Governments need to drive a harder bargain on transport megaprojects

Two men shaking hands over a construction deal with a hard hat in foreground

Governments need to drive a harder bargain on transport megaprojects

Taxpayers end up paying too much for major road and rail projects in Australia because governments don’t drive a hard bargain on contracts with the big construction firms, according to a new Grattan Institute report.

Megabang for megabucks: driving a harder bargain on megaprojects calls on governments to stop worrying about the profitability of the industry and start delivering quality services at the lowest long-term cost to the community.

Australia’s transport infrastructure costs are above the global average, and there is a government culture of caving in to contractor demands after contracts are signed.

About 25 per cent of projects end up costing taxpayers more than the government expected when construction started.

To get quality infrastructure at a sharp price, competition is fundamental. But as the size of projects has grown, so has the size of contracts – and with larger contracts, competition inevitably thins.

Few firms have the technical and financial capability to win contracts worth $1 billion or more. Yet Australian governments often give undue priority to domestic experience, making it hard for international firms to win contracts.

State governments often rush projects to market, so they can announce and start them before the next election. But in the rush, governments don’t always identify or mitigate expensive problems such as contaminated soil, and they’re not systematic enough about dividing projects into bundles or choosing the contract type with the right incentives for the particular job.

The report calls on governments to only sign contracts that they are prepared to enforce, and to award all infrastructure contracts through an open tender process.

And it recommends Australian governments investigate how similar countries overseas manage to build high-quality transport infrastructure more cheaply.

‘Our governments are getting major projects wrong, and taxpayers are left to pick up the tab,’ says lead author and Grattan Institute Transport and Cities Program Director Marion Terrill.

‘Our report shows how Australia can build better.’

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