Road, rail projects lack competition

·2-min read

Australian governments love to boast about the amount of money they are setting aside for infrastructure projects, such as road building, but a new report questions whether taxpayers are getting value for money.

Treasurer Josh Frydenberg announced $15 billion in additional infrastructure commitments as part of the government's ongoing $110 billion, 10-year investment pipeline.

State governments have also pledged billions of dollars in road and transport projects.

But an analysis by the Grattan Institute think tank has found taxpayers end up paying too much for major projects because Australia's governments don't drive a hard bargain on contracts with big construction firms.

It estimates about 25 per cent of projects end up costing taxpayers more than governments expected when construction started.

In particular, Australia's transport infrastructure costs are above the global average.

"Our governments are getting major projects wrong, and taxpayers are left to pick up the tab," the institute's transport and cities program director Marion Terrill said.

"Governments should stop worrying about the profitability of the industry and start delivering quality services at the lowest long-term cost to the community."

She said competition was fundamental to get quality infrastructure at a sharp price.

But as the size of projects have grown, so has the size of contracts, and with larger contracts, competition inevitably thins.

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

The report also says 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.

Among its recommendations, Grattan calls on governments to only sign contracts they are prepared to enforce, and to award all infrastructure contracts through an open tender process.

It also says Australian governments should investigate how similar countries overseas manage to build high-quality transport infrastructure at a lower cost.