Annual Performance Statement 2024

Annual Performance Statement 2024

Download a PDF of the full report or read the full report below


26 April 2024

Introduction and context

Purpose of this statement

As required under section 5DB of the Infrastructure Australia Act 2008 (Cth) (IA Act), Infrastructure Australia, during each financial year, must give to the Minister and table in both Houses of Parliament:

  • an annual budget statement to inform the annual Commonwealth budget process on infrastructure investment; and
  • an annual performance statement on the performance outcomes being achieved by states, territories and local government authorities in relation to the infrastructure investment program and existing project initiatives funded by the Commonwealth.

Context

In 2022, the Australian Government undertook an Independent Review of Infrastructure Australia. Following the release of the Government’s response to the Review, Parliament passed legislative amendments to the IA Act in December 2023. This included the requirement for Infrastructure Australia to produce and publish these annual statements.

With the passage of the amendments occurring late in 2023, the Annual Performance Statement 2024 was developed using readily available data within the time available.

The Annual Performance Statement 2024

This first edition of the Annual Performance Statement sets out Infrastructure Australia’s advice regarding the outcomes being achieved in relation to the Australian Government’s Infrastructure Investment Program (IIP), which funds land 
transport projects. 

Agreed performance outcomes and measures across the nationally significant infrastructure sectors within Infrastructure Australia’s remit are yet to be determined. As a result, this year’s Performance Statement focusses on the IIP and its alignment to the outcomes sought through the Government’s Infrastructure Policy Statement (IPS). 

Infrastructure Australia will work with the Australian Government to agree an approach to reporting in future editions of the Annual Performance Statement, including considering the establishment of performance outcomes and measures for the sectors in Infrastructure Australia’s remit.

The Statement also includes market capacity analysis and trends and insights gleaned from Infrastructure Australia’s evaluation of business cases for nationally significant infrastructure for consideration in the development of future infrastructure proposals.

Australia’s Infrastructure Market Capacity

Infrastructure Australia’s 2023 Market Capacity Report found that Australia’s major public infrastructure pipeline had slightly smoothed over the preceding 12 months, with projected expenditure more evenly distributed over the 
forward estimates. 

In November 2023, the Australian Government announced changes to projects funded through one of its programs feeding into the public infrastructure pipeline, the IIP. The changes included allocation of additional funds, removal of funds, and deferral of funds. Infrastructure Australia has undertaken analysis to determine the effects of these changes on the public infrastructure pipeline. 

Infrastructure Australia’s analysis below assumes a conservative position that all defunded projects are not going ahead, with this scenario resulting in a 2.3% reduction in the 5-year public infrastructure demand pipeline. However, in reality, some projects may still proceed at the discretion of each respective state and territory, without an Australian Government funding contribution. 

Furthermore, the Australian Government’s cashflow contribution to the 5-year public infrastructure demand pipeline via the IIP is approximately 20%, with the remainder mostly comprising state and territory funding, including many projects which are not receiving Australian Government funding. Therefore, the impact of the announced changes to the IIP on public infrastructure construction capacity constraints will be properly understood after infrastructure pipelines from each state and territory have been updated. 

Scenario

5-year total demand
(2023 to 2028)

% Change from baseline

2023 Public infrastructure pipeline

$282.8 billion

baseline

with projects scaled by additional funds

$286.1 billion

1.2%

with defunded projects removed

$276.4 billion

-2.3%

Pipeline with net IIP funding changes

$279.8 billion

-1.1%

Under the assumption that all defunded projects will be cancelled, the revised IIP will slightly relieve the labour shortage in coming years. Labour demand for publicly funded projects will reduce by up to 8,000 full-time equivalents per month, representing up to 2% of current labour demand in 2024-25. 

Figure 1: Public infrastructure workforce demand

Figure 1: Public infrastructure workforce demand

The announced changes also reduces quarried materials demanded, although the effect of this impact will be in later years as its impact takes effect during the construction phase of project delivery. By 2027-28, annual quarry demand in the public pipeline drops by up to 3%, or up to 1.2 million tonnes per year.

Figure 2: Public infrastructure quarried material demand

Figure 2: Public infrastructure quarried material demand

Global supply chain pressures have eased, with steady improvements in international production, trade, and transport measures compared with 12 months ago. However, demand still significantly outweighs supply, and productivity for the construction sector remains stagnant compared to other industries.
The analysis above demonstrates that revisions of proposed infrastructure pipelines can have material effects on managing market capacity and supporting performance of the infrastructure construction market. 

As part of normal yearly budget processes, Infrastructure Australia recommends governments carefully review their project pipelines, both within and across sectors. These reviews should ensure that demand is carefully matched to supply of plant, labour, equipment and material. This will ensure that governments are not competing against each other for scarce resources and provide a checkpoint for projects’ progress. 

The Infrastructure Investment Program (IIP)

The Australian Government’s over $120 billion infrastructure pipeline aims to improve the productivity of Australia’s land transport networks by working with every state and territory to build much-needed infrastructure across a number of individual funding programs.1 The infrastructure pipeline comprises the IIP, financial assistance grants, equity, and other infrastructure investments.

Infrastructure Investment Program objective

The IIP, which comprises the majority of the infrastructure pipeline’s funding, ‘supports economic growth, makes travel safer, increases transport access and supports regional development. It increases the efficiency, productivity, sustainability and safety of Australia’s land transport infrastructure through programs and policy to improve connectivity for communities and freight.2 

Recent Reforms

The Australian Government recently undertook two significant reviews relating to its infrastructure investment – the Independent Strategic Review of the IIP, and the Independent Review of the National Partnership Agreement on Land Transport Infrastructure Projects. 

