Pursuing value for money seems logical in a cost-conscious world, but infrastructure built on a budget too often delivers substandard results. The challenge is not just cost, but how procurement can evolve to drive better long-term value and innovation in infrastructure delivery.
Too often, getting a project to the procurement stage means adhering to a single, persistent logic: the lowest upfront price wins. But while this approach is often framed as fiscal responsibility, engineers across disciplines argue it has created a false economy – one that drives avoidable maintenance costs, premature asset failure, safety risks and systemic underperformance.
In effect, procurement is optimising for the wrong thing: lowest cost at contract award, rather than highest value over the asset life cycle. But beyond frustration, a consistent and familiar theme emerges: procurement is designed to manage risk and cost, not to enable innovation.
“What that translates into is time: huge periods of time for procurement processes that, from our perspective, cost a lot of money,” said Aurecon Chief Executive Todd Battley FIEAust CPEng EngExec.
Battley finds himself wondering whether these laborious, months-long processes deliver anything of value that a client couldn’t have got from a rapid decision, even one requiring a lot of complex considerations.
“Faster, even if it’s still onerous, is better than slow and onerous.”
A decades-old problem
“We’ve been acutely aware of these issues for more than 20 years,” said Susan Kreemer Pickford FIEAust CPEng EngExec, Principal Engineer at Engineers Australia. “Industry understands the problem very well, but it persists.”
So how do we shift how procurement is evaluated?
“We could reframe the procurement structure and process to enable balanced input from the outset,” she said. “If we leverage the insights from all stakeholders collectively, we will better understand the long-term project needs and align on the desired outcomes at the beginning.”
Crowding out innovation
“On the tendering side, one of the biggest problems is knowing too much,” said Dr Nick Fleming FIEAust CPEng, founder of consultancy Innergise and former National President and Chair of Engineers Australia.
“If you’ve been working for a client, or you’ve worked on a particular project in an earlier stage, you develop a really rich body of understanding.
“Often that translates into anticipating issues that, if you had a fixed price, you would price in. Arguably, that’s going to be a more realistic price.
“Somebody who doesn’t know anything about the job, who comes to it cleanly, doesn’t have that knowledge. That actually gives them a competitive advantage.”
Kreemer Pickford said the persistence of these issues points to a deeper structural inertia.
“We’ve seen cycles of reform, but they tend to circle back to the same fundamentals: cost, compliance and risk transfer; rather than genuinely rethinking how value is defined.”
Skewed incentives
A major part of this problem is how the incentives in Australia’s infrastructure sector focus almost solely on upfront cost.
Politicians find themselves thinking in terms of election cycles rather than the decades or centuries-long lifespan of a critical piece of public infrastructure.
According to University of Melbourne Professor Colin Duffield FIEAust CPEng, Australian governments can sometimes find themselves “paralysed by probity” when it comes to procurement.
“They won’t do a very sensible thing because they say, ‘we haven’t gone to the market’ or ‘maybe there’s a magic bidder somewhere that we don’t know about that might do something,’” he said. “If you force the market to price things that they may or may not win – or if it’s not even a fair playing field – you’re just wasting people’s money.”
That doesn’t mean contracts should be given without due process, however.
“You get nepotism, people gilding the lily and, over time, inflated prices, so it gets out of control. There has to be a balance.”
The beginnings of change
According to Fleming, the companies delivering projects face skewed incentives too.
“If you’re the consultant or the contractor involved in tendering, it’s a natural reaction to think we’re giving ourselves a better chance of winning if we have the lowest cost. It would be a riskier proposition to bid at a higher price.
“I think that is also a function of the way tendering might be constructed. If a client is looking for a single tender price, that’s all you can give.”
In this case, even small tweaks to the tendering process can deliver better outcomes. If a client asks for a range of prices – three options – that creates an environment in which the tenderer can give their best and lowest price, one that gives different options and functionality.
“That shift to asking for options relieves some of the pressure to be lowest cost,” Fleming said.
But a laser focus on cost can affect more than a single project.
“There’s a risk-and-cost cascade. Let’s say you choose a tender that’s 15 per cent cheaper, but at the end of the job, it might have cost you 25 per cent more because of all those unknowns.
“And that extra 25 per cent might have incurred additional delays, which has flow-on effects to people and their availability to do other work,” Fleming said.
It may also impact whether a company is seen as a reliable client capable of managing public funds effectively.
