Cost blow-outs have become the norm for big infrastructure projects, stinging report states

Budget blowouts are more likely on large-scale road and rail because governments fail to drive a hard bargain when striking contracts, a new report has found.

Governments in Australia cave in too easily to construction companies claims when building infrastructure, with a quarter of projects costing taxpayers more than promised, a new report says.

The report, by think tank the Grattan Institute, says budget blowouts are more likely on large-scale road and rail because governments fail to drive a hard bargain when striking contracts.

It calls for governments to do more to reduce the risk of cartels dominating the industry, and says competition would be boosted by splitting up contracts and encouraging foreign-owned companies to bid.

With the cost of major infrastructure increasing in Australia, the authors also question why it is so much more expensive to build here than in other countries with similarly high wages.

In Queensland, the federal government has stepped in with $126m to cover a budget blowout for the Gold Coast light rail – caused by a contract dispute between the Queensland government and builders John Holland Group.

Cross River Rail, Woolloongabba Station Precinct under construction. Photographer: Liam Kidston.

The state LNP has also claimed there are cost blowouts to the $5.4bn Cross River Rail, though the state government has insisted the mega rail project is on track and within budget.

In the report, authors Marion Terrill, Owain Emslie, and Lachlan Fox call for an end to market-led or unsolicited proposals and said deals on local content also risk affecting competition, and can be ineffectual.

“We need more competition, smarter procurement, and greater transparency,” the report says.

“There is a government culture of caving in to contractor demands and paying sometimes hundreds of millions of dollars to settle a problem a few months or years after a contract is signed.

“About 25 per cent of projects end up costing taxpayers more than governments promised when construction started.”

The report says that “industry claims that it’s hard to turn a profit and that the future of local firms is in jeopardy are overblown”.

It also calls for a central register of all projects larger than $500 million to be published including with information about contract value, tender process, bidders who submitted an expression of interest, short-listed bidders, any later changes to the contract value, and scope changes.

Taking the time to assess ground conditions properly would also avoid extra costs, as would avoiding using elections and politics to guide decision-making.

“Governments therefore rush projects to market with inadequate scoping, discovery of site conditions, or attention to how to ensure the best bang for the taxpayer buck,” it says.

“They commonly accept cost increases, even with fixed-price contracts.”

Originally published as Cost blow-outs have become the norm for big infrastructure projects, stinging report states