Is the infrastructure boom a bust?

The 'boom'

When you think of the word 'boom' the typical images that come to mind are of 'boom times': record profits, 1980s excess or the banker from the Monopoly boardgame. You don't think of an industry that is struggling to turn a profit. 

The infrastructure boom is more like a wave. It's a wave we need. We have a significant infrastructure deficit that is being compounded by demographics. Our population is increasing by the equivalent of a city the size of Canberra every year. It's also aging and urbanising. As result our cities are changing shape and the demands on our infrastructure are increasing and changing as well.  We have more to do and a proportionately smaller tax base to do it with.

So the 'boom' or 'wave' is necessary, but if the outcome of an infrastructure boom is a weakened construction industry then something is seriously amiss. Much is made of the big pipeline and the big numbers, but for those in the industry the numbers are increasingly losses. That sounds more like a bust than a boom.

For more see:

So what's going on?

The structural issue

The current infrastructure boom has a structural problem. The projects that make up the pipeline are bigger than they were five years ago, they take longer to procure and they involve more risk. The recent industry feedback has confirmed our lived experience: the management of project-specific risks has not been nuanced enough. Senior industry leaders identified this as the number one driver of project delays and cost blow-outs as well as the number one opportunity to get the sector back on track. 

The projects in the current pipeline are also disproportionately concentrated in Sydney and Melbourne and disproportionately transport related. This is impacting materials costs and creating skilled labour shortages in key markets. These cost increases are more acute in Sydney and Melbourne and the demand driving these increases is harder to predict on larger projects, as the exact timing of competing projects is often unclear. 

The results

Transport related projects represent more than 90% of the projects on Infrastructure Australia's Priority List. The industry is telling us that tunnelling projects carry the greatest risk of cost and time blowouts, followed by rail and road projects. By way of comparison social Infrastructure was considered the most under-represented asset class in the current pipeline and was almost ten times less likely to be considered at risk of delays or cost blow outs than tunnelling. 

This concentration is creating risk. The current approach is largely putting the risk on the private sector resulting in 21% of the senior industry leaders telling us that their top concern in the medium term is the viability of the industry. If those costs are instead imposed on the government, value would be eroded and it would be impossible to deliver the expected benefits from Australia's infrastructure boom.  

The opportunity

There is a need to restore some balance to the pipeline both in terms of geography and in terms of asset classes. We still need a big transport vision but we need to cater to our broader needs as well.

Our survey results suggest 77% of the senior industry leaders surveyed are more concerned with the risks facing the sector than they were five years ago, but they also provide a blueprint for change.  

The diversification opportunity calls for more social infrastructure and the delivery of smaller projects across growing regions and cities. There is also an opportunity to better manage some of these risks through more bespoke risk allocations and less adversarial contract management. 

Perhaps the greatest opportunity is to drive broader community value through the infrastructure spend by coordinating transport and social and community infrastructure to improve liveability, access and opportunity. If we get that right, this 'wave' might become a 'boom'.

For more see: