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Public Infrastructure

Inquiry report

This report was released on 14 July 2014.

Volume 1 contains the overview, recommendations and findings, chapters 1 to 8 and volume 1 references . It covers infrastructure provision, funding and financing.

Volume 2 contains chapters 9 to 16, appendices A to J and volume 2 references. It considers the scope for reducing the cost of public infrastructure and the necessary steps to implement the reforms recommended in both volumes of the report. The series of appendices provide case studies and further detail on some issues.

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  • Key points
  • Contents
  • Data
  • There is an urgent need to comprehensively overhaul processes for assessing and developing public infrastructure projects.
    • There are numerous examples of poor value for money arising from inadequate project selection, potentially costing Australia billions of dollars.
    • Additional spending under the status quo will simply increase the cost to users, taxpayers, the community generally, and lead to more wasteful infrastructure.
    • Reliance on the notion of an infrastructure deficit, too, could encourage poor investment choices.
  • It is essential to reform governance and institutional arrangements for public infrastructure to promote better decision making in project selection, funding, financing and the delivery of services from new and existing infrastructure.
  • Well-designed user charges should be used to the fullest extent that can be economically justified. However, governments will have to continue to fully or partly fund some infrastructure projects and address equity issues.
  • Significant institutional and longer-term road pricing arrangements will create more direct links to road users, taking advantage of advances in vehicle technology.
  • Private sector involvement in infrastructure provision and/or financing delivers efficiency gains only if well designed and well implemented.
    • Private financing is not a 'magic pudding' - ultimately users and/or taxpayers must foot the bill.
    • Government guarantees and tax concessions are not costless and often involve poorly understood risks.
  • Governments will have some capacity to fund more projects than under current fiscal and debt management practices, provided the reform package in this report is implemented to ensure the selection of projects with strong net benefits.
  • Data problems limit analysis and benchmarking. A coordinated and coherent data collection process will address this and improve future project selection decisions.
  • Nevertheless, there is evidence of recent significant increases in the costs of constructing major public infrastructure in Australia. Elevated labour costs due to the mining construction boom has been one factor, but no single input has played a decisive role in cost increases.
  • Until recently, labour productivity growth in the construction sector generally has been sluggish. There is no conclusive evidence that Australian levels of productivity in construction are significantly different from other developed countries.
  • The industrial relations environment in the construction industry remains problematic, mainly in general rather than civil construction, with the problems much greater for some sites, unions and states. Governments can use their procurement policies to drive reform, and penalties for unlawful conduct should rise.
  • Despite significant concentration in the market for large public infrastructure projects, the market appears to be workably competitive today, though a few simple measures would make it more so and would reduce the cost pressures facing procurers.
  • There is significant scope to improve public sector procurement practices and lower bid costs for tenderers, with potentially large benefits for project costs and timing.

Background information

Leonora Nicol (Media and Publications) 02 6240 3239 / 0417 665 443

  • Preliminaries
    • Cover, Copyright and publication details, Letter of transmittal, Terms of reference, Contents, Acknowledgments and Abbreviations and explanations.

Volume 1

  • Overview
  • Recommendations and findings
  • Chapter 1 Introduction
    • 1.1 What has the Commission been asked to do?
    • 1.2 Australia's public infrastructure and its importance
    • 1.3 The role of government in infrastructure provision
    • 1.4 The increasing role of the private sector
    • 1.5 The Commission's approach
    • 1.6 Conduct of the inquiry
    • 1.7 Guide to the report
  • Chapter 2 Project selection
    • 2.1 The importance of project selection
    • 2.2 Institutional arrangements
    • 2.3 The role of cost-benefit analysis
  • Chapter 3 Achieving benefits from private sector involvement
    • 3.1 The various models of public infrastructure delivery
    • 3.2 The potential benefits and challenges of private sector involvement in infrastructure delivery
    • 3.3 Selecting a delivery model
    • 3.4 Principles for efficient risk allocation
    • 3.5 Risk allocation in practice
    • 3.6 Assessing value for money under different delivery models
  • Chapter 4 Funding mechanisms
    • 4.1 User charges
    • 4.2 Value capture
    • 4.3 Developer contributions
    • 4.4 Government funding
  • Chapter 5 Infrastructure finance
    • 5.1 Public sector finance
    • 5.2 Private sector finance
    • 5.3 Issues in infrastructure financing markets
  • Chapter 6 Financing mechanisms
    • 6.1 Assessment framework
    • 6.2 Mechanisms discussed by participants
    • 6.3 Subsidising private sector finance to bridge the 'financing gap'
    • 6.4 Superannuation fund liquidity issues
    • 6.5 Distorted incentives in the procurement process
    • 6.6 Addressing self-imposed fiscal constraints - capital recycling
  • Chapter 7 Reforming institutions
    • 7.1 Current institutional arrangements for infrastructure provision
    • 7.2 The case for governance and institutional reform
    • 7.3 Principles for good governance
    • 7.4 The role of Infrastructure Australia
    • 7.5 The influence of the Australian Government
  • Chapter 8 Governance and institutional reform in the roads sector
    • 8.1 Scope for institutional and funding reform for roads
    • 8.2 Options for improving governance and institutional arrangements in the roads sector
    • 8.3 Which model can most effectively facilitate improvements in road provision and charging?
  • References