The reviews recommended wide-ranging reforms to the Government’s infrastructure investments, including but not limited to:

  • Implementing a long-term, integrated approach to planning, incorporating the IPS
  • Developing a comprehensive outcomes and performance framework
  • Taking a risk-based approach to project oversight
  • Reviewing the National Land Transport Act 2014 and maintenance funding
  • Improving data and systems practices

Infrastructure Australia supports the recommendations from both reviews. It is anticipated that as the reviews’ recommendations are implemented, such as those related to improved performance reporting, additional data will be available to support future performance statements.  

IIP context

Within the IIP, the breakdown between the funding parties comprises 60% from the Australian Government, with 39% from state and territory governments, and the remaining 1% coming from other sources, such as local governments.i 

Funding Split
 Funding Split

i. Figures provided by the Department of Infrastructure, Transport, Regional Development, Communications and the Arts. Includes IIP major projects with funding from 2023-34 (excluding unallocated funding) and excluding sub-programs of Black Spot, Heavy Vehicle Safety and Productivity, Bridges Renewal, and Roads to Recovery.

In terms of the modal breakdown of its investment, 69% of Australian Government funding (2023-24 to 2032-33) in the IIP is committed to road projects, with 25% allocated to rail infrastructure. The remaining 6% of funding is committed to the remainder of the IIP.ii Australian Government investment in infrastructure also occurs outside of the IIP on both road and rail infrastructure, for example Inland Rail.

ii. Figures provided by the Department of Infrastructure, Transport, Regional Development, Communications and the Arts. Includes unallocated funding to applicable states. Also includes national unallocated funding which is held against the road allocation.

Australian Government Investment Allocation by Mode

Australian Government Investment Allocation  by Mode

The Infrastructure Policy Statement (IPS)

Future investments in the IIP will be guided by the Government’s IPS, which was released in late 2023. The IPS, in addition to defining nationally significant infrastructure, identifies three strategic themes that encapsulate the benefits the Government seeks from its infrastructure investments:

  • Productivity and resilience – seeking to improve the ability of Australians to move around and between cities, towns and regions, and to strengthen the resilience and efficiency of transport networks.
  • Liveability – connecting people with where they live and work, supporting vulnerable communities, providing better opportunities in lower socioeconomic areas and improving the safety of the nation’s transport networks.
  • Sustainability – reducing transport and infrastructure emissions for private users and freight movements through design, construction and operation.

Performance of the IIP against the IPS

Infrastructure Australia undertook analysis of a subset of projects within the IIP to understand the alignment of the Government’s existing IIP investments with the policy outcomes in the IPS. It should be noted that for most, if not all of the projects we analysed, the IPS was not in place at the time funding decisions were made. The purpose of this analysis is therefore to demonstrate where governments may wish to focus future decision-making to help achieve the IPS outcomes.

What Infrastructure Australia assessed

The purpose of Infrastructure Australia’s analysis was two-fold and aimed at understanding projects’:

  1. expected economic return (based on the business case), and 
  2. alignment of the projects’ benefits with the Government’s IPS.

The analysis is based on Infrastructure Australia’s previous evaluations of project business cases. The business case data was developed by the relevant state or territory governments and provides a ‘before construction’ view of anticipated project benefits, as opposed to realised ‘after construction’ benefits. The analysis therefore gives an indication of the expected benefits of projects at or around the time decisions to fund them were made.

The data was considered current at the time Infrastructure Australia evaluated the business cases and does not account for any subsequent cost increases or scope changes. The data represents Infrastructure Australia’s position on the expected project benefits at the time the business case 
was evaluated. 

The analysis is limited to projects within the IIP that have:

  1. An Australian Government commitment of $250 million or more, and
  2. An Infrastructure Australia evaluation of the business case. 

Filtering out program and unallocated funding, 44 projects were deemed in scope and analysed.iii As they comprise significant projects within the IIP, this subset of projects provides a good foundation for analysis.
To undertake this work, Infrastructure Australia sourced data from the business case evaluation summaries (available on the Infrastructure Australia website) and analysed this data against the themes in the IPS. 

iii. 17 rail & public transport projects; 27 road projects

Infrastructure Australia’s findings

Overall, the projects analysed demonstrate a positive economic return

According to business case data, Infrastructure Australia found that the analysed projects were expected to deliver a positive economic return, with a forecast return of $1.17 of economic value for every $1 of infrastructure spending nationally.iv Rail and public transport projects were found to have slightly lower economic returns, $1.13 for every $1 invested, compared to roads, $1.32 of economic return. This is because road business cases count higher productivity benefits, which are a greater share of overall benefits, while rail and public transport projects offer greater liveability and sustainability benefits.

iv. The economic return is the average of projects’ core Benefit Cost Ratio results, excluding wider economic benefits, weighted by the relative value of projects to represent a true economic return.

It is important to note that the economic analysis of a project is only one of several key inputs into Infrastructure Australia’s evaluations. Other significant and important considerations when making infrastructure investment evaluations include the proposal’s:

  1. Strategic fit – is there a clear rationale for the proposal? 
  2. Societal impact – what is the proposal’s value to society, the environment and the economy? 
  3. Deliverability – can the proposal be delivered successfully?
     

Productivity comprises almost three quarters of project benefits 

Infrastructure Australia’s analysis found that productivity is the main driver of project benefits in the projects analysed, comprising 73% of project benefits. 

Productivity comprises almost three quarters of project benefits

Rail and Public Transport projects demonstrate higher liveability and sustainability benefits 

Across the projects, liveability comprised 24% and sustainability 3% of project benefits. Rail and public transport projects demonstrate higher liveability and sustainability benefits than road projects, representing 64% of projected liveability benefits and 65% of sustainability benefits, despite representing only 46% of the projected cost of the analysed projects.

