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1、Disrupt or dieTransforming Australias construction industryAbout this documentIn 2020 the Australian Constructors Association commissioned BIS Oxford Economics to report on the opportunity cost1 of the poor productivity performance of Australias construction industry since 1990. The findings from th
2、e report have since been used to support the associations advocacy efforts. Recognising the significant change to the construction landscape over the past few years, in September 2022 the Australian Constructors Association commissioned BIS Oxford Economics to update the data. This document reports
3、on the latest findings.Productivity is defined in this document as the ratio of a volume of output to the volume of inputs; that is output per unit of input. It considers multi-factor productivity as distinct from labour productivity alone. The latter considers how output changes with a given change
4、 in labour inputs, while the former represents changes in output driven by changes in the combined value of inputs, which effectively means doing things better than in the past.About the Australian Constructors AssociationThe Australian Constructors Association is the only representative body for co
5、ntractors delivering vertical and horizontal construction projects, as well as undertaking infrastructure asset management. Our members construct and service the majority of major infrastructure projects built in Australia every year. Our goal is to create a more sustainable construction industry.DI
6、SRUPT OR DIETransforming Australias construction industry Australian Constructors Association November 2022This work is licensed under a Creative Commons Attribution (CC BY) 4.0 International Licence. In essence, you are free to copy, communicate and adapt this material, as long as you attribute the
7、 work to the Australian Constructors Association. To view a copy of this licence, visit http:/creativecommons.org/licences/by/4.0.CONTENTSIntroduction1Productivity laggard2Widening productivity gap2Huge opportunity cost2Unleashing productivity growth4White in sight4Value for money through procuremen
8、t5Delivering together5Not for everyone, but it could be6Evolving from spreadsheets6Construct zero7Disrupt or die8Leave behind the baggage of history8Disrupt - heres how9IntroductionConstruction productivity today is lower than it was in 1990. The industry has failed to innovate and according to glob
9、al consultant McKinsey2, only hunting and fishing have a worse track record when it comes to adoption of digital technologies.In the eyes of the next generation of workers, construction is an industry that is stuck in the past. More businesses fail in construction than any other industry and, as an
10、industry that operates on wafer thin margins, workers are under pressure. They work long hours, suffer high stress levels and are six times more likely to die from suicide than a workplace incident. Diversity is low and women make up only 12 per cent of the workforce. In a recent survey less than on
11、e third of Gen Z respondents said they would consider a career in the built environment3 The industry has no choice but to transform, if for no other reason than to maintain a workforce large enough to deliver the substantial pipeline of work it is being called on to deliver.The demise of Australias
12、 construction industry is of national significance. Construction contributes 7 per cent of GDP and employs almost 1 in 10 of the workingpopulation. This is the very industry called upon to rebuild Australias economy following the COVID pandemic. It is vital to the health of the economy and, importan
13、tly, the quality-of-life Australians enjoy.The link between improved productivity and industry sustainability is strong. Improvements to the industrys productivity performance could save Australia $47 billion annually. Savings of this magnitude would go a long way in improving Australias budget bott
14、om line and establishing Australias construction industry as a worldwide leader representing best practice.Government, industry and unions all agree on the opportunity and, more importantly, the need for change. Incremental change and 10-year horizons are out. To keep the industry alive it must tran
15、sform, and it must transform now.DISRUPT OR DIE TRANSFORMING AUSTRALIAS CONSTRUCTION INDUSTRYProductivity laggardAustralias construction industry is a productivity laggard. The inability to improve productivity performance is placing pressure on labour and capital inputsboth have had to be boosted t
16、o compensate for the lack of productivity improvement. Where labour and capital have been scarce, this has led to increased demand pressure on resources, increasing construction costs and, in some cases, project delays.Widening productivity gapSince the peak of the resources boom in 2014, constructi
17、on industry productivity has declined a massive 16.5 per cent. Not only is this a more significant drop than felt by other industries, but it also takes the construction industry below its late 1990s productivity performance. Overall, productivity in the construction industry was 1.8 per cent lower
18、in FY 2021 than in FY 1990. This represents an average growth rate of -0.1 per cent per annum since FY 1990 which is well below transport at 0.9 per cent per annum and manufacturing at 0.8 per cent per annum.Over the 31 years since 1990, the gap between productivity of the construction industry and
19、that of other industries has grown. Other industries achieved productivity growth of 31.8 per cent since 1990, while construction has seen productivity fall 1.8 per cent over the same perioda differential of 33.6 per cent.Huge opportunity costIn FY 2019 alone, the opportunity costthat is, the potent
20、ial foregone construction output from a 30-year period of relatively weak productivity performancewas roughly$35 billion. Two years later, the opportunity cost has blown out to $47 billion. To put the size of this loss into context, the $47 billion figure for FY2021alone dwarfs the costof some of Au
21、straliaslargest infrastructureprojects currentlyin planning or under construction such as the North East Link, the Western Harbour Tunnel and Beaches Link, and Inland Railall $10 billion plus projects.At a state level the opportunity costs from relatively weaker construction industry productivity ra
22、nges from $493 million for the Northern Territory to $15.4 billion for New South Wales for FY 2021 alone. These costs will rise further in future years if construction industry productivity growth continues to lag that of broader industries.Importantly, there is a wider economic loss from relatively
23、 poor construction industry productivity considering the multipliers associated with construction activity in Australia. Every million dollar invested in the Australian heavy and civil engineering industry4 sees $2.95 million of output contributed to the economy, and $1.3 million contributed to Aust
