It’s clear that infrastructure projects will face ongoing escalation and other delivery challenges for some time yet. The scale, economics and duration of these projects mean that pressures in the infrastructure pipeline can’t dissipate quickly.  

With the recent boom in transport projects coupled with the impending Queensland Olympics and the expected acceleration of the clean energy transition, we’re already facing stiff competition for resources across infrastructure subsectors and it is likely to get even tougher. To navigate persisting escalation conditions, supply chain pressures, skills shortages and other delivery headwinds, now is the time to pull all the available levers.  

COORDINATION BETWEEN STATE AND FEDERAL GOVERNMENTS IS A MUST 

Since 2017, demand for infrastructure has surged due to population growth, urbanisation and economic development. Demand often outstrips the capacity of current supply chains in infrastructure, leading to higher costs as contractors and suppliers capitalise on the increased workload. A clear and coordinated long-term pipeline of infrastructure projects can help ease this pressure, managing the balance between demand and supply and prioritising projects with the highest cost-benefits.  

Whilst projects can partially mitigate escalation risks by effecting programming and planning, ultimately government coordination in managing the pipeline is critical. 

BUDGET FOR ESCALATION BUT DON’T ANNOUNCE TOO EARLY 

High escalation levels make it even more critical that budgets are realistic from the start and that cost control measures are established upfront. It is crucial that realistic contingencies and escalation allowances are established and then monitored throughout design and construction.  

Proactive value management needs to be prioritised at all key milestones during the early design development. If value management becomes a reactive process after the project goes to tender, the benefit of spending time trying to recover cost overruns could be cancelled out by the associated escalation over that period.   

However, be aware of the pitfalls of publicly announcing budgets and timelines too early. Early budgets inevitably lack accuracy and are set with high contingencies. Changes in scope, budget and schedule will dramatically impact public perception and confidence in the supply chain. 

ESTABLISH A STRONG PROJECT DELIVERY TEAM AND COLLABORATIVE CULTURE 

Surround yourself with an experienced project team and, if required, set up a PMO function to provide structure, reporting, oversight and support throughout the project lifecycle. 

We are seeing increased competition for experienced infrastructure professionals such as project managers, cost managers, project directors and commercial directors, given the level of demand in the market and the pull of skills and talent towards both the energy sector and Queensland’s Olympics-related prospects. The solution is proactive partnerships between government, universities and industry to promote the construction industry as a profession of future opportunities. 

Be intentional when selecting your project leadership team and establish a cooperative environment underpinned by adopting collaborative contracts such as NEC or delivery models such as Project 13. 

CONSIDER THE OPTIONS FOR PROCUREMENT  

No particular procurement option holds the answer to escalation. The most important thing is not the procurement method itself, but determining the methodology that is appropriate to the size, nature and risk allocation of the project.   

Early contractor involvement (ECI) can be beneficial for complex projects and where buildability is key. However, we now have much more stability and predictability than in the volatile pandemic period when ECI really came to the fore, so the need to be working so closely with the subcontractor market to achieve budget is now less pressing. 

APPORTION RISK APPROPRIATELY 

Infrastructure projects have always faced risks such as contamination, latent conditions and inclement weather. These risks persist, but others have emerged – such as supply chains, procurement of materials, and escalation. The larger and longer the project, the greater these risks become. Contractors are carefully considering risk profiles and pricing in risk, so it’s important to be clear about a project’s risks from the start and allocate risks to the party best equipped to manage them.  

PROVIDE CONFIDENCE FOR CONTRACTORS   

A competitive tender outcome hinges on a well-timed tender with a right-sized tender list. But in the current market, attracting and engaging the best contractors will be challenging.  

Contractors will have more appetite for the project and may be able to get better prices from subcontractors if they can be confident in the job proceeding. Engaging early with contractors will put your project on their radar and allow you to understand their forward commitments, which can inform your timing to market. 

EMBRACE INNOVATION 

The digital era offers significant opportunities for the infrastructure sector. Technologies such as BIM, automation and digital twins can increase the speed and accuracy of design and delivery, and put downward pressure on cost escalation. Embracing these technologies early can provide a competitive edge.  

LOOKING AHEAD 

The infrastructure sector in Australia is in a unique moment. This is the time to maximise the benefits of the extended high-level of investments by focusing on pipeline mapping, collaboration, proactive cost control and increasing productivity and efficiency. These principles will enable the delivery of much-needed infrastructure for all Australian communities while navigating a high-escalation environment and futureproofing for the expected boom in energy and renewables projects. 

About the author 

Sam Mendoza is the National Infrastructure Lead and a Director at WT.  He has extensive experience in all infrastructure sectors with a particular focus on transport (rail and metro), marine, aviation and zero-emission infrastructure.  Sam has over 10 years’ experience advising major projects including feasibility studies and business cases, cost, commercial and risk management, procurement and delivery.  He has a played a key role in planning and delivering some of the most city-shaping projects, such as Parramatta Light Rail, Coffs Harbour Bypass, Circular Quay Renewal, Zero Emission Buses and Western Sydney Airport. Sam is a recurrent casual lecturer in the field of Construction Management at the University of Technology Sydney.