Rail and Public Transport vs Road benefits

Rail and Public Transport vs Road benefits
Improving the consideration of sustainability benefits in business cases needs urgent attention 

Sustainability benefits comprise 3% of project benefits, however this is not a true representation of the potential sustainability benefits of the projects analysed because:

  • Typically, there is a low quality of sustainability evidence provided in business cases – particularly as business cases often do not describe a project’s:
    • emission reduction targets 
    • mitigation, avoidance and/or offset measures, and
    • intentions to use recycled/ low emissions building materials.
  • Sustainability has not necessarily been a core objective of the projects (outcomes are usually focused on transport access, connectivity and place-making).
  • Greenhouse gas (GHG) emissions baseline and savings in construction and operations, including embodied emissions, are often not included in cost-benefit analysis (CBA).
  • Sustainability issues, such as recycled content or third-party sustainability certification requirements, are typically only considered later in the project development lifecycle (usually in procurement 
    or construction).

Improvements to the quality and detail of sustainability data provided in business cases are required to accurately understand the sustainability benefits of proposals. This is discussed further under Trend 4 – Inconsistent assessment of sustainability and resilience, in the Trends and Insights section below.

Post completion evaluations to better understand IIP performance

The Australian Government’s response to the Independent review of Infrastructure Australia (2022) recognised the need for post completion reviews to provide greater evidence that projects are achieving their intended outcomes.

Despite broad agreement on the merits of undertaking post completion reviews of infrastructure projects, including the application of lessons learnt and feedback for future investments, Infrastructure Australia’s research and engagement with jurisdictions demonstrates that these reviews are not consistently undertaken and rarely published.22,23

Post completion reviews identify important lessons for governments, communities and industry regarding project successes following project delivery. These reviews determine whether the desired objectives and/or forecast benefits and costs have been realised and can explain the reasons for any differences between the expected and actual outcomes. The aim is to draw appropriate lessons to feed into future infrastructure development and delivery processes. 

A component of post completion reviews is after construction cost-benefit analysis, which helps to identify: 

  • the relationships between inputs, outputs, outcomes and benefits 
  • the extent of change in schedule, cost, outcomes and benefits 
  • appropriateness of techniques and assumptions for estimating costs and benefits, including quantitative and qualitative analysis
  • where projects have realised additional non-monetised benefits that were unforeseen during planning.

Conducting a cost-benefit analysis after construction can also be used to conduct benchmarking to help improve estimation techniques around costs and risks during planning, or to substantiate forecasts in the business case by comparing a portfolio of projects with similar characteristics. This can help reduce optimism bias during the planning phase of infrastructure projects, ensuring that scheduling, cost and risk of projects is better understood before funding commitments are made.

The analysis and insights provided in this Annual Statement are based on Infrastructure Australia’s evaluation of project business cases because post completion data is not currently available at a national level to assess project performance. Business cases provide a ‘before construction’ perspective of project performance that is based on expectations and probabilities. While useful for making decisions about the use of public resources in the future, this upfront cost-benefit analysis does not provide confidence that the forecasted performance was actually achieved.

Working with Infrastructure Australia and leveraging the well-defined guidance on benefits realisation 
and cost review at the jurisdictional level, there is a clear opportunity for all governments to adopt a consistent approach to post completion reviews to gain a better picture of whether the IIP is achieving its intended impact.

References

  1. Department of Infrastructure, Transport, Regional Development, Communications and the Arts. Available at: https://investment.infrastructure.gov.au/about/national-initiatives
  2. Department of Infrastructure, Transport, Regional Development, Communications and the Arts, 2023-27 Corporate Plan. Available at: https://www.infrastructure.gov.au/sites/default/files/documents/Secretary%20Approved%20INFRA5702%20Dept%20Corporate%20Plan%202023_04.pdf
  3. Australian Government. Available at: https://www.infrastructure.gov.au/sites/default/files/documents/infrastructure-policy-statement-20231114.pdf
  4. Ryan, P. and Duffield, C. 2017, Contractor Performance on Mega Projects–Avoiding the Pitfalls. Mahalingam, A (Ed.) Shealy, T (Ed.) Gil, N (Ed.) pp.1-34. Engineering Project Organization Society. The University of Melbourne, Melbourne, Australia. Available via:  http://hdl.handle.net/11343/168246; 
  5. Infrastructure NSW 2023, 2022-23 State of Infrastructure Report, NSW Government. Available via: https://www.infrastructure.nsw.gov.au/investor-assurance/asset-management-assurance/resources/soir/; 
  6. NSW Treasury 2019, WestConnex Project Summary 2019. NSW Government, Sydney, Australia. Available via: https://www.treasury.nsw.gov.au/sites/default/files/2020-11/0023_westconnex_summary.pdf; 
  7. Victorian Auditor-General’s Office 2023, Major Projects Performance Reporting 2023: Independent assurance report to Parliament 2023-24:9. Available via: https://www.audit.vic.gov.au/sites/default/files/2023-11/20231130_Major-Projects-Performance-Reporting-2023.pdf;
  8. The State of Queensland (Queensland Audit Office) 2023, Major Projects 2023 (Report 7: 2023–24). Available via: https://www.qao.qld.gov.au/sites/default/files/2023-12/Major%20projects%202023%20%28Report%207%20%E2%80%93%202023%E2%80%9324%29.pdf
  9. Infrastructure NSW 2022, Trends and Insights Report 2022, NSW Government. Available via: https://www.infrastructure.nsw.gov.au/investor-assurance/project-assurance/resources/trends-and-insights/
  10. Boston Consulting Group (BCG) 2021, International Major Infrastructure Projects Benchmarking Review: Final Report. Prepared by BCG for the Office of Projects Victoria (OPV). Available via: https://content.vic.gov.au/sites/default/files/2023-02/International-Major-Infrastructure-Projects-Benchmarking-Review.pdf
  11. GHD, 2019, North East Link North East Link Environment Effects Statement Technical report R – Greenhouse gas impact assessment, Prepared for North East Link, Available from: Technical Report R Greenhouse gas (bigbuild.vic.gov.au)
  12. AECOM, West Gate Tunnel Project – Technical report Q – Greenhouse gas, May 2017. 
  13. Aurecon Jacobs Mott MacDonald in association with Grimshaw Joint Venture (AJM JV) Melbourne Metro Rail Project – Greenhouse Gas Impact Assessment, April 2016.
  14. Extreme weather could burn investment portfolios by mid-century (theconversation.com), accessed 21 March 2024
  15. The Australian Transport Assessment and Planning Guidelines outline best practice for transport planning and assessment in Australia. and are available at: https://www.atap.gov.au/ 
  16. Australian Business Roundtable for Disaster Resilience & Safer Communities 2016, Building resilient infrastructure, Australian Business Roundtable, http://australianbusinessroundtable.com.au/our-research/resilient-infrastructure-report
  17. Dobes, Leo, George Argyrous, and Joanne Leung. “Social Cost-benefit Analysis in Australia and New Zealand. The State of Current Practice and What Needs to Be Done”, 2016. https://doi.org/10.26530/oapen_610768
  18. Vejchodská, Eliška. “Cost-benefit Analysis: Too Often Biased”. E+M Ekonomie a Management 18, no. 4 (2015): 68–77. https://doi.org/10.15240/tul/001/2015-4-005.
  19. Næss, Petter, Morten Skou Nicolaisen, and Arvid Strand. “Traffic forecasts ignoring induced demand: a shaky fundament for cost-benefit analyses.” European Journal of Transport and Infrastructure Research 12.3 (2012): 291-309.
  20. Bureau of Infrastructure, Transport and Regional Economics (BITRE), 2018, Ex-post Economic Evaluation of National Road Investment Projects – Volume 1 Synthesis Report, Report 145, BITRE, Canberra ACT.
  21. Bureau of Infrastructure, Transport and Regional Economics (BITRE), 2018, Ex-post Economic Evaluation of National Road Investment Projects – Volume 2 Case Studies, Report 145, BITRE, Canberra ACT.
  22. Infrastructure Australia, Infrastructure Decision-making Principles (July 2018) https://www.infrastructureaustralia.gov.au/sites/default/files/2019 06/Infrastructure_DecisionMaking_Principles.pdf
  23. Grattan Institute, The rise of megaprojects: counting the costs (November 2020). Available at: https://grattan.edu.au/wp-content/uploads/2020/11/The-Rise-of-Megaprojects-Grattan-Report.pdf
  • Annual Statements

