but simply redirect them.

Forward-thinking, innovative infrastructure players should be watching closely to see how these proposed reforms play out across numerous sectors.

The race is on to develop and trial smart technology for cost-reflective user charging for roads and rail. Technology also has a big part to play in increasing infrastructure use, reducing congestion and improving asset efficiency. The emergence of driverless cars and disruption to transport services is inevitable, requiring planning responses not yet even contemplated.

The substantial and regular under-investment in transport maintenance compared to other OECD countries across the nation is also a ‘sleeping’ problem, capable of being targeted in new and creative ways by the private sector, using outcomes-based contracting akin to the emerging social benefit bond.

Depoliticising infrastructure will slay long snakes and provide new insights

In the sunshine state, the architect has a capable local partner in the form of Building Queensland, a body created on a platform of the need for ‘depoliticisation’ of projects.

Although structurally different to Infrastructure Australia, and unfortunately exposed to the vagaries of political parties (remember LNP’s Projects Queensland?), it is designed to provide ‘independent, expert advice to guide better infrastructure decision-making’. It therefore has some serious ‘skin in the business’ of redesigning the game, as its very existence relies on it.

Everyone in the industry seems to agree that de-politicising projects is the quickest way to rid the game of those long and slippery snakes that cause unparalleled havoc; however, a recent report by the Grattan Institute, ‘Roads to Riches: Better Transport Investment’, suggests that Queenslanders need to be careful what they wish for. This report asserts that Commonwealth road funding contributions have favoured this swinging electoral state over the last 10 years.

There’s no question, though, that in recent decades, successive new Queensland governments have dumped planning for key projects when they’ve been elected, severely interrupting the pipeline of projects that the industry relies upon. This includes changing the Cross River Rail/BAT tunnel (three times; twice since 2014), the priority of Sunshine Coast rail projects (three times since 2005), and the Moreton Bay Rail Link project (continually for 50 years).

Prioritisation based on merit

Both Infrastructure Australia and Building Queensland aim to depoliticise through a structured and detailed assessment system where only meritorious projects are prioritised.

New four-year fixed parliamentary terms in Queensland should also arguably help, as should a more stable Federal Upper House through Senate voting changes.

If the script is followed, the next one to two years of infrastructure commitment decisions will start to align with priorities informed by publicly disclosed business cases, where bene t cost ratios (BCRs) and supporting economic and social bene t rationale are displayed for all to see. This is a first but important step by government towards reform, and if done effectively, will answer those critics of transport infrastructure spending who (unsurprisingly) claim that governments make funding decisions to assist certain groups of electors rather than the electorate as a whole.

This new disclosure stands to provide smart infrastructure companies with the opportunity to tailor their bids more effectively than ever.

‘How do we assure government of business case realisation in a manner superior to anyone else?’ will be a critical pre-tender strategy question that serious bidders of major infrastructure projects will ask themselves. They can begin answering it by acquainting themselves with Building Queensland’s newly disclosed business case summaries, which will contain intelligence previously available to only the most connected companies.

Roll up, roll up – ladders available here!

The Palaszczuk Government has made it clear that its infrastructure funding constraints won’t be alleviated by asset sales; that it will, in fact, pursue an asset protection policy.

Its strategy is characterised, alternatively, by the intention of seeing the private sector proactively propose – and to a certain extent ‘co-drive’ – a significant proportion of the state’s future infrastructure.

With its now formal ‘unsolicited proposals encouraged’ message to the sector, the state government is actively calling for any company or consortium to propose the delivery of any infrastructure project that it believes will deliver worthwhile economic and social benefits.

Market-led proposals (MLPs) are invited from entities capable of tabling proposals that demonstrate a genuinely unique ability to deliver something no-one else can. The carrot is that the relevant funding agency will deal exclusively with such an entity in that procurement.

A new era of opportunity – if you get it right

This new philosophy and approach calls for all the skills honed by those who played lead roles during the era of project alliancing and other forms of relationship contracting (an era that saw tremendous infrastructure backlogs cleared by virtue of these considerably more productive, intelligent and win/win contractual frameworks and delivery methodologies).

How so? Because alliancing was a race won, in large part, by those offering the most compelling non cost-related criteria. We couldn’t ‘buy’ our way across the finish line. We had to bring value beyond straight cost-cutting, and in doing so, we avoided the inherent dangers of that usually ill- fated approach.

Those of us who learned how to bid successfully in this environment gained skills that remain as valid as they were when applied to those contractual types specifically. And nowhere do they stand to be more valuably employed than in the context of the new MLPs.

They are a legacy indeed, and they are aligned with the very essence and intention of the Queensland Government’s approach to providing fresh solutions to the ever-pressing need to conceive, fund and deliver infrastructure in the right way at the right time – and for the right reasons.

This article was featured in IAQ’s 2016-2017 Yearbook – Click here to view the Yearbook

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Steve is a qualified civil engineer and experienced executive with almost 30 years experience leading major construction companies and delivering key infrastructure projects. He believes, and has successful put into practice, there is no substitute for rigorous development of excellence in ‘front end’ and that bid success comes through harnessing every facet of your organisation, informed by genuine intelligence (not just information), and thinking your way to a winning tender & price.
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