24、ralian GDP5.2FIGURE 1:Multifactor Productivity indexes by industry (FY1990-FY2021)Construction Manufacturing Transport Selected industries*1990 level16014012010033.6%802020-21 2019-20 2018-19 2017-18 2016-17 2015-16 2014-15 2013-14 2012-13 2011-12 2010-11 2009-10 2008-09 2007-08 2006-07 2005-06 2004
25、-05 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99 1997-98 1996-97 1995-96 1994-95 1993-94 1992-93 1991-92 1990-91 1989-90*Selected Industries includes the following: Agriculture; Forestry and Fishing; Mining; Manufacturing; Electricity; Gas; Water and Waste Services; Construction; Wholesale Trade;
26、 Retail Trade; Accommodation and Food Services; Transport, Postal and Warehousing; Information, Media and Telecommunications; Financial and Insurance Services; Arts and Recreation Services.Note: Gross Value Added based Multifactor Productivity (hours worked basis); index (base: 1989-90=100); Selecte
27、d industries include ANZSIC Divisions A-K and RSource: ABS, ACAFIGURE 2: Estimated opportunity cost in fy2021 by state from poor construction industry productivity ($millions, 2019-20 constant prices)18,00016,00015,39914,00011,99512,00010,0008,8988,0006,0004,0005,9362,6362,000751939493NTTASACTSAWAQL
28、DVICNSWSource: BIS Oxford Economics, ABS dataUnleashing productivity growthProductivity improvements offer the critical link to the future success of Australias construction industry. But pinpointing the trigger to unleash productivity growth in a complex industry like construction is challenging.Th
29、e Australian Constructors Association believe the biggest opportunity to improve industry productivity lies in improving how projects are procured, delivered and governedessentially white-collar activities. Fortunately, there are many opportunities to improve white-collar productivity quickly whilst
30、 blue-collar productivity will likely take more time and, arguably, is reliant on the former.The greatest opportunities to improve construction productivity lie in the procurement and delivery of projects essentially white-collar activities.White in sightWhite collar occupations account for the majo
31、rity of the construction industrys 105,000 skills shortage estimated by mid-20236. Whilst improvements to migration settings and training programs will provide some relief, they will not solve the problem. The focus must be on driving productivity improvements that will see the industry achieve more
32、 in a meaningful way.Acutely aware of inefficiencies associated with white-collar activities, in 2022 the Australian Constructors Association and Consult Australia partnered in bringing forward practical ways for the industry to become more productive. Through the Partnership for change initiative,
33、the associations developed a series of thought leadership papers providing recommendations to improve productivity through better reliance on tender information, streamlined design reviews and increased adoption of digital technology. Importantly, these papers are associated with procurement process
34、es, and each proposes government delivery agencies lead the way by acting as a model client.GLIMPSES OF A STEP CHANGE IN PRODUCTIVITYThroughout Australias history there have been some step changes in construction productivity. These occurred in the late 1990s and again in the early 2010s (See Figure
35、 1 page 3).While there is some uncertainty regarding the causes of these step changes, one possible explanation is rising capital intensity. In the early 2010s a likely candidate for rising capital intensity may have been the start of the phase of oil and gas construction in Australia which, apart f
36、rom the sheer scale of construction, also brought with it highly capital-intensive methods of construction, such as prefabrication and modularisation on a massive scale.The use of more collaborative procurement and contracting models during this timewhich allocated risks more efficiently to those be
37、st able to manage them, as well as fostering innovation and investment in capacity and capabilitymay have also contributed to the stronger productivity outcome.4Value for money through procurementThere is significant wastage of skilled resources through inefficient tender processes, but the bigger p
38、roblem is the myopic focus on achieving value by selecting lowest price at the tender box. This focus on cost has created a race to the bottom which has led to many of the issues faced by the industry today. The prevailing concept that value for money is achieved by the lowest up-front cost is outda
39、ted and can be partially blamed for the slow adoption of productivity enhancing technologies and adversarial behaviourin the industry. It is a short-term focus that is not sustainable.Time and cost are important components of value; however, broader value generated to the community and health of the
40、 industry throughout the build and the life of an asset should also be considered. Value should include outcomes such as improving industry sovereign capability, increasing innovation and productivity, reducing the impact on the environment, increasing diversity and inclusion in the workforce and im
41、proving industry culture.Given the volume of construction work procured by governments, delivery agencies are uniquely placed to act as model clients. They are positioned to change the focus of the whole construction network from one focused on staying alive by offsetting risk and litigating to reco
42、ver losses, to one driven to deliver improved value for all stakeholders.Delivering togetherThis will only happen by aligning all parties to achieve the desired value outcomes and documenting thisin a contract. Whilst this can theoretically be done through any traditional form of contract, recent hi
43、story has shown that the best results are achieved through use of more collaborative forms of contract that incentivise and focus everyone on achieving best for project outcomes rather than what is best for any one particular party.Further, consideration should be given to the bundling of projects i
44、nto extended programs of work delivered by panels of prequalified contractors, subcontractors and suppliers, often referred to as an enterprise delivery model. This model provides opportunities for increased innovation and improved productivity bydirectly engaging a wider section of the construction
45、 supply network and providing the security of work and return to invest in developing skills and capability. The enterprise delivery model also enables greater direct employment and reduces the significant amount of time and money currently spent on traditional procurement processes designed to give
46、 the illusion of value for money.The Melbourne Level Crossing Removal Program is a great example of what can be achieved with this approach. The program has successfully removed 66 crossings since 2015 and has only been in the headlines for the positive results that it has achieved rather than the usual stories of project cost blow outs and delays.The Level Crossing Removal Program uses a form of enterprise delivery model to undertake the various individual removal projects. The enterprise model brings together owners, partners, advisers and suppliers, working in more integrated and c