Two men shaking hands over a construction deal with a hard hat in foreground

Megabang for megabucks: driving a harder bargain on megaprojects

by Marion Terrill, Owain Emslie and Lachlan Fox

Taxpayers end up paying too much for major road and rail projects in Australia because governments don’t drive a hard bargain on contracts with the big construction firms.

Governments should stop worrying about the profitability of the industry and start delivering quality services at the lowest long-term cost to the community.

Australia’s transport infrastructure costs are above the global average, and there is a culture of caving in to contractor demands after contracts are signed.

About 25 per cent of projects end up costing taxpayers more than the government expected when construction started.

To get quality infrastructure at a sharp price, competition is fundamental. But as the size of projects has grown, so has the size of contracts – and with larger contracts, competition inevitably thins.

Few firms have the technical and financial capability to win contracts worth $1 billion or more. Yet Australian governments often give undue priority to domestic experience, making it hard for international firms to win contracts.

State governments often rush projects to market, so they can announce and start them before the next election. But in the rush, governments don’t always identify or mitigate expensive problems such as contaminated soil, and they’re not systematic enough about dividing projects into bundles or choosing the contract type with the right incentives for the particular job.

Governments should only sign contracts that they are prepared to enforce, and should award all infrastructure contracts through an open tender process.

And Australian governments should investigate how similar countries overseas manage to build high-quality transport infrastructure more cheaply.

This report shows how Australia can build better.