Cost overruns, construction companies collapsing, delivery deadlines not being met – these are just a few of the major issues with Victoria’s Major Projects.
‘We regularly see news headlines about major projects facing cost and schedule challenges,’ said Deakin University’s Associate Head of School (Research) in the School of Architecture and Built Environment, Dr Dominic Ahiaga-Dagbui.
‘Frankly, this should surprise no one – they are just signs of an industry structured to perform both inefficiently and poorly. It’s well-documented that Australian State and Federal governments have placed an emphasis on an infrastructure-led COVID-19 recovery by investing significantly in major projects.’
In November 2023, the Victorian Auditor-General’s report detailed 101 Major Projects with a Total Estimated Investment (TEI) of $123 billion across 10 State Government departments. The report also noted that the TEI of 89 existing and complete major projects increased by a total of $11 billion, or 11%.
‘The troubled West Gate Tunnel project is expected to cost over $10 billion instead of the initially estimated $5.5 billion’, said Dr Ahiaga-Dagbui. ‘The Government, rather hastily, also announced that the Suburban Rail Loop project would cost about $50 billion to build. However, 2024 estimates from the Victorian Parliamentary Budget Office suggests that the construction cost alone for the project could be north of $96 billion.’
Dr Ahiaga-Dagbui says there are several reasons for these recurrent issues.
‘The usual suspects are poor project scope definition, premature project announcements without adequate feasibility studies, unhealthy political influence and the inefficient risk transfer mechanisms associated with traditional procurement approaches.
Research shows that the odds of delivering capital-intensive projects to agreed budgets and timelines are no better than a coin toss. It’s not just a Victorian problem – NSW, Queensland, Western Australia – all have the same problem. Quite worryingly, some of these projects even fail to deliver their promised benefits.’
Government also typically favour the use of lump-sum contracts based on competitive tendering to choose contractors. A heavy focus on price competition means contractors compete to accept an unquantifiable risk, rather than differentiating on positives such as productivity, innovation, and social and environmental outcomes.
In 2020, Major Road Projects Victoria adopted the Program Delivery Approach (PDA) to address some of the inefficiencies. The PDA combines relationship procurement principles with design-build contracting, supported by an incentivised target cost regime to deliver nearly $5 billion worth of projects.
In a newly released report, Optimising Major Project Delivery: Maximising Value Through Outcome-Based Procurement, Deakin Major Infrastructure researchers closely examined whether the PDA creates an environment to optimise project delivery performance to maximise value for taxpayers and regain control of the current inefficient system of major project delivery.
‘Our team found the design features of the PDA create the necessary environment to improve the current poor track record of major project delivery,’ said Dr Ahiaga-Dagbui. ‘It allocates project risk in a fairer, more reasonable, smarter manner, enhancing cost and schedule certainty. It is less adversarial and more collaborative and focuses on early problem identification and a best-for-project approach to joint problem resolution.
Importantly, it better aligns the commercial drivers of key parties rather than traditional approaches, removing one of the key barriers to performance improvement.
By rethinking the way major projects are procured, we have one of the most significant opportunities to maximise the benefits of infrastructure spending and deliver improved value for money for taxpayers.
The PDA is a positive step in that direction’, said Dr Ahiaga-Dagbui.
Why infrastructure projects fail and what can be done about it