    Find out more about the Annual Statements here

  • Annual Budget Statement 2024

    Read the Annual Budget Statement 2024

Annual Budget Statement 2024

Annual Budget Statement 2024

Download a PDF of the full report or read the full report below


26 April 2024

Introduction and context

Purpose of this statement

As required under section 5DB of the Infrastructure Australia Act 2008 (Cth) (IA Act), Infrastructure Australia, during each financial year, must give to the Minister and table in both Houses of Parliament:

  • an annual budget statement to inform the annual Commonwealth budget process on infrastructure investment; and 
  • an annual performance statement on the performance outcomes being achieved by states, territories and local government authorities in relation to the infrastructure investment program and existing project initiatives funded by the Commonwealth.

Context

In 2022, the Australian Government undertook an Independent Review of Infrastructure Australia. Following the release of the Government’s response to the Review, Parliament passed legislative amendments to the IA Act in December 2023. This included the requirement for Infrastructure Australia to produce and publish these annual statements.

With the passage of the amendments occurring late in 2023, the Annual Budget Statement 2024 was developed using readily available data within the time available.

The Annual Budget Statement 2024

This first edition of the Annual Budget Statement reflects on current infrastructure challenges and provides advice on the types of infrastructure proposals Infrastructure Australia recommends be considered during Budget processes.  It considers recent observed trends both globally and in Australia, and evidence across infrastructure sectors, in particular for land transport. This advice is based on Infrastructure Australia’s own research, together with structured analysis of recent evidence from states and territories and the research community.

Future editions of the Annual Budget Statement will use Infrastructure Australia’s products, such as a targeted Infrastructure Priority List, to inform advice to Government on recommended projects for consideration in future Budget processes. Infrastructure Australia will also work with the Government to consider how broader Government reforms to infrastructure investment planning and decision-making and the availability of other data sources can inform future statements. 

Key infrastructure challenges

Australia’s infrastructure networks and systems are vitally important. Secure and resilient infrastructure is critical to connecting people and businesses, powering the Australian economy and supporting communities in an increasingly unpredictable natural environment.

The environment in which infrastructure is planned, delivered and operated has changed significantly over time. Domestic and global challenges such as climate change and extreme weather events, global availability of resources and materials and changing movement patterns can create an environment of risk and uncertainty.

However, there are significant opportunities to evolve our approach to infrastructure planning, delivery and operation. Development of new technologies, increased use and access to data, modern methods of construction and a greater focus on renewables and recycled materials can transform our infrastructure system and assist in overcoming the challenges we currently face.

Figure 1: Key infrastructure challenges 

Figure 1: Key infrastructure challenges
Growing scale and complexity of infrastructure investments

Capital infrastructure investment is growing across Australian jurisdictions in sectors such as transport, social infrastructure, energy and buildings, driven by factors including growing populations, changing needs, and emerging priorities such as housing supply and the energy transition.1,2,3

There is also clear global and jurisdictional evidence of a trend towards an increasing number and scale of ‘megaprojects’ (cost over $1 billion) in recent years.4,5,6,7,8

This growth in spending has ramifications for project delivery across infrastructure sectors in terms of cost and risk, and longer-term ramifications due to a growing asset base and maintenance liability. 

