Should the Australian government be assessing ways to improve construction productivity rather than conducting the federal infrastructure review? One expert thinks so.
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At a time when the International Monetary Fund (IMF) is recommending governments, in particular state governments, to delay their major projects, Jon Davies, chief executive officer at the Australian Constructors Association (ACA), believes the review is misguided.
He noted despite the IMF’s insistence, there is no need to delay or cancel major projects, recently defined as projects valued at or over $500 million by ANZ, so long as we target other areas of the sector.
“We could afford to build everything we need, without any significant inflationary impact, if we focus on improving the construction industry’s productivity,” he said.
And what Australia needs is a lot; a lot of infrastructure, houses, roads and amenities.
“With over 500,000 migrants predicted to enter the country this year, we can’t afford to cut back on building schools, hospitals and transport infrastructure,” he said.
“There’s also a housing crisis, so we can’t stop building houses. On top of that, the world is becoming more uncertain, so we can’t reduce defence spending. We’re also falling behind on our goals to reduce carbon emissions, so we can’t stop building things like transmission lines and new energy projects.”
But wrangling the Australian construction industry, which employs over 1 million full-time workers, indirectly generates $300 billion for the national economy and directly generates $150 billion, is a difficult task.
According to Mr Davies, an Oxford Economics study conducted for the ACA found that closing the productivity gap between construction and other major industries would result in annual national savings of around $56 billion while also raising overall productivity to levels not seen since the 1990s.
“What is holding us back?” he asked. “It is certainly not a lack of ideas or willingness from all stakeholders to shift the dial.”
Despite the conventional wisdom that the construction industry are “laggards” who are resistant to technological change, Mr Davies stressed this is far from true.
“Construction workers welcome new tools that make them productive and safer,” he insisted.
However, he conceded “the construction industry’s productivity problem runs far deeper.” He labelled the sector’s key issue as less related to technology and more to do with the “industry’s basic operating system”.
“The myopic focus on getting the lowest price at the tender box has driven a race to the bottom that has contributed to an industry that accounts for a disproportionate share of business insolvencies, a worryingly high incidence of suicide amongst its workers, the lowest rate of female participation of any industry, and non-existent productivity growth.”
Mr Davies believes “it is time for a new operating system that focuses on delivering best value, not lowest cost”.
“The system reboot can start right now. Best value can be achieved by bundling projects into programs of work that replace time spent by multiple bidders procuring individual packages with time spent developing innovation that can be deployed across the program,” he shared.
This approach, he explained, would be “ideally suited to the construction of new transmission lines and new energy assets required to meet our decarbonisation targets”.
Additionally, increased productivity could be inspired by introducing more collaborative forms of contract which “enable clients, contractors, designers and the supply chain to work together to address project risks rather than traditional contracts that pit all parties against each other”.
But perhaps the most important piece of the construction productivity puzzle is a serious conversation about industrial relations. While construction wage growth has typically outstripped inflation, overall productivity has regressed.
“This is quite simply untenable,” he stressed.
Mr Davies insisted “improving construction productivity is literally a nation-building priority”.
“The only way we will be able to deliver the infrastructure the nation requires is by getting more productive and doing more with the resources we already have. A productive and profitable construction industry is in everyone’s interests and should be a priority for all governments,” he concluded.
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