Annual Performance Statement 2024

Annual Performance Statement 2024

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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
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