Speech to Master Builders Association: “Meeting our nation’s infrastructure needs”

I am very pleased to have the opportunity to speak to the Master Builders Association of NSW today. Yours is a critically important industry. It makes up around 8 per cent of our economy and employs over one million Australians.

The Turnbull Government is spending around $50 billion by 2019-20 on transport infrastructure around the country – and much of that is spent with your industry.

Today I want to argue that meeting the infrastructure needs of our country is providing your sector with a remarkable pipeline of opportunities.

Next, I will discuss the importance of a vigorous, competitive civil construction sector – so that we can get the best possible outcomes as we spend taxpayers’ dollars on new infrastructure.

Finally, I need to mention a significant threat to meeting our country’s infrastructure needs – the ruthless exercise of power by building union officials, – and what Turnbull Government is doing about it.

The pipeline of opportunities

Let me turn then, firstly, to the pipeline of opportunities which government infrastructure spending is creating for your industry. One indicator is in the list of head contractor and sub-contractors on projects receiving Commonwealth funding.

To highlight just a few, these include Fulton Hogan and John Holland on Westconnex, Lendlease on the City-Tullamarine widening, and Theiss and Parsons Brinkerhoff on the M80 in Victoria.

The Turnbull Government is funding infrastructure at record levels all around Australia. In 2016-17 we will spend around $9 billion on transport infrastructure.

As The Australian’s David Uren has pointed out, if you compare support for state infrastructure across the four year forward estimates period of Labor’s last three budgets and the Coalition’s first three budgets, the average under the Coalition was $27.8 billion – a 44 per cent increase on what the Rudd-Gillard-Rudd Government spent.

These facts are a little inconvenient for the Labor Party. Perhaps this is why the Shadow Minister is reduced to regularly making the factually incorrect claim – as he did again this week in a speech to your national organisation’s dinner in Canberra – that infrastructure spending has dropped under the Coalition as compared to the previous Labor Government.

He has been peddling the claim that the final budget outcome for 2015-16 showed infrastructure spending had dropped from the estimate of $8 billion in the May 2014 budget.

The particular item he cited was ‘Payments to support state infrastructure services.’ This is part of – but is not the same as – total Commonwealth spending on infrastructure. It excludes spending on Commonwealth projects such as Western Sydney Airport and the Inland Rail.

It is not unusual for there to be big variances between the amount originally budgeted to be spent on payments to support state infrastructure services in a particular year, and the final amount spent in that particular year.

In 2012-13, for example, when Mr Albanese was Federal Infrastructure Minister, the amount originally budgeted to be spent on payments to support state infrastructure services was around $6 billion; the amount finally spent in that year was $3.6 billion.

Let me also make the point that we are continuing to invest in new projects – as the recent budget shows. We made further commitments to the Ipswich Motorway and Perth Freight Link; provided $115 million for preparatory work on Western Sydney Airport; announced a $1.5 billion Victorian Infrastructure Package; and committed $594 million in additional equity funding for Australian Rail Track Corporation towards the inland rail project.

Here in NSW the Turnbull Government is spending some $15 billion on transport infrastructure projects through to 2019-20. Our commitments include :

• $5.6 billion for Pacific Highway duplication from Sydney to the Queensland border, with $1.37 billion to be provided in 2016–17.

• 1.5 billion plus a concessional loan of $2.0 billion for WestConnex in Sydney, with $300 million to be provided in 2016–17.

• $1.7 billion towards the Sydney Metro Project under the Asset Recycling Initiative

• $2.9 billion towards the $3.6 billion Western Sydney Infrastructure Plan, which will provide new and upgraded road links to connect a Western Sydney Airport site.

We are working closely with the outstanding Baird Government, which is leading a once in a generation infrastructure renewal of this city and this state.

What a change from the previous Labor Government of this state. Remember how they announced the CBD Rail Link in 2005, then cancelled it and announced the North West Metro in 2008, then changed the North West Metro to the CBD Metro, before cancelling the CBD Metro in 2010 and announcing the CBD Relief Line. Construction companies are estimated to have lost up to $60 million tendering for work on the cancelled CBD Metro.