Figure 2 illustrates the significant increase in combined public and private sector infrastructure investments over recent years and the scale of the forward pipeline. The 5-year, $690 billion combined pipeline comprises building and transport investments of $427 billion and $210 billion respectively, and a further $53 billion utilities pipeline that includes an expected four-fold increase in energy investments over the next four years. This rapid growth in energy projects will need to compete for resources despite being overshadowed by building and transport investments.  

Figure 2: Combined Infrastructure (public and private sector) - annualised investments by sector.

Figure 2: Combined Infrastructure (public and private sector) - annualised investments by sector.

Source: Infrastructure Australia (2023).

Notes:

  • Buildings: includes non-residential buildings for health, education, sport, justice, transport buildings (e.g., parking facilities and warehouses), other buildings (art facilities, civic/convention centres, and offices), limited coverage of detached and semi-detached residential buildings.
  • Transport: includes roads, railways, level crossings and other transport projects such as airport runways.
  • Utilities: includes water and sewerage, energy and fuels, gas and water pipelines, and telecommunications.

Figure 3: Recent trends in Australia’s public infrastructure investment across sectors

Figure 3: Recent trends in Australia’s public infrastructure investment across sectors

There are signals of shifts in investment trends. For example, Infrastructure Australia’s research indicates that energy sector investment is expected to grow nationally at around four times current activity levels.9
Jurisdictions such as Queensland are also seeing significant uplifts in energy sector funding.2

There are also indications of a greater balance of investment across sectors going towards regional areas. Infrastructure Australia’s 2023 Market Capacity Report indicates that regions across NSW, Queensland, and the Northern Territory will experience extraordinary growth in the three years from 2024-25, with investment up to three times higher than the three years prior in some regions.9

Market capacity constraints

Both in Australia and globally, there is a heated infrastructure market resulting from growing demand pressure as well as market constraints in terms of labour, skills and materials.10

Sustained Demand

Australia will continue to see prolonged pressure on construction capacity because of sustained cross-sectoral demand. 

This includes uplifts in overall capital spending and/or accelerated delivery (where capital expenditure is brought forward to earlier than originally planned). In NSW, the number of projects in the state’s infrastructure program increased by 4.8% year-on-year in 2022-23, while increasing numbers of megaprojects are also moving into delivery, putting pressure on the market’s capacity to deliver (both globally and locally) and leading to cost increases on projects.11,1 Queensland has also seen substantial increases in overall infrastructure project costs, partly resulting from the accelerated delivery of capital projects such as rail and highway upgrades.2

Governments are recognising and acting to manage demand challenges, in both the short and longer term, for example through:

  • Proactive management and re-sequencing of projects in response to market constraints – such as the Australian Governments review of the Infrastructure Investment Program (IIP), the NSW Government’s 2023 Strategic Infrastructure Review and the WA Government’s measures to smooth procurement and delivery of projects to align to industry capacity. 
  • Improving visibility, transparency and detail of information on planning infrastructure projects and procurement – such as the Major Projects Pipeline Portal in NSW, the Infrastructure Projects in Western Australia report and Tasmania’s 10-year Infrastructure Pipeline database.
  • Recognising a need to shift the balance away from large-scale capital projects towards a more sustainable investment mix, including greater emphasis on utilisation and maintenance of existing assets to maximise spare capacity and optimise outcomes.

In an environment of increasing demand pressure, factors such as rising material costs, disrupted or under-supply of materials, labour and skill shortages in the construction industry, and increasing labour costs have been identified by multiple Australian jurisdictions as a major cause of cost increases and delays to the delivery of infrastructure projects and represent an ongoing challenge.8,12,13,2

Labour Constraints

Infrastructure Australia’s 2023 Market Capacity Report demonstrates that labour remains the top capacity constraint. Labour supply capacity is expected to recover to pre-COVID levels by mid-2024 and to continue to increase steadily. However, the expected rate of supply increase is not projected to close the construction sector’s labour gap indicating longer-term structural barriers.  Further, the Report asserts the workforce must continuously upskill to keep pace with evolving job designs and ways of working, and that improving workplace culture in construction overall will unlock productivity benefits.  However, a range of cultural problems such as inflexible and extended working hours, lack of diversity in teams and mental health issues, are reported to hinder women’s participation in the sector and increasingly, that of young men.  Many of these issues may be addressed through reforms outlined by the Australian Government in recent months (see below).9

Key Australian Government reforms addressing structural barriers to labour capacity and productivity include:

  • Working Future – The Australian Government’s White Paper on Jobs and Opportunities – a roadmap with aims which include achieving sustained full employment, promoting job security and reigniting productivity growth 
  • Australian Universities Accord – to improve the quality, accessibility, affordability and sustainability of higher education.
  • National Skills Agreement – designed to strengthen the vocational education and training (VET) sector focused on addressing critical skills and workforce shortages.
  • Australian Government Migration Strategy – address skills shortages, improve pathways, and enhance the overall migration experience.
  • Build Skills Australia – the national Jobs and Skills Council for the built environment sector identifying solutions to the workforce challenges facing the construction, property and water industries.
  • Australian Skills Guarantee – to introduce new national targets for apprentices, trainees and paid cadets working on Australian Government funded major projects, as well as introduce national targets for women to increase the proportion of women working on major projects.

Significant levels of public investment in priority growth areas such as energy, housing, heavy industries, and defence, will also compete for access to human resources. Our latest Market Capacity analysis indicates a shortage of 229,000 full-time infrastructure workers as of October 2023, with shortages in all occupational groups. These shortages are driven by heightened activity in public and private infrastructure investments. Labour demands total 405,000 full-time infrastructure workers, with transport accounting for 56% of total labour demand, buildings 34%, and utilities the remaining 10%. Further, extraordinary growth in public and private investments are expected to create labour gaps in coming years in some regional hot spots. The top five regional hot spots are Murray, mid-North Coast and the Riverina in NSW, the NT outback and central Queensland. 

