- Federal and state mismanagement of infrastructure projects costs Australians more than the citizens of any other wealthy nation, according to a new report out of the Grattan Institute.
- Taxpayers end up paying too much for major road and rail projects in Australia, it finds, just one week after the Federal Budget's pledged $15.2 billion in new investment.
- The report identifies key factors behind the largesse and outlines how governments can cut wasteful spending.
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Less than a week after the Morrison government announced billions of dollars for new infrastructure, a new report has raised serious questions of how effectively that money will be spent, revealing consistent mismanagement of taxpayer dollars.
While public outcry around blowouts for major projects is now commonplace, the report outlines substantial evidence that "taxpayers end up paying too much for major road and rail projects in Australia."
It comes after last week's Federal Budget earmarked $15.2 billion for infrastructure, to be spread out over the next 10 years.
According to the Budget, the money will be spent on an intermodal terminal in Victoria, a highway project between Katoomba and Lithgow in New South Wales, and a huge north-south corridor in Adelaide, with the goal of boosting freight and commuter capacity, creating jobs and injecting investment into the community.
In light of future spending, the newly released report by policy think tank the Grattan Institute sheds light on factors that need to be solved in order to deliver services "at the lowest long-term cost to taxpayers." They include caving to contractor demands and a lack of competition in the sector that has resulted in skyrocketing costs on key projects.
Australians pay more than comparable OECD nations
Australia's transport infrastructure costs are above the global average, the report finds, pointing to data that shows rail construction costs in Australia are in the top quarter of the 27 OECD countries studied.
They are higher than in numerous other rich countries, it found, including 26% higher than in Canada, 29% higher than in Japan, and more than three times as high as in Spain, with road and rail tunnels costing more in Australia than anywhere else.
While high labour costs, the result of competition for construction workers from other sectors, and the influence of unions, drive up costs, the report found these factors were insufficient in explaining the issue away. This was particularly stark when compared to other high wage countries in Scandinavia and Europe that complete major projects for far less.
A government culture of caving to contractor demands blows out budgets
The report highlights evidence showing governments cave to contractor demands, often paying hundreds of millions of dollars to settle problems months or years after a contract is signed.
"Even after construction has begun, about 25% of projects end up costing taxpayers more than governments promised when the contract was signed," the report reads.
It goes on to profile highly politicised transport projects that the state government took to elections. The Sydney Light Rail project for example took 24 whole months from its initial promise to the signing of a tender and was criticised by the Auditor-General for its 'inadequate planning and tight timeframes'.
When the project became fraught, the report noted, NSW Premier Gladys Berejiklian said "we will throw the book at them in terms of this contract. The NSW taxpayer is not going to be fleeced by anyone."
However in June 2019, the NSW Government paid an extra $576 million to the project's contractors.
Similarly, the Queensland Government rushed out its New Generation Rollingstock trains in December 2017 to meet the 2018 Commonwealth Games.
It was later found they failed to comply with the Government's own disability legislation, leading to refitting that cost the taxpayer $361 million.
Lack of competition drives up costs
Competition is "fundamental" to achieving quality at an acceptable price, the report advises, highlighting that in the past seven years "megaproject" contracts have grown by 38%, resulting in less competition.
It says enabling international competition, along with bringing innovation and know-how into the market, will help to boost competition and temper prices.
"With larger contracts, competition inevitably thins", the report finds, adding that "few firms have the technical and financial capability to win contracts worth $1 billion or more."
"Australian governments should not give undue priority to domestic experience or the comfort of dealing with familiar firms, and they should avoid market-led or unsolicited proposals for projects."
A better deal for taxpayers
While the federal government is pledging to strengthen local economies and create jobs via new infrastructure spending, the Grattan Institute's findings show that whether taxpayers are "getting the best deal" as a result of this investment is less clear.
In closing, the report said a government that's too concerned with "what industry wants" fails to foster competition in the construction industry and allows for poorly designed contracts. It has led to endemic mismanagement of investment in the sector and it's something the public should consider when looking at new promises for infrastructure spending.
"The price of a quick political win is often a long, slow, and unnecessary budget sink."