Let me highlight one particular opportunity which will be coming up for your industry – the design and construct contract for the new Western Sydney Airport.

Soon the Turnbull Government will determine the Airport Plan – which authorises construction and operation of Stage 1 of Western Sydney Airport.

The proposed airport will include a 3.7 kilometre runway, a terminal with up to 90,000 square metres of floor space, and parking for around 11,500 cars.

For the Stage 1 development, a construction period of around eight years is envisaged, including earthworks to level the site – involving excavation of around 22 million cubic metres of subsoil and rock.[1]

The consequence of all of this activity, in New South Wales and around the country, has been the creation of an extraordinary pipeline of opportunities for the construction sector around the country. In part, this is designed to provide new business to offset the downturn as the investment phase of the mining boom has come to an end.

The November 2016 Construction Outlook, issued by AIGroup and the Australian Constructors Association, forecasts a lift in major project work over the next two financial years, driven by an upturn in transport infrastructure activity. It also notes that:

The value of infrastructure-related engineering work…is expected to rise by 13.5%, driven by strong growth in road and rail projects. This is in line with a range of large-scale Government transport projects that are either underway or in the pipeline.[2]

Of course this level of activity benefits your sector through several mechanisms, direct and indirect. First, there is the opportunity to win work directly on these big transport infrastructure projects. Secondly, there is the economic stimulus of this spending which in turn generates employment and income for households – in turn leading to demand for housing and thus stimulating home building activity.

Thirdly, there is the nexus between transport accessibility and opening up new areas for development. Many of the road and rail projects we are investing in will transform areas of land, making them more accessible to services and unlocking their potential for development and the inevitable construction which will follow.

That can mean greenfields areas on the outskirts of our major cities; but it can also mean transport links which allow the regeneration of brownfields areas, for example as older manufacturing or warehousing areas close to the city become served by heavy or light rail facilitating them being opened up for new residential and commercial development.

The importance of a vigorous, competitive building sector

As we work to deliver the infrastructure Australia needs, it is vital that your sector is vigorous and competitive. As the Government said in our response to the recent Harper Review into competition:

Consumers benefit when businesses compete to deliver new and better products at lower prices.

Competition also drives businesses to operate efficiently, innovate and invest in new technologies, which allows Australia to better compete in international markets. [3]

We made a similar observation in responding to the Productivity Commission’s Inquiry into Public Infrastructure:

As a majority investor in Australian public infrastructure, the Australian Government takes seriously its responsibility for ensuring tax payers’ funds are spent appropriately and to the maximum benefit for the Australian community.[4]

One way to do this is taking more care in the way we select which projects the Commonwealth will invest in. Key to this is the work of Infrastructure Australia; their most recent Infrastructure Priority List was published last month. [5]

But another way to get value for taxpayers’ money is to ensure that we get the benefits of competition in your sector. One of those benefits is the creativity and innovation which is stimulated amongst companies which compete to win government work.

For example on the $392 million M1 Productivity Package, being jointly funded by the Australian and NSW governments, the supply of safety barriers across the two major projects in the package is being procured under a single contract. This will help to reduce overall project costs.

The project teams are using a new and improved design of pin and loop temporary concrete barriers, an innovative solution that has been developed and proven internationally.

In addition, under the same package, the Tuggerah to Doyalson project will see 100 per cent of the existing concrete road surface recycled and used in the new widened motorway. With nine kilometres of dual carriageway to be recycled, this is possibly the largest scale concrete recycling project in the country.

The Australian Government has been pleased to see some major international construction companies entering the Australian market, in many cases working on projects in consortiums with local players. For example: [6]

o Samsung C&T, one of the largest conglomerates in South Korea, is part of a consortium working on the new M5 Motorway, which is part of WestConnex.

o Spanish conglomerate Acciona is part of a consortium awarded work on the $1.6 billion Toowoomba Second Range Crossing Project – a 41 kilometre highway in Queensland; and

o France-based Bouygues Construction is in a partnership which is working on the $3 billion NorthConnex road tunnel project.

