Procurement challenges ‘a risk for construction sector’

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The recent report Government Procurement: A sovereign security imperative delivered many robust recommendations following last year’s Parliamentary Inquiry into Australian Government infrastructure practice and was informed by many participants in the sector. 

More importantly, the report has articulated expansively on the reality of our sovereign capability today and into the future.

The report indicated the security of the sector’s future is at risk, due  to the conscious choice by industry players to seek the lowest price for procurement, “Decades of choosing the lowest price, as opposed to the ‘best value’, has diminished our capacity to deliver fit-for-purpose infrastructure, which now is presenting as a danger to our sovereign security,” report says. 

The challenges that confront the current sector today – dire skill shortages, escalating costs, poor practices that have led to collapses of multiple local construction players – are direct flow-on effects of our heightened vulnerability and dwindling sovereign capability, compounded by major events such as the pandemic, Russia-Ukraine conflict and escalating trade tensions. 

Put simply, the construction sector is no longer capable of making goods of strategic importance in the event of major disruptions. As an Australian-founded participant in the industry deliberating our nation’s future, this is deeply unsettling in its implications for the future of the economy and all Australians.

Redefining value in procurement 

The existing procurement challenges are well-documented in the parliamentary report and in Felix and entwine’s own submission. They range from lack of commitment and coordination, insufficient understanding of risk and how risk is allocated, to cultural and engagement issues.

Central to the issue is the definition of value, and more specifically how cost is confused with value. Australian suppliers need to be capable of delivering legally and ethically (as opposed to just on time, cost, and quality). Procurement practices create a pivotal opportunity to improve the industry’s prevailing practices within supply chains that contribute to the various issues in the sector today. 

Our recent Building in the Dark report examines construction supply chain risk in Australia and New Zealand, and it uncovered some troubling truths about the sector’s view of risks. While there is recognition of certain risks outside of the traditional paradigm, including modern slavery, fraud, corruption, or the black economy, they remain prioritised against the here and now of project delivery and metrics of time, cost, and quality. 

Organisations increasingly rely on supply chains to deliver construction and infrastructure projects; yet they are blissfully unaware of the kind of risks that exist within these supply chains. 67 % of industry professionals surveyed believed that clients or project sponsors do not understand the true cost of effectively managing third-party risk. 

Supply chain risk cannot be accurately assessed beyond the transparency of actors and activities beyond directly engaged third parties and the boundaries of the site. Performance and compliance risks are transferred to third parties within the network not fully equipped for this responsibility,

Many organisations remain in the dark concerning the risks that lie within their own supply networks, further compounded by the low levels of transparency and monitoring of third parties. 

A growing chorus of calls for reform

Australia’s heavy reliance on the construction industry and the potential impact of the sector’s complete breakdown have been increasingly gaining recognition. Many within the industry are urgently calling for participants to improve productivity and efficiency, by fundamentally changing the way projects are procured and delivered. Only by addressing the issues contributing to the current challenges by prioritising innovation and progress can we ensure longer-term growth and security of the sector. The Construction Industry Leadership Forum (CILF) and Construction Industry Culture Taskforce (CICT) are positive starting points, but they need to ladder up to a broader approach that covers the whole industry.

Infrastructure Australia, Australian Constructors Association and Roads Australia have all led the charge in promoting conversation across the sector to drive industry change towards greater sustainability, collaboration and inclusion, which will ultimately strengthen industry sovereignty. But genuine change is a long, arduous journey and requires the government to set the agenda, followed by the participation and will of all participants within our complex, multidisciplinary environment.

Digitisation as a pathway to industry transformation

To meaningfully enhance sovereign capability there must be the means to measure the market, track the market, and identify areas where government intervention can improve the market. 

Digitisation of the industry will promote efficiency and assist in meeting capacity constraints while modernising procurement. However, the construction industry is behind others in its uptake of technology and this is hampering productivity improvements. Our report revealed that while many organisations recognise the value of going digital, over half (56%) believed their organisations were not investing enough in digital tools. Low levels of digital awareness and diversity in leadership is preventing the industry from harnessing digital’s opportunity to enable greater transparency and accountability in their network.

Ultimately, the failure to inject meaningful change hinders the development of Australia’s sovereign capacity in infrastructure delivery.

Government procurement can be leveraged to mandate the use of key technologies, up-skill the market and improve less developed areas of the market through mandated supplier quotas. In other words, governments can use their purchasing power to influence digital transformation, transparency and social outcomes. 

Going truly digital also offers the construction industry the opportunity to address the identified weaknesses – to improve the efficiency and effectiveness of data collection and building trusted relationships. More importantly, digital adoption can drive greater collaboration at multiple levels where it is needed – within an organisation, between organisations and their supply chains, between government buyers and contractors and different levels of government.  

The need to improve market capacity is dependent on visibility and knowledge of your own supply chain. However, our research shows only 36% of participant organisations maintain a singular organisation-wide database of potential third-party providers. Cloud-based platforms can allow entities to source and vet these parties effectively and efficiently. By ensuring transparency of the supply network and non-price attributes are part of the weighting and evaluation, this will also allow greater opportunities for participation from a diverse cohort of quality Australian suppliers, including smaller firms, sustainability-focused and Indigenous-owned businesses.

With the industry’s future at stake, the time to act is now. Only through adoption of digital by default can construction organisations ensure transparency, accountability and sustainability throughout their supply chains – and improve the industry’s resilience against any future disruption. 

Mike Davis is Co-founder and CEO of Felix. Prior to launching Felix in 2015, Mike co-founded PlantMiner in 2012 which had grown to become Australia’s largest online construction marketplace. Mike has been pivotal in the development of Felix and has a deep understanding of how technology can help organisations get control over their procurement.

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Mike Davis is Co-founder and CEO of Felix. Prior to launching Felix in 2015, Mike co-founded PlantMiner in 2012 which had grown to become Australia’s largest online construction marketplace. Mike has been pivotal in the development of Felix and has a deep understanding of how technology can help organisations get control over their procurement.

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