Volume 2

  • Chapter 9 Cost drivers, trends and benchmarks
    • 9.1 What has been happening to aggregate construction costs?
    • 9.2 Input cost drivers and trends
    • 9.3 Summing up on cost movements
    • 9.4 Benchmarking
    • 9.5 International comparisons of cost
    • 9.6 Concluding comments
  • Chapter 10 Productivity issues
    • 10.1 Recent Australian performance
    • 10.2 Main productivity challenges
    • 10.3 Concluding comments
  • Chapter 11 Competition and the structure of the infrastructure construction market
    • 11.1 Concentration in the infrastructure construction market
    • 11.2 Barriers to entry
    • 11.3 Segmentation in the infrastructure construction market
    • 11.4 Countervailing power of government
    • 11.5 Competition issues in input markets
    • 11.6 Concluding comments
  • Chapter 12 Government procurement
    • 12.1 Tendering and contracting arrangements used for major infrastructure projects
    • 12.2 Are government tendering arrangements too onerous?
    • 12.3 Do tendering arrangements elicit least cost bids?
    • 12.4 Do contracts provide incentives for cost minimisation throughout the build?
  • Chapter 13 Industrial relations
    • 13.1 What is industrial relations?
    • 13.2 Industrial relations in the Australian construction sector
    • 13.3 A framework for understanding the role of industrial relations in construction
    • 13.4 Is construction different in other ways?
    • 13.5 The impacts of industrial relations at the project level
    • 13.6 The aggregate effects of the IR environment on the construction industry
    • 13.7 The scope for improving the IR environment
  • Chapter 14 Workforce skills
    • 14.1 Evidence of civil construction skill shortages
    • 14.2 The impact of skill shortages on infrastructure construction costs
    • 14.3 The causes of recent skill shortages
    • 14.4 Policy options for skill shortages in infrastructure construction
    • 14.5 Conclusion
  • Chapter 15 Social and environmental regulation
    • 15.1 Nature and scope of the regulation
    • 15.2 Participants' concerns
    • 15.3 Impacts on costs
    • 15.4 General reform issues
    • 15.5 Federal safety accreditation
    • 15.6 Regulation affecting quarries
    • 15.7 Road and rail construction standards and environmental requirements
  • Chapter 16 Implementing the reforms
    • 16.1 The reform package
    • 16.2 Coordination and agreement between jurisdictions
  • Appendix A Conduct of the inquiry
  • Appendix B Australian and international public infrastructure case studies
  • Appendix C Cost-benefit analysis
  • Appendix D Canada's corporate bond market
  • Appendix E Building information modelling
  • Appendix F Differences in public and private sector procurement
  • Appendix G Labour costs
  • Appendix H Enterprise Bargaining Agreements
  • Appendix I Productivity and industrial relations
  • Appendix J Unsolicited proposals
  • References

To understand the variations in pay and conditions negotiated in individual Enterprise Bargaining Agreements (EBAs), the Commission examined 31 EBAs.

The EBAs included in the sample are listed in the 'Sources' tab along with the parties to the agreements and the abbreviated title of the agreement that is used in this spreadsheet.

Printed copies

Printed copies of this report can be purchased from Canprint Communications.

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