The importance of good relationships on large projects has become increasingly important to various levels of government as they look to deliver successful outcomes for their communities. This is increasingly difficult in what is a very hot market for resources in the supply chain particularly in Sydney, Melbourne and Auckland. Good people and resources from contractors and consultants are tight and hard to find for important government projects due to an unprecedented backlog of projects and pipeline of future infrastructure projects.
The size and detail of the project pipeline and committed projects can be seen at the Australia & New Zealand Infrastructure Pipeline website (ANZIP) which provides a forward view of public infrastructure activity across Australia and New Zealand. This fantastic data analytics tool provides certainty of the forward work programme to investors, constructors, governments and other agencies. ANZIP also informs industry of where and what infrastructure opportunities are available, and when they come to market by tracking greenfield and brownfield transactions from when they are proposed, until they reach contractual and financial close. This is a terrific mechanism to give the supply chain confidence and certainty around future procurement of projects across Australia and New Zealand.
The challenge in a number of Federal, State and Local government jurisdictions when delivering projects is that the relationships with the supply chain are not collaborative. They can tend to be master servant where there are unrealistic expectations from government through procurement to its supply chain to provide budget certainty, programme confidence and other commitments that are unrealistic and lead to significant problems during delivery. This lack of understanding of the supply chain’s commercial drivers does not benefit anyone as excessive risk is priced in to bid costs, prices submitted reflect contingency which also influences behaviours from all parties involved in project delivery. Further, unrealistic expectations are created around what can be achieved and what cannot which is poorly balanced with a political cycle that tends to be short term with its thinking leading to challenges in delivering value for money outcomes for the community.
To support these comments, there have been some recent interesting articles in relation to the state of supply chain relationships in the delivery of infrastructure projects in Australia. In particular, there was a comprehensive article from the Australian Financial Review highlighting the NSW premiers insights around how they cannot deliver their significant backlog of infrastructure projects worth over $80 billion without good working relationships with contractors. This was off the back of some recent challenging projects in New South Wales where the conventional “fixed price, lump sum” procurement methods have led to challenges around budget, programme and unforeseen costs.
This acknowledgement of what is a significant challenge in our industry by the NSW premier Gladys Berejiklian is outstanding. We need smarter procurement, greater alignment on delivery of better project outcomes and an understanding of all party’s drivers and expectations to deliver win/win outcomes for all involved. This was summed up well with a great quote from the NSW premier which is as follows “We know a project is at its best when the interface between government and industry is a positive one”. This requires us to actively look for ways to lower bid costs during procurement, gain greater alignment on risk allocation and work harder collaboratively to deliver great outcomes so that all parties win long term.
In order for this to occur, we are seeing government agencies who deliver infrastructure projects looking to upskill their people with commercial acumen skills and training. Further, they are working to become a mature and intelligent client who is valued by the supply chain and is seen as a client of choice when contractors and consultants are making choices on where there constrained resources are going to be allocated in terms of bids, proposals and projects.
To support this, the move to being a mature and intelligent client and the importance of commercially upskilling their workforce, the NSW government have put out to the supply chain a NSW Government Action Plan “a ten-point commitment to the construction sector”. This works through the key areas of focus in ensuring the NSW government drive value for money in construction procurement by having strong relationships with their supply chain. The plan can be found here.
We look forward to seeing this plan and its recommendations being implemented. It is a positive start. However, it does not get away from the key point that the single most important aspect to successful project delivery comes back to the valuing of the relationships with your supply chain partners. Valuing any relationship starts with building trust, delivering on commitments and learning lessons together to improve outcomes. It also requires an understanding of what is important to both parties to successfully deliver win/win outcomes together.