According to a new report which surveyed a cross-section of both the public and private sectors, there are contrasting opinions in terms of confidence for the infrastructure industry over the next three years.
According to the report, released by engineering firm AECOM, 61 per cent of the private sector expects to see an increase in infrastructure spending by 10 per cent or more over the next three years. On the other hand, only 20 per cent of the public sector shares this optimism, while 26 per cent of public respondents expect infrastructure expenditures to decrease.
The delivery market, consistings of consultants, contractors and designers, sees the private sector confidence as the bigger influence, with more than half expecting their workload to increase over the three year span outlined in the survey. This corresponds with figures released recently by the Australian Bureau of Statistics, which outlined a significant rise in private sector investment in infrastructure in recent years with the value of engineering work completed for the private sector rising by 12 per cent in the year to March, 2012.
Unsurprisingly, the resource-rich states have the rosiest investment outlook, with spending on ports, freight rail and pipelines topping the list. Nation-wide, increased investment in rail was the priority.
Despite this positive outlook, however, there are challenges looming.
Nearly half of respondents categorized their experiences working in public-private partnerships (PPP) as poor even as the move towards more collaborative ways of working, particularly alliancing, is expected to gain momentum in the construction business. Respondents identified challenges in addressing business culture issues in procurement, accessing finances and allocating risk appropriately as reasons behind the failure of PPPs.
Respondents also cautioned that the distribution of risk needs to be more aligned with those who can best control it: 83 per cent of the delivery market sees risk allocation as the biggest challenge to a successful PPP compared to only 61 per cent of the investment market.
One participant questioned whether the appropriate skills existed in the public procurement space “to oversee the application of contracting frameworks to match risk profiles.”
Overall, the delivery market saw more opportunities for increased economic efficiency in the infrastructure industry, particularly around the long-term benefits of a whole-of-life approach to costing infrastructure assets. This was viewed as a key element in accurately modelling an asset’s return on investment.
The investment side of the industry recognised other opportunities, including a more comprehensive approach to asset management and the need for new thinking, such as the potential of using building information modelling (BIM) to manage assets more efficiently.
The industry will also need to respond sensitively to of community reactions in a constrained economy, and mitigate the ongoing impact of global financial market woes.
AECOM global business intelligence manager Michael Skelton agreed that the growing trend towards increased investment in private sector infrastructure construction and a reduction in funding for new public projects illustrates a need for more creative and resourceful approaches to best make use of existing assets.
“Although in recent weeks there have been announcements that significant mega resources projects are being deferred, there remains a significant infrastructure demand for on-going projects that typically do not feature in the headlines,” Skelton said. “Aggregate demand for resources will continue to drive private investment in civil infrastructure. Despite Australia’s terms of trade declining from records levels, it remains historically high and projections over the coming years remains favourable to growth.”
Skelton added that the survey was highly informational, offering a big-picture view some of the challenges and concerns surrounding the industry.
“If output prices of the resources sector are declining, then a thorough review of input prices including construction costs of materials and labour, procurement strategies and operational efficiencies needs to be addressed in order to maintain profitability,” he said.