Budget breakdown: what’s the story for infrastructure?

This week’s release of the 2021-22 Australian Federal Budget has seen further significant growth in Commonwealth infrastructure spending. While there were few surprises, the infrastructure-led economic recovery will see an additional $15.4 billion in new spending over the next ten years.

Road and rail connectivity accounted for the majority of infrastructure funding, including newly announced projects like the Melbourne Intermodal Terminal (Victoria), North-South corridor (South Australia) and the Great Western Highway (regional New South Wales).

Other sectors including water ($2.5bn), health infrastructure ($774m) and renewables ($216m) will also receive significant injections over the next four years to support the further development of project delivery.

The budget is a welcome opportunity for job creation, productivity enhancement and economic growth across all states and territories, with projects announced for metropolitan and regional areas. But while this presents a positive economic outlook, there are inherent risks and challenges to deliver this unprecedented infrastructure pipeline.

Federal budget funding allocation graph

2021/22 Federal Budget – state and territory allocation

National skills shortage reaching crisis point

Well in advance of the COVID-19 pandemic, the construction industry was facing a shortage in skilled professional services and labour to deliver the national infrastructure pipeline. In rail specifically, specialists are in high demand and short supply.

Now, with back-to-back Federal budgets featuring record infrastructure investment compounding the problem of an already constrained workforce, project and delivery agencies will need to consider the impacts and delivery risks associated with uncertainty. Questions remain about the capacity and capability of the Australian market to deliver such a volume of projects across so many geographies.

Noting that state and territory budgets are being finalised and will be released over coming months, further announcements to stimulate the economy through infrastructure spending are expected.

While New South Wales and Victoria have been enjoying an infrastructure boom for nearly a decade, particularly in transport, this second major wave of spending has a national footprint, extending across metropolitan and regional areas, and multiple sectors. This will affect both the cost and deliverability of some projects.

Contractors will no longer have the ability to shift personnel between states and territories to follow the next major project. Each jurisdiction will need to build up their own local resource pool, with contractors taking even more precautions in what they will bid for.

Attracting international labour will be affected by migration constraints, with travel not predicted to see growth until 2022-23. The Australian construction sector will need to explore global solutions for new and innovative project delivery methods to overcome the worsening skills crisis.

For delivery agencies, there is an opportunity to engage early with industry in the development of delivery strategies which consider:

  • Commercial models which will incentivise contractors to grow a local and skilled workforce, beyond tokenistic social procurement KPIs
  • Timing and approaches to procurement that enable contestability and interest in the project, particularly important for regionally-based projects
  • Opportunities to package projects into a delivery model that is sector or geographically specific.

The challenge for industry will be addressing ways to accelerate training, simplify competency requirements across jurisdictions and resolve ways of delivering projects more efficiently through technology and innovation.

Delivering in disruption

The COVID-19 pandemic has seen all industries find ways of adapting and responding to disruption. The movement of people and goods remains a challenge both globally and domestically.

Despite the construction sector enjoying work continuity throughout 2020 lockdowns, Australian borders will likely remain shut until mid-2022, largely preventing international construction specialists from travelling here. The instability of domestic travel will continue to cause disruptions until the national vaccine program is delivered.

The international supply chain remains affected by the impact of COVID-19, while trade relations with China will have uncertain and ongoing impacts to supply and manufacturing for Australian projects.

Opportunities for new and emerging delivery technologies and growth in local manufacturing will present options for projects in lieu of continuing to incur time and cost impacts.

Accelerate, but keep the end game in sight

Among the benefits of an infrastructure-led economic recovery is the immediate flow of cash into the economy – jobs and productivity benefits can be immediate and contribute to positive outcomes for the nation, its states and territories.

However, with a push from all levels of government to get shovels in the ground and expenditure high, projects need to ensure the rush to get work out the door does not come at the expense of critical long-term success factors:

  • Projects must maintain the focus on delivering community outcomes
  • Asset design must focus on resilience and sustainability for the life of the asset
  • Funding must be afforded to operational readiness planning and change management to safely and sustainably integrate the new infrastructure into service.

While there are considerable challenges, the infrastructure pipeline continues to be a once in a generation opportunity to deliver exciting, city-shaping projects across the country. It also presents unprecedented opportunities for Australians to play a role in its delivery.

Testimonial

Across RPS we have been delighted to support many of the projects announced in the 2021-22 Federal Budget. Our team of over 150 infrastructure advisory specialists will continue working towards defining, designing and delivering this nation shaping infrastructure pipeline, through strong partnerships with industry and all levels of government. Delivering solutions to these challenges will form part of a legacy that we can all be part of.

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