Materials Constraints

Industry research indicates concerns that the domestic capacity of materials supply – particularly steel and quarry products – cannot meet demand in particular hotspots.9 Acute quarry shortages loom in a few hotspots across the country, notably Melbourne, mid-North Coast NSW and South East Queensland. Quarry materials are important to a range of infrastructure projects including roads, bridges, houses, railways and other infrastructure. Projects carry the risk of higher transportation costs, vehicle emissions and schedule delays if forced to source quarry materials from further afield.

A focus on productivity

Productivity in the construction sector has not improved for over 30 years. This is partly due to the absence of diagnostic productivity measures, low participation of women in the workforce, inconsistent adoption of new technologies and modern manufacturing methods, and unfair risk allocation in procurement and contracting. 

State and territory governments have initiated or are in the process of implementing reforms to increase industry productivity. However, joint effort by all governments is necessary to support ongoing work and raise reform outcomes to the national level. This effort should focus on developing diagnostic productivity measures, establishing a national productivity baseline, and creating national metrics and indicators to track progress. Regular progress reporting against these measures should be provided to relevant intergovernmental forums and/or Ministerial Councils.

Responding to climate change

Climate change impacts such as extreme weather, fires and floods are directly impacting existing infrastructure across sectors and jurisdictions and represent a significant and growing risk to assets, systems and user outcomes. There is growth in the frequency and intensity of these impacts, and this poses episodic but extreme risk to both developing infrastructure and existing assets.14

Increasing disaster and resilience events require investment in more resilient infrastructure, and create indirect impacts by requiring funding and resources to be diverted to increased operational costs, post-disaster maintenance and repair, reconstruction and recovery. As jurisdictions such as South Australia and New South Wales have observed, this places significant added pressure on already-constrained public finances as well as on market capacity for infrastructure delivery.17,7

As identified by Infrastructure Western Australia in their State Infrastructure Strategy, considering resilience not only includes a focus on the resilience of an individual infrastructure asset, but also the contribution that piece of infrastructure makes to resilience of the community overall.15 Fundamental to this is an understanding of likely future climate change impacts, auditing of existing infrastructure systems, adequate planning, along with appropriate consideration of resilience in existing and new infrastructure projects and networks.  

Similarly, infrastructure planning, investment and design decisions need to be in step with national goals for decarbonisation and the circular economy. To date, the transition to more sustainable approaches to infrastructure, such as adoption of recycled materials as well as efforts to minimise embodied carbon through project delivery, has been slow and inconsistent.  

For example, approximately 43% of conventional materials used in road construction could be replaced by a range of recycled materials. Cost savings from the application of recycled alternatives in roads infrastructure range from 2% to 83%. Supporting the increased uptake of recycled materials in construction can help to lower project costs, and support Australia’s decarbonisation efforts to reach Net Zero by 2050.

Efforts to reduce embodied carbon would make a significant contribution to Australia’s decarbonisation agenda. This can be achieved through the decarbonisation of building materials on the supply side, and changes in how Australia plans, designs and procures assets so that embodied carbon is considered early. Research by Infrastructure Australia shows that low carbon building materials and construction methods have the potential to achieve a 23% saving of upfront carbon from the public infrastructure pipeline over the next five years.

Other infrastructure delivery challenges

  • Increasing risks for project development and delivery due to complexity, emerging technologies and integration with existing operations and other systems and sectors.
  • Ensuring appropriate timing and engagement for planning and environmental approval processes, including community engagement. 

Key implications for infrastructure investment

Risks to on-time, on-budget delivery 

Infrastructure Australia’s 2021 National Risk Study highlighted that, both globally and in Australia, larger projects are more likely to face increased risks, costs and schedule overruns.14 This is reinforced by global research, which demonstrates that:

  • Projects across sectors (including land transport, water and energy) experience average cost increases of between 10-39% from announcement to delivery, and these levels of cost overrun have changed little over time.16,11
  • Most (86%) major transport infrastructure projects experience cost increases or delays.17
  • Cost increases on land transport projects are common and significant across modes, project types and project sizes, with over half (53%) of major transport projects exceeding initial estimated costs. Rail projects generally perform worse, with 73% exceeding costs compared to 43% of road projects.11 
  • Delays to transport projects typically range from 7-33% compared to original plans, while 35% experience delays of more than six months, with delays a key contributing factor for many cost overruns.18,11

The performance of infrastructure projects in Australia is broadly in line with these global trends. Australian studies indicate that the average cost increases on transport infrastructure projects in Australia typically range from around 12-52%.19,20,21 This is reinforced by evidence from Australian jurisdictions. For example: 

  • A 2023 review of 20 major infrastructure projects in Western Australia shows total cost increases of almost $2 billion (22.5%) compared to original budgets, with 14 projects exceeding budgeted costs by 10% or more and four seeing costs more than double.12
  • In New South Wales, cost escalation was reported as a major contributing factor for 15% of underperforming Tier 1 projects.1
  • Self-assessments by Victorian agencies indicate 13% of major projects face cost increases of 11-20% over budget, with 4% of projects expecting more than 20% increases. 28 out of 101 projects included in a Victorian review saw total estimated project investment increase by over 10%, and costs on 12 projects rose by more than 50% over original estimates.8

The evidence is clear that major infrastructure projects, irrespective of their types, sectors and locations, often experience cost increases and delivery delays. Infrastructure Australia’s 2021 National Risk Study highlighted key strategies in the planning, scoping and development of projects to manage these risks and their underlying causes, including: 

  • early engagement with contractors
  • streamlined planning approvals 
  • avoiding premature project announcement of solutions, budgets and timeframes
  • more in-depth investigations and use of early works packages.