“So there are all of these flow-on costs – the tangible and intangible costs mount up as well – and it can go into the next job. It can go into your cost of capital.”
Fleming highlighted that the risks involved affect more than individual companies and projects.
“It has a cascading effect across sectors,” he said. “The construction sector has been the worst performer in terms of productivity uplift over decades. That’s not an isolated phenomenon; that’s not one or two organisations. That’s a sectoral issue.”
Risk of minimising risk
While cost is always a factor, Battley believes procurement processes are too focused on eliminating risk. He believes procurement processes more often try to minimise any risk to the customer.
“What that sometimes translates to is a very complicated process to select someone to start the process,” he said. “Often, where the procurement process is such a process, I wonder sometimes whether the client’s lost sight of what it is they’re trying to achieve in the first place. The process is often very detailed in terms of the things they need from the provider.”
This can result in expensive work finding solutions to problems that are better solved over the course of the project itself.
“Procurement is only ever a decision-making tool to commence the work you wish to commence,” Battley said. “It doesn’t, in and of itself, deliver anything in particular. But it does set the project up for success.”
READ: How do we modernise Australia’s construction sector?
Theory versus practice
An industry insider speaking to create said consulting engineers in particular want to avoid risk, thereby introducing a bent towards conservatism in the infrastructure environment: an attempt to design for cost rather than purpose.
“The conservatism doesn’t show up in the budgeting exercise at the front; it shows up in the over-specification when you get to the point of taking it to market,” he said. “They produce a reference design. That reference design generally takes a few years, but it’s really general.
“And because that engineering group hasn’t been given enough cash to actually develop it properly – and doesn’t have the constructability skills to develop it properly either – it’s designed as a theoretical exercise.
“The design might be so theoretical it doesn’t work. All the effort has gone to fitting a client’s brief rather than producing a project that can be realistically constructed.
“The advice that should have been given is: ‘Actually, we need more time to develop this because this is really ambiguous.’
“The construction engineers get there and say, ‘That design doesn’t work; we don’t have approvals; the program doesn’t fit its political timeline.’ It’s death by a thousand cuts.”
Divorced from reality
The problem, as the industry insider sees it, is an infrastructure landscape where decisions are divorced from engineering reality. He uses the Snowy 2.0 pumped hydro expansion as an example.
“It was sold as a $3 billion project, and everybody in the industry looked at that and said, there is absolutely no way that’s going to cost $3 billion,” he said.
“But it was determined to be a $3 billion job so they could get it signed off and move forward. I think it’s a good project and something the country needs, but to blame politicians for prices orders of magnitude out – well, they’re being advised by the wrong people.”
Infrastructure projects should be driven by need, the insider said, rather than finance-driven cost-benefit analyses.
“Look at the big works of infrastructure that have been built around Australia and the world. Their real value doesn’t come into play until 10, 15, 20 years later. I think we start with the wrong questions,” he said.
Delayed value
Brisbane’s Bowen Hills “spaghetti junction” offers a useful case study in how procurement settings can shape outcomes long after construction ends.
Delivered in stages between 2002 and 2012, the interchange itself functions as intended, but its core tunnel components – Clem7 and Airport Link – became high-profile financial failures, collapsing within years of opening due to overestimated demand and optimistic revenue modelling.
The issue here was not engineering capability, but an environment that prioritised getting projects financed over interrogating long-term viability and real-world usage. Though considered a failure against the original procurement objectives, it now plays a critical role in Brisbane’s traffic network.
Process paralysis
Battley acknowledged that procurement can make it harder to provide innovative solutions, with providers attempting to avoid any ideas that seem complicated or risky. Considering alternative scope often involves a lot more work.
“Unless the client is actually engaged in the detail – if they just leave it to the procurement officers – it’s very hard to be able to share something that’s novel, different, new or unexpected.
“Where we see it work best is wherever there’s a sense that the customer, through the process of procurement, has an engagement. There’s a deliberate part of the process where you’re sitting down in a confidential manner and exploring these things in an open way, and for the most part that works pretty well.”
Early contractor involvement, which centres the project around this sort of partnership from the beginning, Battley said, allows all the parties involved to make assessments on cost and innovation based on trust and team dynamics.
“Can we work with these people, and are they bringing the right sort of balance to our team? Are they going to integrate well? What are their behaviours and leadership like?
“Those things all matter because they’re all great enablers to great problem-solving down the track when you’re in the project.”
