Christopher Back (WA, Liberal Party) Share this | Link to this | Hansard source

On a day when the whole question of Infrastructure Australia has been so much to the fore, as it has this evening, I thought it interesting to reflect on some of my own observations in this area, and on some of the work that has been done in the past. There are three pillars, as we know, upon which sustainable infrastructure must be built. The first is economic sustainability, the second is environmental sustainability, and the third is social sustainability. Of course, any project that does not measure up to all three of those aspects, it is arguable, should not proceed. We have had robust debate, even this evening in committee, on that question. The coalition's investment in infrastructure is based upon two core principles, having regard for those pillars. The first is that the project should be aligned to state priorities, and the second is that the project should be of national importance.

It was in July 2012 that I reported on a Senate inquiry for the then Education, Employment and Workplace Relations References Committee on the shortage of engineering and related employment skills in Australia. The terms of reference related to the demand for infrastructure delivery and the shortage of engineering and related employment skills in Australia. We looked at the issues associated with the delivery of infrastructure in terms of economic development, cost efficiency, safety and disputation; the impact of long-term outsourcing of engineering activities by government; retention in both the private and government sectors to address the skills shortage for engineers and those in the related trades; and the options for infrastructure development. What was interesting and relevant was that evidence that was presented to us, which we repeated in our report, was that an estimated $5 billion a year was lost on poor document preparation, poor tender allocation, poor execution of projects and having to then go back and redo the work afterwards. Subsequently I had representation in my office from a number of major project managers, who said to me, 'When we first saw that figure of $5 billion a year we couldn't believe it, so we sat down and started talking around the table.' They said, 'Not only were you right but we think that there's an added $5 billion of cost in litigation associated with that original $5 billion.'

We made some recommendations at that time, and those people who may be listening to this would be very welcome to go and find out what some of those recommendations were. But it was in Senate estimates subsequently that I engaged with the then Infrastructure Australia commissioner, Mr Michael Deegan, on this very question. I asked him if they had in fact had a look at it. I want to record this evening my appreciation for the work done by Mr Michael Deegan. I always found him to be an incredibly erudite, knowledgeable witness in Senate estimates. He never seemed to come along with any assistance. He did not even seem to have notes, and whether I saw him in estimates or I saw him in Kalgoorlie in Western Australia addressing industry or I saw him in Perth addressing local governments and others I continued to be impressed by this man's knowledge.

Anyhow, he then determined, having learnt the results of our inquiry, to engage the services of Caravel and the Melbourne Business School to look further into this question of whether that $5 billion or $10 billion was in fact real. What was interesting was the fact that as a result of that work Caravel and the Melbourne School surveyed industry and government senior executives as to how they thought they went with project definition and project completion. By their own standards—and this is self-appraisal of a survey—they found that only 48 per cent of major infrastructure projects here in Australia met their baseline time, their cost and their quality objectives. What was interesting, of course, as they said in their report, was the inconvenient truth: that despite the massive effort expended by industry and government it is estimated that only 10 per cent improvement has occurred in a 20-year period. Initially people would blame poor project management. In fact, the overwhelming point to come out of the Caravel work is that it was not project management but project governance that was failing. It was the fact that those highly experienced engineers and others from the past who would have once overseen the project managers were in fact not there.

They allocated nine key performance indicators associated with governance, and they assessed themselves against those nine performance indicators, giving themselves a performance scorecard. And on that performance scorecard they judged themselves at 24 per cent against their own key performance indicators. You might ask, 'How does that relate in terms of dollars?' Well, it was absolutely incredible. It has been estimated that the annual capital spend on infrastructure in Australia is about $215 billion, of which $155 billion is in the private sector and $60 for governments. And, as we know, our Prime Minister, Mr Abbott, has claimed strongly that he will be an infrastructure Prime Minister, so we can expect those dollars to go up.

That 48 per cent failure, or 52 per cent success, together with a 40 per cent cost overrun, which the major companies and major government executives agreed happened, is causing us an estimated $30 billion of capital wastage each year and double that figure in operational waste. These figures are astounding—not the $5 billion that we identified or the $5 billion for litigation but indeed $30 billion in capital waste and another $60 billion in operational waste. The point being made is that if we could just improve the success rate by a measly 10 per cent it would yield a $9 billion saving. They estimated that NPV lost $40 billion per annum, representing 2.3 per cent of GDP.

So, it was very timely that we undertook that original inquiry. It was very timely that we engaged in that conversation with Infrastructure Australia. And I would certainly recommend to those involved in expenditure in infrastructure in this country that they get hold of that report by Caravel and the Melbourne Business School and study it very, very closely—the conclusions that project governance is not supporting effective project execution; that failure of governance is having a major impact on the Australian economy, its GDP and shareholder and taxpayer value; that the message is not getting through; that on top of project management we need that overarching experience of project governance. We need both government and individual performance. They are not being measured. What you do not measure you cannot manage and, as we all know, what you cannot manage you cannot change and, what you cannot change, you cannot improve.

What was interesting was the fact that came out in the conclusions of this report that there is a lot of potential benefit from modest investment. We are talking about bringing back often semi-retired senior engineers not to be involved in their day-to-day project management but to cast the slide ruler over the project management, to have a look at every aspect, to take a look at the risk aspects and to just see where things may be going wrong.

Senator Mark Bishop and I had the opportunity to meet with the undersecretary for defence acquisition in the Pentagon last November. This lady had responsibility for a budget of US$360 billion, which is not much short of the entire Australian revenue budget. We were talking to her about this very question of project governance. She took on board the sorts of activities that Senator Bishop was referring to that we have done in the defence area.

So at a time when we are certainly seeing infrastructure projects building and a much greater investment, focus and attention on infrastructure, I urge that some of those conclusions of that report find their way into the policy and decision making of our government.

Senate adjourned at 10:23