The need for a sustainable investment mix

Increased risks associated with megaprojects

The trend towards an increasing number and scale of ‘megaprojects’ (described earlier) adds to the risk in governments’ infrastructure portfolios because of their size, complexity and greater exposure to risk.4,7

Across sectors, megaprojects consistently exceed cost and time estimates to a greater degree than other lower value projects that experienced overruns.11 This global evidence is reinforced by recent infrastructure delivery trends observed in Australian jurisdictions.8,7

The increased risks associated with megaprojects are partly due to their unique characteristics. In particular, these issues relate to higher complexity – including planning and delivery within dense, built-up areas with extensive existing infrastructure, as well as challenges in the investment planning process – and longer project timeframes, resulting in greater exposure to cost and schedule risk.4,1,11

The trend towards increasingly large and complex infrastructure projects also has implications for the complexity of procurement and contracting processes. This trend is observed internationally, leading to greater prevalence of adversarial engagements and issues with risk transfer during delivery, impacting project delivery costs and delays.11 In recent years, states and territories have reported similar challenges with procurement and contract management processes as factors impacting on costs, timeframes and delivery confidence of infrastructure projects.12,1

Megaprojects in sectors such as transport can also represent much more complex, multi-dimensional urban development and renewal interventions than more typical road or rail infrastructure projects. This complexity can make approaches to investment planning, appraisal and business case development more challenging for agencies based on standard guidelines. 

At the same time, international research shows that integrated planning, business case assessments and front-end due diligence are some of the most important areas for improving the performance of megaprojects.4 In NSW, key identified causes of increased megaproject risks also include unclear project roles and responsibilities and inadequate approaches to risk management and procurement.1 

Growing maintenance liabilities and ageing assets 

Some jurisdictions indicate a growing challenge with ageing assets. The Queensland Audit Office reports that estimated actual capital expenditure across all agencies in Queensland was 14% higher than expected in 2022-23, in part due to additional costs required to maintain ageing infrastructure in the energy sector, as well as rising supply costs and severe weather events.2 Infrastructure NSW’s State of Infrastructure Report 2022-23 indicates that all infrastructure sectors in NSW reported issues with ageing assets, with evidence that more ageing assets are linked to an increase in high-risk safety incidents, maintenance challenges and impacts on service delivery.7

In addition to a growing challenge, understanding the problem at hand is another concern. Infrastructure WA notes that asset management practices, for the state’s approximate $159 billion asset base, varies considerably across government. This presents a challenge in determining both the size and cost of the backlog in maintenance across the state. Infrastructure WA also found that the variability of reported maintenance expenditure is suggestive of a large amount of reactive maintenance.15

Recommendations for future infrastructure investments

Australian governments will play a critical role in meeting the challenges outlined above. As a major planner, funder, procurer and owner of infrastructure, governments have an important role in ensuring that infrastructure investments help to progress broader national goals and objectives, such as decarbonisation, waste action and improving productivity.

Productivity growth has slowed over the past decade in Australia.22 Infrastructure investments can support productivity and economic growth by improving the efficient movement of freight and people, increasing a network’s reliability and/or resilience, and reducing ongoing maintenance costs. Infrastructure Australia recommends that the Australian Government considers productivity benefits at the early stages of project planning and ensures that productivity-enhancing proposals form the majority of its investment portfolio.

Taking appropriate time to plan and select the right mix of infrastructure investments will improve the ability of governments to take these broader objectives into consideration. 

For example, an appropriate mix of build and non-build investments can deliver greater capacity in our infrastructure with less resources, balance portfolio risk, support meeting Australia’s climate targets and assist with addressing significant market capacity demand. An important enabler to this is ensuring the consideration of a range of options when considering infrastructure interventions. Conversely, a portfolio comprising a large proportion of megaprojects can significantly increase risk and the likelihood of 
cost overruns. 

In concluding the 2024 Annual Budget Statement, Infrastructure Australia makes the following recommendations for the Australian Government to consider in determining and prioritising projects for investment.

