Churchill Consulting

Delivery pains – the Australian Transport Infrastructure Industry

Delivery pains – the Australian Transport Infrastructure Industry

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  • Industry:Business

With record stimulus there as been record growth in the Australian Transport Infrastructure Market, but not all players have benefited equally.

Churchill worked with Australian Owned Contractors to unpack the strategic landscape and operating environment and the implications for Australian mid-tier firms.

With the backdrop of COVID-19 stimulus, both Federal and State governments have prioritised investment in the Australian Transport Infrastructure Market – covering road, rail, ports and airports – resulting in unprecedented growth.

The Australian Federal Government committed A$110b over 10 years from 2021/22 in Transport Infrastructure Projects across the nation. Coupled with State Government commitments, considerable tax-payer dollars are being invested in these projects.

The result of this significant commitment has been the propensity for projects to be procured as ‘mega projects’ (works packages with a contract value greater than A$1b) and ‘mega-mega projects’ (greater than A$5b).

This trend is concerning on a number of levels. Evidence suggests that mega and mega-mega projects correlate to a reduction in competition, increase in total costs and an overall decrease in project success.

In order to deliver a project of such size, the government requires contractors to have 8% of the contract value in net tangible assets. In a high cash flow, low asset base business such as transport infrastructure contracting, very few entities, and no majority Australian-owned organisations, have the balance sheet to support such projects.

The Australian Owned Contractors (AOC), which represents businesses with familiar names including Georgiou Group, Decmil, BMD, MACA, NRW Holdings and others, asked Churchill to conduct an independent review of the Australian transport infrastructure sector and the market landscape for mid-tier Australian firms.

In reviewing the Australian Transport Infrastructure Industry, Churchill applied three lenses to the existing procurement model:

• Are taxpayer dollars being maximised?
• Is the market competitive?
• Is the government developing sovereign capability?

Particular focus was placed on quantitative analysis, ensuring conclusions were data driven and evidence based.
The analysis focused on projects of >A$500m where contracts have been awarded, construction commenced or completed since the FY2018-19 Federal Budget.

The findings

Our analysis found a clear benefit for project packaging and incentivised inclusion of mid-tiers in the head contract.

Churchill found that while many mid-tier contractors had the technical capability to deliver works packages that collectively make up mega-projects valued at more than A$1bn, their balance sheet strength was hindering their ability to compete for the contract and stifling market competition. With Lendlease, who was the last majority Australian owned Tier 1 contractor, now owned by Acciona, none of the current mega or mega mega projects are being delivered by an Australian owned firm.

There are many implications to foreign firms dominating delivery of such major projects. One of these is the scenario where these firms repatriate project profits and funds to cover head office overhead costs in their domestic country of denomination. For a project of value greater than A$1b, this can result in over A$100m being extracted from the Australian economy.

There have been a number of recent developments to address this scenario. The Australian Government is looking to break up mega projects into smaller works packages to allow Mid-tier contractors to bid and increase market competition. The former Premier of NSW Gladys Berejiklian, recently published a memorandum to the State Government of NSW that included ‘Project-packaging’ requirements to size contracts in a manner that facilitates competitive bids from a wide range of participants.

Another mechanism that has been introduced on some mega projects to enhance the use of Australian mid-tier contractors is the inclusion of ‘industry capability’ in the Tender Evaluation Criteria (TEC). An industry capability criteria is a category of the TEC that awards additional value to consortiums proposing to deliver a major project with inclusion of a mid-tier contractor in the head contract. The Gateway project in Western Australia is an excellent example of this, which saw Georgiou Group hold an 18% share of the head contract and gain valuable major project experience.

As shown in the figure below, when there have been requirements included in tender assessments for Australian mid-tier involvement or programs have been packaged into smaller projects, Australian contractors are not only able to participate, but enhance significant value. Circa 60% of total contract aggregated value is delivered by majority Australian owned firms, compared to the alternative way of simply appointing a foreign owned Tier 1 as head contractor, whereby only 1% of total aggregate value of contracts is delivered by Australian businesses.

The ability to derive such considerable value for the Australian economy through simple procurement adjustments such as project packaging or industry capability criteria is encouraging.

Want to know more about our findings, or have Churchill run an analysis for your industry? Contact us at

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