Rethinking infrastructure project selection – breaking the cycle of new construction

Paul Foxlee, KPMG National Sector Leader – Transport & Infrastructure
Paul Foxlee, KPMG National Sector Leader – Transport & Infrastructure
Stan Stavros, Partner in Charge, Infrastructure & Projects Group
Stan Stavros, Partner in Charge, Infrastructure & Projects Group

High quality and efficient infrastructure is a major driver of national economic growth and productivity. At first glance Australia appears to have a positive infrastructure environment. Announcements about transport projects frequent the media, while cranes in our city skylines indicate a flurry of development.

However with a closer look, it is evident that the quality of our infrastructure assets is falling, we are facing increasing levels of transport congestion and our pace of innovation in the communications and technology space is far behind our peers.

So how did we get here? This unenviable situation can be attributed to a range of causes including a double whammy of public infrastructure underspending and project selection process that leans towards new construction rather than selecting the most productive infrastructure solution.

It is true that the traditional selection processes used for infrastructure planning and prioritisation are subject to detailed assessment frameworks. The approach to developing business cases is evidence-based with detailed economic analysis, gateway reviews and specialised independent infrastructure agencies contributing to a transparent governance process.

But the key question is: are we selecting the right projects? Or just selecting pre-determined solutions that are, more often than not, large new-build projects? Infrastructure Australia’s Infrastructure Priority List (February 2017) provides a good example of this observation.

Some reasons why the selection process leans towards new builds might include:

  • The role of the business case appears to be more about justifying pre-agreed projects than considering other possibilities. By the time governments begin the business case process, the decision has often been made and frequently is a new-build solution. A more critical time in the assessment of alternative solutions may come when long term transport plans or long term infrastructure strategies are being determined.
  • Political influence so often impacts on infrastructure planning and delivery. Politicians understand the importance of being ‘seen’ to deliver on infrastructure – and so projects that announce new jobs, and ribbon-cutting photo-opportunities tend to be favoured.
  • Existing methodologies and tools including relevant guidelines are biased towards the selection of new projects. While they can be applied to both ‘build’ and ‘non-build’ technology-based initiatives, a lack of proven examples for the latter requires investing significantly more time, resources and political capital to demonstrate consistency with the guidelines. Similarly, the strategic demand modelling tools used by transport planning agencies – such as the network wide Intelligent Transport Solutions (ITS) – are not suited to new technology-led initiatives.

Given Australia’s fiscal constraints, our focus needs to shift to getting the most from our existing investment in infrastructure.  We need to ensure we fully investigate and invest in demand management and capacity enhancement opportunities, not just deliver new mega projects. A proper assessment of asset management requirements is also key.

Demand management, in the right situations, can remove the need for costly infrastructure build and ensure that existing infrastructure is being used as efficiently as possible. So rather than continuing to build new capacity to meet peak demand, adopting approaches to smooth out the peaks should be considered. Encouraging changes in travel patterns/behaviours by introducing road user charging (coupled with the removal of fuel excise) can be an effective demand management strategy. New technologies can provide innovative ways to implement such strategies.

Even a marginal decline in peak period travel has the potential to significantly enhance network wide performance. KPMG modelling for Infrastructure Victoria demonstrates that a 5 percent reduction in traffic in the morning peak period can result in doubling the travel speed.  For context, a five percent reduction in traffic is similar to that seen during school holidays.

Capacity enhancements of our existing infrastructure can deliver cheaper and faster solutions.   Examples include new signalling systems that allow trains to run closer together; smart traffic lights that help improve the flow of traffic across the whole network; or better maintenance analytics that prevent system outages and reduce system downtime.

Major improvements can be achieved by doing more with less – advances in Vehicle to Vehicle communication technologies can make platooning on freeways feasible and enhance the effective capacity of our expressways by around 60 percent.

Investing in more sophisticated asset management techniques has positive impacts on infrastructure productivity and asset quality. Embedding assets such as bridges with digital sensors, governments and operators can measure their use and stress, helping to predict wear and tear, support maintenance planning and deliver better whole of life costs compared to traditional methods.

In turn, the productivity losses from speed restrictions or road/track closures can be avoided or minimised. Asset management investments, particularly those with demonstrated technology benefits should be assessed as stand-alone options at the project selection phase.

We must ensure investment decisions focus on the productivity growth outcomes of a project. The authorities need to review project selection processes (business case guidelines) to ensure that technology based options are fairly evaluated.

To build a more globally competitive and productive future for our nation, we must rethink the way we select projects. Australia must break its addiction to new, construction based infrastructure projects and genuinely consider alternatives.

This article first appeared in The Australian, 20 March 2017

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