Published in the Herald Sun, 19 May 2021

Victoria’s ‘big build’ grinds on. Many Melburnians wonder if it will ever end. The roadworks seem endless and, as the disputes and delays mount, so do the costs.

In the rush for new infrastructure, the Andrews Government is agreeing to build projects proposed by big business, rather than working out for itself what projects the community needs and then contracting construction firms to build them.

Transurban’s West Gate Tunnel is only the latest expensive example. About $11 billion worth of transport megaprojects have been awarded in this way by state governments in the past 15 years, and Victoria is by far the biggest culprit.

Governments and the private sector say these ‘market-led proposals’ are a great way to do business, because they bring private-sector innovation to public projects and produce infrastructure that otherwise wouldn’t get built.

Don’t believe it. A new Grattan Institute report shows that market-led proposals are bad for taxpayers.

By bypassing competitive tenders, market-led proposals are less likely to deliver the right projects, or the right prices. When governments accept a market-led proposal, they usually skip the tender process and instead negotiate directly with the firm that submitted the proposal. In other words, they engage with a monopoly provider.

Spared the hassle of competition, firms have less reason to keep their prices down, and less need to come up with innovative ideas to get ahead of would-be competitors.

Of course, governments don’t have all the good infrastructure ideas. But it’s hard to believe projects proposed by the private sector will best meet the public’s needs rather than the proponent’s private interest.

Governments have a mandate to build projects that give taxpayers the biggest bang for their buck. When they accept market-led proposals, governments outsource this mandate to the private sector.

The West Gate Tunnel puts the problem up in lights: the Government’s commercial adviser estimates the net public benefit will be tiny, but the returns from toll fares for Transurban are expected to be substantial.

As Victoria ‘builds big’, the Government cannot afford to be wasteful, or build the wrong projects. It should focus on procuring high-quality infrastructure projects at the lowest long-term cost to taxpayers. A good place to start would be to stop accepting market-led proposals.