Fleming echoed this sentiment, saying that much of engineers’ frustration on a project derives from poor management of foreseeable problems, creating extra work and friction from decisions that don’t get made.
“The bigger and more complex these projects become, the more capable the client must be,” he said. “If the client is not an informed client, if they’re not set up to make decisions in a timely way, if they’re not helping manage the risk that they alone can manage – they are not a good client, and that’s going to carry risk and cost, and impose that on the project in a variety of different ways.”
For Fleming, the best results come from projects where stakeholders can work productively and collaboratively. And project life cycle concerns mean that it’s important to introduce this dynamic early.
“The greatest scope you have for making decisions is right at the beginning, and as you work through the first stage of engineering and procurement and design and delivery, the latitude you have reduces.
“As you work through that process, the cost increases and it increases early because you start to make big decisions. Then you’re locking in millions or billions of dollars because of those decisions. So the big opportunity for very significant improvement is always upstream.”
Prevailing engineering and design processes often miss this fundamental step. Stakeholders should always be reminding themselves of the outcome they’re trying to achieve and to whom they’re actually delivering benefits.
“Invariably, when I’ve seen and been involved in leading design processes with that mindset, not only do you get a vastly superior design, but very often it’s cheaper,” Fleming said.
“You’ve had an opportunity to think beyond time, cost and quality, and to think about the smart and clever ways we might get these multiple outcomes.”
Getting in early
This approach of early contractor involvement, according to our industry insider, has shown particular success in the US.
“We’re going to sole-source you after selecting based on qualitative criteria – financial capacity, ability to mobilise and technical skills – then work to develop the project” is how he described the process.
“So that individual company then prices the job over a period of time collaboratively with the client, then they get to the end and the client’s either happy with the price or not happy with the price. The contracts allow for that.
“If they’re not happy with the price, they can go to the market because they own all the things that have been developed to that point. But usually what happens is the client’s happy with the price that’s been delivered.”
The result is that the contract team is able to then transform into the delivery team, allowing them to focus on delivering the job rather than creating tendering documents that promise to deliver.
“Remember, procurement only gets you to the starting line,” Battley said. “The actual delivery of the project or the program – often over many years, for the work that we do – that partnership is where we see value best shared by all parties.”
The right model for the right time
Given the challenges that procurement presents to all parties involved in a project, there would ideally be a single contracting model that could be followed in all cases to deliver the best outcome. Unfortunately, Duffield told create, that’s not the case.
“The different contracting models can all work very well for the right situation,” he said.
“If you want flexibility in your contracting arrangement, it would be a poor thing to lock in a price, and think you’re going to get that price if you’ve got every intention of changing the goalposts as you go forward.
“Whereas if you have a project that’s been fully documented by a client and you just want to enact it, a firm price is probably not unreasonable.”
This is what the experts say about some of the more common contracting models.
Alliance contracts
Alliance contracting brings separate parties together to deliver a project cooperatively while sharing both risk and reward. Duffield pointed to Victoria’s ongoing Level Crossing Removal Project, which is dismantling 110 level crossings throughout the Melbourne area, as an example of how using multiple alliances with multiple contracts can work well.
“The government has become a very informed client; they have a good understanding of the costs and the prices,” he said. “If a contractor comes to them with a price, they can sit down and say, ‘Have you understood the risk? We think you’ve underbaked or overbaked the price’.”
Public-private partnerships
Public-private partnerships (PPP) see governments drawing upon the private sector to wholly or partly fund a project. According to research prepared by Duffield, the PPP approach can deliver real benefits.
“They won’t win one of these very large projects unless they’ve got excellent teams,” Duffield said. “The other real advantage is the fact that it’s got financing, which brings costs, and also high-end management skills that will control costs.”
He points to Victoria’s County Court, which was delivered as a PPP project.
“That’s been in operation for about 30 years and it’s as good as the day it was new. All of the other courts that are run and even refurbished by government become obsolete or run down.”
Traditional procurement
According to Duffield, traditional approaches to procurement are still appropriate in the right circumstances.
“Some people who have been burnt by design-and-constructs or alliances or PPPs go back to traditional contracts.
“If the client knows exactly what they want, they’ve got expertise and they can document it, the traditional contract is fine. You can get a good price, and you get what you want if you know what you want.”
This article was originally published in the May 2025 edition of create with the headline ‘Buy now, pay later’.
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