References

  1. Infrastructure NSW 2022, Trends and Insights Report 2022, NSW Government. Available via: https://www.infrastructure.nsw.gov.au/investor-assurance/project-assurance/resources/trends-and-insights/
  2. The State of Queensland (Queensland Audit Office) 2023, Major Projects 2023 (Report 7: 2023–24). Available via: https://www.qao.qld.gov.au/sites/default/files/2023-12/Major%20projects%202023%20%28Report%207%20%E2%80%93%202023%E2%80%9324%29.pdf
  3. Victorian Auditor-General’s Office 2022, Quality of Major Transport Infrastructure Project Business Cases: Independent assurance report to Parliament 2022-23:5. Available via: https://www.audit.vic.gov.au/sites/default/files/2022-09/20220921%20Business%20Cases_0.pdf
  4. Ninan, J., Clegg, S., Burdon, S., and Clay, J. 2023, Reimagining Infrastructure Megaproject Delivery: An Australia—New Zealand Perspective. In: Sustainability 15, no. 4: 2971. Available via: https://doi.org/10.3390/su15042971
  5. Ryan, P. and Duffield, C. 2017, Contractor Performance on Mega Projects–Avoiding the Pitfalls. Mahalingam, A (Ed.) Shealy, T (Ed.) Gil, N (Ed.) pp.1-34. Engineering Project Organization Society. The University of Melbourne, Melbourne, Australia. Available via:  http://hdl.handle.net/11343/168246
  6. Terrill, M., Emslie, O., & Moran, G. 2020, The rise of megaprojects: counting the costs. Grattan Institute. Available via: https://grattan.edu.au/wp-content/uploads/2020/11/The-Rise-of-Megaprojects-Grattan-Report.pdf
  7. Infrastructure NSW 2023, 2022-23 State of Infrastructure Report, NSW Government. Available via: https://www.infrastructure.nsw.gov.au/investor-assurance/asset-management-assurance/resources/soir/
  8. Victorian Auditor-General’s Office 2023, Major Projects Performance Reporting 2023: Independent assurance report to Parliament 2023-24:9. Available via: https://www.audit.vic.gov.au/sites/default/files/2023-11/20231130_Major-Projects-Performance-Reporting-2023.pdf
  9. Infrastructure Australia 2023, Infrastructure Market Capacity 2023 Report. IA, Sydney. Available via: https://www.infrastructureaustralia.gov.au/sites/default/files/2023-12/IA23_Market%20Capacity%20Report.pdf
  10. Boston Consulting Group (BCG) 2021, International Major Infrastructure Projects Benchmarking Review: Final Report. Prepared by BCG for the Office of Projects Victoria (OPV). Available via: https://content.vic.gov.au/sites/default/files/2023-02/International-Major-Infrastructure-Projects-Benchmarking-Review.pdf
  11. Infrastructure NSW 2023, Annual Report 2022-23, NSW Government. Available via: https://www.parliament.nsw.gov.au/tp/files/187101/INSW Annual Report 2023.pdf
  12. Office of the Auditor General (Western Australia) 2023, 2023 Transparency Report: Major Projects, Report 6: 2023-24. Available via: https://audit.wa.gov.au/reports-and-publications/reports/2023-transparency-report-major-projects/
  13. Infrastructure SA 2023, Capital Intentions Statement 2023. Available via: https://www.infrastructure.sa.gov.au/our-work/capital-intentions
  14. Infrastructure Australia 2021, A National Study of Infrastructure Risk: A report from Infrastructure Australia’s Market Capacity Program. IA, Sydney. Available via: https://www.infrastructureaustralia.gov.au/sites/default/files/2021-10/A%20National%20Study%20of%20Infrastructure%20Risk%20211013a.pdf
  15. Infrastructure Western Australia 2022, Foundations for a Stronger Tomorrow State Infrastructure Strategy. Available via: https://prod-iwa-public-files.s3.ap-southeast-2.amazonaws.com/public/2022-07/strategy_download/2022 Final SIS.pdf 
  16. Flyvbjerg, B. 2016, The Fallacy of Beneficial Ignorance: A Test of Hirschman’s Hiding Hand. In: World Development, Vol. 84, Available via: https://ssrn.com/abstract=2767128
  17. Flyvbjerg, B., Holm, M. and Buhl, S. 2002, Underestimating Costs in Public Works Projects: Error or Lie? In: Journal of the American Planning Association, Vol. 68, No. 3,pp 279-295. Available via: https://ssrn.com/abstract=2278415
  18. Flyvbjerg, B., Holm, M. and Buhl, S. 2004, What Causes Cost Overrun in Transport Infrastructure Projects? In: Transport Reviews, vol. 24, no. 1, January 2004, pp 3-18. Available via: https://doi.org/10.1080/0144164032000080494a
  19. Duffield, C., Raisbeck, P. and Xu, M. 2008, Report on the performance of PPP projects in Australia. In: Construction Management and Economics, 28:4, pp 345-359. University of Melbourne. Available via: https://doi.org/10.1080/01446190903582731
  20. Love, P., Wang, X., Sing, C.-P. and Tiong, R. 2013, Determining the Probability of Project Cost Overruns. In: Journal of Construction Engineering and Management 139.3, pp. 321–330. Available via: https://doi.org/10.1061/(ASCE)CO.1943-7862.0000575
  21. Terrill, M. and Danks, L. 2016, Cost overruns in transport infrastructure. Grattan Institute. Available via: https://grattan.edu.au/wp-content/uploads/2016/10/878-Cost-overruns-on-transport-infrastructure.pdf
  22. Commonwealth of Australia 2023, Working Future. The Australian Government’s White Paper on Jobs and Opportunities. Available via: https://treasury.gov.au/sites/default/files/2023-10/p2023-447996-working-future.pdf
  23. ClimateWorks Australia 2020, Reshaping Infrastructure for a Net Zero Emissions Future. ClimateWorks Australia, Victoria. Available via https://www.climateworkscentre.org/resource/issues-paper-reshaping-infrastructure-for-a-net-zero-emissions-future/
  24. The Treasury 2022, Delivering the National Housing Accord. Australian Government, Canberra. Available via: https://treasury.gov.au/housing-policy/accord

New Board appointments for Infrastructure Australia

The Australian Government has appointed Cr Colin Murray as the new Chair of the independent Infrastructure Australia Board. Cr Murray is joined by Vicki Meyer, Cr Vonette Mead, Amanda Cooper, Dr Vanessa Guthrie AO, Elizabeth Schmidt and Robert Moffat who have also been appointed as Directors of Infrastructure Australia’s Board.

First Infrastructure Market Capacity report reveals surge in demand for skills, labour, plant and materials

Infrastructure Australia has today published its first Infrastructure Market Capacity report, forecasting a surge in demand for skills, labour and materials due to the rapid increase in public infrastructure investment.

2021 Infrastructure Market Capacity report

The Infrastructure Market Capacity report responds to a request from the Council of Australian Governments in March 2020 for Infrastructure Australia to regularly report on the capacity of the market to deliver on the record investment pipeline, reflecting the record investment in the sector and the necessary demand for skills and materials to meet these levels.

Infrastructure Australia charts a pathway to resilience as the national cost of natural disasters hits $39bn by 2050

Infrastructure Australia has outlined practical steps to deliver infrastructure that is more resilient to threats such as bushfires, droughts, floods, global pandemic, and cyber-attacks, in new advisory papers released today.

Assessment Framework

The Assessment Framework is designed to help you develop high-quality infrastructure proposals for submission to Infrastructure Australia. It provides a national standard for best-practice infrastructure development and explains our requirements and process for assessing proposals.