Another priority for us is being smarter about the way we procure infrastructure. The Productivity Commission Inquiry into Public Infrastructure encouraged the development of benchmarks for infrastructure procurement processes and construction costs.

In response, we have done an initial benchmarking study of procurement and project costs, with analysis undertaken by the Bureau of Infrastructure, Transport and Regional Economics (BITRE).

This first Infrastructure Benchmarking Report, uses de-identified information from real road projects, and is publicly available on-line.[7]

Comparison with readily available evidence from overseas provided mixed results, suggesting Australia is less expensive than the UK, but may be more expensive than some European nations. More significantly, detailed comparison of a small number of projects against comparable US projects suggest scope for potential efficiencies of between 10-15 per cent on some projects.

The threat from unions

But let me turn to a major impediment to the efficient and cost-competitive procurement of infrastructure – the role of building unions like the CFMEU.

The CFMEU has a long-standing reputation for breaking workplace laws. In recent times there have been over 100 representatives of the CFMEU before the courts for unlawful workplace activities.

Federal Government analysis released earlier this week revealed the CFMEU had been found guilty of breaching industrial law on projects worth $78 billion, and they are facing the courts for breaches on projects worth $25 billion.

As my ministerial colleague Michaela Cash observed:

The list of projects affected by CFMEU lawlessness is simply staggering — everything from major gas export projects, to major road and rail projects, to children’s hospitals, schools, social housing and community facilities.

She concluded that:

Lawlessness and dysfunction means all these facilities cost more, get delayed, or both.

Deloitte has recently done some important analytical work for the Queensland and Victorian Master Builders. It estimated that thanks to the CFMEU’s activities, over four years the Victorian Government would need to spend an extra $621 million to purchase its planned amount of infrastructure.[8]

Similar work done for Queensland found the cost of the Queensland Government’s infrastructure purchases would rise by $279 million in 2016-17.[9]

It was factors such as these which led the Howard Government to establish the Australian Building and Construction Commission. It operated from 2005 to 2012 and was effective at driving improvements in the sector.

ABS data shows productivity in the construction industry grew strongly while the ABCC was in operation. Both labour productivity and multifactor productivity in construction outstripped the same measures in other industries during this period.[10]

Of course, the Rudd-Gillard-Rudd Government abolished the ABCC in 2011-12. Since then, the rate of industrial disputes in the construction sector has increased by 35 per cent, compared with a fall of 32 per cent for the All Industries average.[11]

The effect of cost increases is most pronounced on union worksites. As Master Builders Queensland has noted, a unionised worksite can add up to 30 per cent to the cost of construction.[12]

Recently the CFMEU claimed that:

This is not an industry that cries out for urgent government intervention…[13]

It is instructive to look at the views of a Federal Court Judge who has repeatedly had the CFMEU before his court:

Justice Jessup has said of the CFMEU in a judgement at this time last year, that ‘it painted a “depressing picture” which “bespeaks an organisational culture in which contraventions of the law have become normalised.[14]

Can I acknowledge the strong support the Master Builders Association has given in the fight to pass the Australian Building and Construction Commission and Registered Organisations bills. We have succeeded with the second of these and we continue the fight with the first. There is a big public policy prize, which will benefit your sector and the entire nation, if we succeed.

Conclusion

Let me conclude by thanking you and your sector for what you do for our country. From individual dwellings to vast public infrastructure projects, the work you do is vital to the way Australians live, work, and move about.

Thanks to record levels of infrastructure spending from the Turnbull Government – reinforced particularly here in NSW by the remarkable work of the Baird Government – there is a substantial pipeline of opportunities for your sector.

We want to see a competitive, innovative and creative building and construction sector – and I congratulate the industry for all you are doing.

We also want you to be able to operate free of industrial thuggery and intimidation – and we working hard to deliver a legislative framework towards that outcome.

That will let you get on with doing what you do best – building and transforming our nation!