Catching the Wave – Rising to the Infrastructure Challenge

In a tightening market, clients are more open to engagement, but sometimes it happens late, too far into the detailed development phase. To derive maximum benefit we advocate that you engage the market once the overall objectives and high-level parameters are set.
Hayley Davis, Director

There may never have been a better time to be involved in Australia’s infrastructure sector, but its unprecedented pipeline of capital projects demands a fundamental re-think about delivery models, contracting and recruiting, according to HKA Director Hayley Davis.

According to forecasts, Australia is only at the start of the bow wave of infrastructure investment and delivery that’s coming over the next 10-15 years, especially on the East Coast. However, there are many indicators that the industry is already operating at capacity and urgently needs to diversify how it delivers major projects in order to rise to the challenge. This will not only involve opening up to international contractors. It also requires new ways of engaging with the market and the entire supply chain – especially tier-2 and tier-3 contractors.

As a Director in HKA’s Advisory services team, Hayley focuses on the front-end project development phase, including the business case. “We advocate a structured approach to developing delivery models for projects.”

One of the tools employed is the ‘six pillars of procurement’ approach championed by the UK’s Institution of Civil Engineers. Clearly articulating the vision of the client and its project objectives and requirements is the first step.

The next is engaging with the market to ensure that its capability to deliver is directly aligned with those client requirements. “At a time when the industry’s capacity is constrained, it’s more important that we engage early in the process with contractors and suppliers to take on board their thinking and experience, and to understand what they can and will do,” Hayley stresses.

Such engagement can help whet an appetite in the market for an upcoming contract and highlight any trade-offs required to ensure value for money and better outcomes at the tendering stage. But the process needs to be structured to avoid “engagement fatigue”, Hayley cautioned.

“You need to demonstrate the value of the exercise to the market, get the timing right, and complete the feedback loop so they understand how you’re using the information gained,” she explained.

In a tightening market, clients are more open to engagement, but sometimes it happens late, too far into the detailed development phase. “To derive maximum benefit we advocate that you engage the market once the overall objectives and high-level parameters are set – which can be a challenge in itself for complex infrastructure.”

This provides a genuine opportunity for the industry to contribute insights on innovation, technological solutions and the definition and design of the project. It also provides a strong signal to the market – providing the lead time needed to incorporate the opportunity into their business development pipeline and to secure board approvals.

Contractors have their own motivations, of course. “But our experience shows that the market is not just interested in the bottom line; it can provide considered opinion of value to the project’s overarching objectives and the community as well.”

HKA facilitated roundtable discussions with industry in advance of the ambitious Fast Rail program under development for New South Wales. These discussions – with contractors and, separately, with suppliers of rail systems and rolling stock – will inform the industry engagement strategy.

In the utilities sector, engaging with providers helped shape the pioneering Sydney Water delivery model and the renewals and replacement program of Water NSW, to name a couple of recent examples.

Ongoing engagement needs to be planned from the outset. “It’d be naïve to believe that even experienced project planners can, with certainty, anticipate what the market will be able to deliver. Engagement should be built into the business case phase, not added as an afterthought. Also the program itself needs to be sufficiently flexible to adapt to new thinking on works packaging options and changes in market conditions.”

Attitudes to contracting in the construction and engineering industry, where traditionally a significant amount of risk is transferred to the contractor, are also changing. The NSW state government’s more collaborative approach – signalled by 2018’s ’10-point commitment to the construction industry’ – is beginning to percolate through to contracts.

Despite infrastructure delivery being at record levels, major contractors claim not to be making significant profits. While alliance contracts historically fell out of favour for letting contractors off the hook, in an overheating market it cannot be both sustainable and value for taxpayers’ money if risks are being transferred to providers not best placed to manage or price them properly.

“The tide is turning, as both sides of the infrastructure industry are showing an interest in a fairer allocation of risk and sharing of pain and gain,” said Hayley.

In Australia, HKA represents the NEC form of contract, which has mechanisms to promote greater collaboration. NEC is a family of contracts, created by the UK Institute of Civil Engineers, that facilitates the implementation of sound project management principles and practices as well as defining legal relationships. This form won’t suit all organisations and projects, but it is a solid standard that can meet many clients’ needs, while avoiding the added cost and risks of drafting bespoke contracts.

Standardisation of contracts – especially with such international forms – can also help to attract contractors based overseas.

The industry in Australia and New Zealand has also shown strong interest in Project 13, the collaborative model for delivering high-performance infrastructure. Project 13 is a movement led by the Institution of Civil Engineers, which seeks to develop a new business model – based on an enterprise, not on traditional transactional arrangements – to boost certainty and productivity in delivery, improve whole-life outcomes, and support a more sustainable, innovative, highly skilled industry.

HKA hosted workshops to explain the benefits of this approach, which is helping build a sustainable future for the UK construction industry. Again, this is not to advocate a ‘one size fits all’ approach but to expand our thinking to consider alternative approaches to delivery and leverage learnings from elsewhere.

HKA’s recent CRUX research identifies over 500 causes of claims and disputes across 131 infrastructure projects worldwide with a total project capital expenditure (CAPEX) in excess of US$209 billion. The research claims that much of the disruption experienced on infrastructure programs stems from interrelated causes that coalesce around contract drafting, risk distribution, evolving designs, and levels of skills and experience.

Hayley’s career, which spans the transport and water sectors, began in the UK. After gaining a masters in Transport and Business Management, she worked with several engineering and planning consultancies, before moving to Sydney in 2007. Her extensive experience in Australia most recently culminated in managing HKA teams working on major transport and water sector infrastructure projects including the business cases for Sydney Metro West and Greater West and the development of optimised delivery models for several water authorities.

Hayley also chairs HKA’s working group on diversity and inclusion for the Oceania region. “Having a balanced and diverse workforce is not just the right thing to do, as public sector clients recognise. There are also benefits for business and our industry as well as the community.” Recruiting from the widest pool of talent unlocks greater capacity, while diverse teams also mitigate groupthink and are known to be more innovative, she added.

HKA is surveying its people in Oceania to increase its understanding of the mix and sense of engagement among staff. The results will inform a strategy to promote diversity and inclusion to be rolled out in 2020. Whilst not the primary driver of the strategy, it is hoped that this will help to open up a broader pool of talent at a time when competition for resources is particularly fierce.

“Given the scale of the infrastructure challenge we’re facing, we need these changes and strategic vision.”

Read HKA’s CRUX report: https://www.hka.com/crux-insight/

In a tightening market, clients are more open to engagement, but sometimes it happens late, too far into the detailed development phase. To derive maximum benefit we advocate that you engage the market once the overall objectives and high-level parameters are set. ”
Hayley Davis, Director
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