If puns were appropriate, the rail sector in Australia and New Zealand is “full steam ahead”, but what does this mean for those operating within this buoyant sector? RLB’s Director Alistair Aitken explores the opportunities.
Avoiding budget blowouts on this runaway infrastructure train
The rail industry is facing a skills shortage, driven by unprecedented demand from competing major projects. Never has one sector, in recent generations, faced such concurrent demand of this magnitude and scale.
According to the 2019 Infrastructure Australia Audit, more than $100 billion in transport infrastructure investment poured into the country in just four years.
There are more than 10 major rail projects either proposed or currently under construction valued in excess of $1 billion. The largest of these, Sydney Metro, is anticipated to be a $20 billion plus investment resulting in more than 66 kilometres of new rail line.
Other major metropolitan rail projects are underway in Adelaide, Auckland, Brisbane, Canberra, Melbourne and Perth. Then there’s the unmatched investment in regional networks, including the $10 billion Inland Rail project and Victoria’s regional rail upgrade.
Existing infrastructure and rail networks are being upgraded and expanded, and new railcar programs are well underway to replace existing ageing rolling stock fleets.
A number of automatic train control projects are also underway to make better operational use of existing rail networks. Meanwhile, digital radio systems are replacing the existing analog systems, enhancing reliability, efficiency and flexibility, and supporting plans for future network expansion.
‘The rail boom poses a significant staff recruitment and retention challenge throughout Australia and New Zealand – a challenge faced by clients, consultants and contractors alike,’ says RLB in Perth Director Alistair Aitken.
Mapping and mitigating the skills shortages
In previous booms, the differing regional performance and diversity of Australia and New Zealand assisted in the steady flow of a transient and skilled workforce across boundaries and oceans. However, for some, this was a temporary move until such time as market conditions improved in their traditional “home”.
As such, the rail boom is posing a significant challenge to many businesses in the recruitment and retention of staff throughout Australia and New Zealand – a challenge faced by clients, consultants and contractors alike.
The Australasian Railways Association reports that the industry is already experiencing skills shortages and warns more than 20% of the sector’s existing workforce is expected to retire within the next decade. This highlights the chronic shortage beyond construction activities, with fewer people available to operate and maintain existing infrastructure, let alone expanded freight and metropolitan rail networks.
The consequence of such skills shortage is that construction projects are likely to incur significant cost or delivery blowouts. We are already witnessing this on a number of projects in the delivery phase, including the much-publicised Sydney Light Rail project.
As such, there will be significant pressure on wages, availability of specialist plant and equipment, and these are likely to have a greater impact on construction costs. Rises are anticipated to impact the following key cost components:
- Labour, plant and material costs
- Contractor risk allocations (where applicable)
- Contractor overhead and profit recovery
Where in the past consultants and contractors have pursued every opportunity, there are signs that they are being selective in current market conditions, often as a result of an improving flow of secured work driven by the boom. Another factor that may limit the appetite to bid for work is the high cost of tendering, which on projects of this scale and complexity are often substantial, with no guarantee of success.
As a result of the continued and significant investment in rail infrastructure projects, coupled with the financial stability afforded by Australia and New Zealand (when compared with other international markets), there has been an emergence of international players, predominantly in the contracting field.
The emergence of new players in itself creates opportunity by providing further competition to what is otherwise often a narrow field. This brings skilled construction professionals that may otherwise never have made it to our shores. However, there remains concerns as to the short-termism approach adopted by some businesses as they pursue other international projects and the subsequent inability to capitalise on upskilling and retention of knowledge and resources.
Balancing risks and rewards
Improved procurement of services and works is essential to mitigate some of the risks.
On the part of consultants and contractors, there has been an uptake in the number of partnering and joint venture arrangements. While this creates a shared ownership of risk among two entities, it also provides opportunities to pursue larger projects that previously may have been beyond their reach as individuals. It can also amalgamate resources to demonstrate greater resource capability.
For clients, recent trends have seen a shift away from the traditional forms of procurement, with greater emphasis on alliance contracting, early contractor involvement or partnering arrangements, together with initiatives such as contribution towards tender costs.
The allocation and ultimate ownership of risk on these projects will be one of the biggest challenges in the delivery of these projects which ultimately will require a level of maturity and pragmatism developed in a collaborative manner.
Undoubtedly, those involved in the planning and delivery of these rail projects will have exposure to projects of a scale never seen before. However, the challenge for all involved will be to ensure that there are sufficient programs and incentives in place to support the development, training and retention of a skilled workforce. Failure to embrace this will be a lost opportunity for generations to come.