Reforming the procurement of construction and financing of Australian infrastructure : advancing capacity, competition and investment

Funded by an Australian Research Council (ARC) Linkage grant over four years (2009–13), the Major Infrastructure Procurement project sought to find more effective and efficient ways of procuring and delivering the nation’s social and economic infrastructure by investigating constraints relating to construction capacity, competition, and finance in new public sector major infrastructure.1 The research team comprised researchers in construction economics and finance from Queensland University of Technology (QUT), Griffith University (GU), The University of Hong Kong (UHK), and The University of Newcastle (UoN). Project partners included state government departments and agencies responsible for infrastructure procurement and delivery from all Australian mainland states, and private sector companies and peak bodies in the infrastructure sector (see “Introduction” for complete list). There are a number of major outcomes from this research project. The first of these is a scientifically developed decisionmaking model for procurement of infrastructure that deploys a novel and state-of-the-art integration of dominant microeconomic theory (including theories developed by two Nobel Prize winners). The model has been established through empirical testing and substantial experiential evidence as a valid and reliable guide to configuring procurement of new major and mega infrastructure projects in pursuance of superior Valuefor- Money (VfM). The model specifically addresses issues of project size, bundling of contracts, and exchange relationships. In so doing, the model determines the suitability of adopting a Public-Private Partnership (PPP) mode.

Islamic project financing in Indonesian infrastructure development

It is reasonable to expect that Islamic project financing may be a suitable option of infrastructure financing in Indonesia. This research explored the conditions necessary for the implementation of Islamic project financing for Indonesian infrastructure development. It is important that all infrastructure project stakeholders understand the concept comprehensively. This study identified reforms through which the government could more directly support the implementation of Islamic project financing. This research has led to the realisation that Islamic project financing can be implemented in all sectors, in both public and private sector domains, and across Muslim and non-Muslim communities.

Contracting for infrastructure projects as credence goods

Large infrastructure projects are a major responsibility of urban and regional governments, who usually lack expertise to fully specify the demanded projects. Contractors, typically experts on such projects due to experience with similar projects,advise of the needed design as well as the cost of construction in their bids. Producing the right design is costly. We model such infrastructure projects taking into account their credence goods feature and the costly design effort they require and examine the performance of commonly used contracting methods. We show that when building costs are homogeneous and public information, simultaneous bidding involving shortlisting of two contractors and contingent compensation of both contractors on design efforts outperforms sequential search. If building costs are private information of the contractors and are revealed to them after design cost is sunk,sequential search may be superior to simultaneous bidding.

The stewardship performance of forms of privatised water infrastructure

In this research Agency Theory and Stewardship Theory are used to analyse the relative performance of different forms of privitisation of water infrastructure and in doing so enriches understanding of previously underdeveloped aspects of both theories. The prior Agency Theory literature had established assumptions about the behaviour of principals and agents in contracts and these were found not to be correct in the context of contracts between modern government and private organisations. Agency theory was extended to include steward-like behaviour of an agent and Stewardship Theory was developed by the identification of factors within the contractual relationship which promote the sense of responsibility to the principal. The alliance, joint venture and Build Own Operate Transfer (BOOT) forms of privatisation were found to achieve stewardship of the infrastructure.

The impact of infrastructure charges on house prices in Australia

Developer paid fees or charges are a commonly used mechanism for local governments to pay for new infrastructure. However, property developers claim that these costs are merely passed on to home buyers, with adverse effects to housing affordability. Despite numerous government reports and many years of industry advocacy, there remains no empirical evidence in Australia to confirm or quantify this passing on effect to home buyers. Hence there remains no data from which governments can base policy decision on, and the debate continues. This paper examines the question of the impact of infrastructure charges on housing affordability in Australia. It presents the findings of a hedonic house price model that provides the first empirical evidence that infrastructure charges do increase house prices in Australia. This research is consistent with international findings, that support the proposition that developer paid infrastructure charges are passed on to home buyers and are a significant contributor to increasing house prices and reduced housing affordability.

Sustainable infrastructure projects in balancing urban–rural development: Towards the goal of efficiency and equity

In current practice, urban-rural development has been regarded as one of the key pillars in driving regenerative development that includes economic, social, and environmental balance. In association with rapid urbanization, an important contemporary issue in China is that its rural areas are increasingly lagging behind urban areas in their development and a coordinated provision of public facilities in rural areas is necessary to achieve a better balance. A model is therefore introduced for quantifying the effect of individual infrastructure projects on urban-rural balance (e-UR) by focusing on two attributes, namely, efficiency and equity. The model is demonstrated through a multi-criteria model, developed with data collected from infrastructure projects in Chongqing, with the criteria values for each project being scored by comparing data collected from the project involved with e-UR neutral “benchmark” values derived from a survey of experts in the field. The model helps evaluate the contribution of the projects to improving rural-urban balance and hence enable government decision-makers for the first time to prioritize future projects rigorously in terms of their likely contribution too.

Sustainability in infrastructure investment : building the business case

Many infrastructure agencies adopt sustainability objectives at a corporate level and incorporate sustainability targets and indicators as part of corporate reporting processes. These objectives are expected to translate to all stages of the project delivery process, including project selection. For infrastructure capital works projects and programs, a robust project management approach involves the development of a business case to guide investment decision making. A key tool in the assessment of project options and selection of a delivery strategy is Cost Benefit Analysis (CBA). Infrastructure providers are required to undertake cost benefit analysis to support project selection through regulatory approval and budgetary processes. This tool has emerged through the prism of economic analysis rather than sustainability. A literature review reveals the limitations of CBA alone to effectively evaluate economic, environmental and social externalities or impacts that apply over a long time frame, and that are ultimately irreversible. Multi-Criteria Analysis (MCA) has been introduced as a means to incorporate a wider array of factors into decision making such as sustainability. This, however, presents new challenges with issues around how to transparently represent wider community values in the selection of a preferred solution. Are these tools effective in assessing the wider sustainability costs and benefits taking into account that these are public works with long life spans and significant impacts across institutional boundaries? The research indicates a need to develop clear guidelines for investment decision making in order to better align with corporate sustainability objectives. Findings from the literature review indicate that a more sustainable approach to investment decision-making framework should include: the incorporation of sustainability goals from corporate planning documents; problem definition and option generation using best practice investment management guidelines; improved guidelines for Business Case development using a combination of both Cost Benefit Analysis and Multi-Criteria Analysis; and an integrated public participation process.

Use of contract models to improve environmental outcomes in transport infrastructure construction

The type of contract model may have a significant influence on achieving project objectives, including environmental and climate change goals. This research investigates non-standard contract models impacting greenhouse gas emissions (GHG) in transport infrastructure construction in Australia. The research is based on the analysis of two case studies: an Early Contractor Involvement (ECI) contract and a Design and Construct (D&C) contract with GHG reduction requirements embedded in the contractor selection. Main findings support the use of ECIs for better integrating decisions made during the planning phase with the construction activities, and improve environmental outcomes while achieving financial and time savings. Key words: greenhouse gases reduction; road construction; contracting; ECI; D&C

Exploring the effect of political risks in large infrastructure projects in politically unstable countries using a probabilistic modelling approach

This research aims to explore and identify political risks on a large infrastructure project in an exaggerated environment to ascertain whether sufficient objective information can be gathered by project managers to utilise risk modelling techniques. During the study, the author proposes a new definition of political risk; performs a detailed project study of the Neelum Jhelum Hydroelectric Project in Pakistan; implements a probabilistic model using the principle of decomposition and Bayes probabilistic theorem and answers the question: was it possible for project managers to obtain all the relevant objective data to implement a probabilistic model?

An investigation into the effect of infrastructure on fly-in fly-out mining workers

Objective: To explore fly-in fly-out (FIFO) mining workers' attitudes towards the leisure time they spend in mining camps, the recreational and social aspects of mining camp culture, the camps' communal and recreational infrastructure and activities, and implications for health. Design: In-depth semistructured interviews. Setting: Individual interviews at locations convenient for each participant. Participants: A total of seven participants, one female and six males. The age group varied within 20–59 years. Marital status varied across participants. Main outcome measures: A qualitative approach was used to interview participants, with responses thematically analysed. Findings highlight how the recreational infrastructure and activities at mining camps impact participants' enjoyment of the camps and their feelings of community and social inclusion. Results: Three main areas of need were identified in the interviews, as follows: (i) on-site facilities and activities; (ii) the role of infrastructure in facilitating a sense of community; and (iii) barriers to social interaction. Conclusion: Recreational infrastructure and activities enhance the experience of FIFO workers at mining camps. The availability of quality recreational facilities helps promote social interaction, provides for greater social inclusion and improves the experience of mining camps for their temporary FIFO residents. The infrastructure also needs to allow for privacy and individual recreational activities, which participants identified as important emotional needs. Developing appropriate recreational infrastructure at mining camps would enhance social interactions among FIFO workers, improve their well-being and foster a sense of community. Introducing infrastructure to promote social and recreational activities could also reduce alcohol-related social exclusion.

Opportunities and challenges in engaging citizens in the co-production of infrastructure-based public services in Australia

Research and practice have observed a shift towards service-oriented approaches that depend on input from citizens as co-producers of services. Yet in the delivery of public infrastructure the focus is still on managing assets rather than services. Using a Policy Delphi approach, we found that although experts advocate service-centric approaches guidelines and policies lack a service-centric perspective. Findings revealed a range of impediments to effective stakeholder involvement. The paper contributes to co-production and new public governance literature and offers directions for public infrastructure decision-makers to support and reconnect disengaged government–citizen relations, and determine ways of understanding optimal service outcomes.