‘A chronic problem’: Arup CEO on Australia’s productivity gap

Liam O'Donohue of engineering major Arup warns supply constraints and skills shortages creating a perfect storm for declining competitiveness.

The economic is more uncertain than this time last year, says Liam O’Donohue, managing principal, Arup Australia and New Zealand

CEO Survey 2026: FULL COVERAGE

Economy

How would you rate the momentum of the Australian economy as we head into 2026? Are cost pressures in your business: increasing/stable/easing? Are you likely to increase, hold steady, or trim your investment spend or employment over the next 12 months?

Turning into 2026, Arup sees the national economic outlook as uncertain and generally weaker than a year ago. Inflation is on the rise and supply constraints – skilled workers and materials – continue to hobble most productive sectors.

There is considerable variation in growth prospects between the states. It is concerning that with a relatively weak national outlook and a still-high level of population increase, only Queensland among the large state economies grew on a per-capita basis during 2024-25.

That underscores Australia’s chronic productivity problem, though we expect faster growth in Western Australia during next year as government stimulus towards industrial diversification and defence activity begins to take hold.

Overall, we see a slowing of transport infrastructure projects, though Queensland’s Bruce Highway improvement program is a plus for the state and national economy. As participants in Victoria’s Suburban Rail Loop East, we hope for clarification of the project’s future in the federal budget.

We look forward to a cohesive infrastructure development program around Brisbane’s 2032 Olympics gaining traction and we are keenly embarking on our role in master-planning the Victoria Park precinct.

Technology

Which best describes your organisation’s AI adoption? (Exploring/Piloting/Implementing selectively/Scaled across business) If implementing or scaled, are the productivity benefits starting to come through or do you expect more time for the full impact. Has the use of AI started to influence employment decisions across your organisation?

Arup is embracing AI, data and technology not only in terms of productivity but to augment our deep domain expertise and global networks to bring impactful innovations and solutions for our clients. By taking a combined ‘top down’ and ‘bottom up’ approach, we have initiatives being driven globally around contract review and bidding tools, while also looking for opportunities to invest in innovative ideas that come in our project work.

We’ve long explored how data and technology can innovate the way we do things – from digital twin models that use data-driven intelligence to design smarter, safer and more efficient cities, to harnessing satellite data to assess the impacts of the urban heat island effect to improve the climate resilience of urban spaces. We’re also implementing systematic learning opportunities for upskilling and knowledge sharing in the digital technology and AI space, recognising there is further untapped potential of AI and technology in shaping creative design solutions and project efficiencies for our clients.

People

Has your organisation evolved its approach to flexible working during the past year? Does your organisation have a policy around office attendance. What feedback, if any, do you have for governments considering prescribing working from home for a set amount of days per week?

Arup has continued to support ways of working that foster creativity and innovation to help us deliver our best work for clients – and this can look different for different teams. It’s important to me that our workplace policies offer the flexibility that people need to do their best work which means giving people with families and caring responsibilities the support to participate in the workforce, while also ensuring our junior staff benefit from engaging with senior leaders in the workplace.

We have a general expectation that our people are collaborating in the office at least half the time and Arup has invested in new offices that are thoughtfully designed to deliver an excellent working environment. Our brand-new Brisbane office exemplifies this ethos with dedicated collaboration and focus zones, and built with our values at the core with a design that embedded local First Nations stories and prioritised sustainable materials. It’s the latest round of new office fit-outs following our office moves in Perth and Adelaide; initiatives which have been in progress since before Covid. The principles that underpin how we design our spaces have not solely been influences by post-covid trends, but rather on creating great spaces for people to work together.

It’s an investment that has proved popular with our teams who have reported strong workplace satisfaction and engagement in recent surveys. I’ve seen first-hand how popular the office has been for bringing together our people, and for welcoming and collaborating with our clients.

Geopolitics

How significantly are global trade tensions/tariffs impacting your business? Is Australia getting the balance in managing its big economic and political relationships with major trading partners?

As a design and engineering firm Arup is not directly affected by trade and tariff issues, but our clients definitely are. We think stabilisation of the international security and trading spheres assists Australians to play their most constructive roles at home and in our region.

We endorse the efforts of the current federal government to strengthen Australia’s presence in and contribution to ASEAN, East Asian and western Pacific economic and strategic co-operation. Deeper and broader regional economic integration, particularly in zero emissions energy, transport and urban sustainability in the face of mounting climate challenges, is critical to the region’s stability and prosperity.

Recognising this, Arup has this year restructured its regional operations so that Australia has become part of an integrated Asia Pacific structure in which our Australian businesses and Australia-based APAC business leaders play key roles in this fast-growing region. This integration facilitates the sharing of technical skills and expertise to address skills shortages across the region. We are leveraging our deep skillsets in Australia to meet the demand across Asia for major infrastructure while driving investment opportunities and competitiveness across the broader APAC region.

Energy

Do you have any concerns about Australia’s pathway to renewables? Should there be more flexibility in settings leading to 2035? Are energy costs becoming an increasing factor around your longer-term planning?

Arup continues our strong investment in Australia’s infrastructure development with an accelerated focus on the energy transition and for that reason we welcome passing of the Albanese government’s Environment Protection and Biodiversity Conservation Act reforms before year-end. Repairing and protecting our native environment is a critical mission but so is removing delays and uncertainties around planning and permitting wind, solar, storage and transmission projects that will make Australia’s energy transition and net zero emissions an affordable reality. In Australia, we have invested in our capacity to support energy clients with environmental approvals, adding to our multidisciplinary skills in this space to give our clients a more comprehensive service across critical touchpoints in renewables projects.

Reform

What would nominate as your top policy priority that can be used to lift Australia’s competitiveness or productivity? Should The Albanese government be pushing for even bolder policies around reform?

Arup has argued strenuously for at least 5 years that productivity improvement is the central Australian economic challenge. We supported Treasurer Jim Chalmers’ Economic Reform Roundtable and contributed to the Productivity Commission’s 5 Pillar inquiries he commissioned to define core productivity challenges and frame policy responses.

While we appreciate there is no silver bullet for productivity challenges, addressing our talent pipeline to tackle skills shortages needs to be high on the national agenda in the New Year. It is essential that Australian businesses and governments, particularly our education sector, come together to rethink ways to enhance diversity in engineering and construction and address the skills gap.

Arup is encouraged by the passage of the Albanese government’s EPBC Act reforms at the end of November. The Streamlined Assessment Pathway for federal project environmental assessment, new Commonwealth/state agreements to eliminate systemic duplications, and regional planning in place of project-by-project assessments are all, at heart, productivity measures. Successfully implemented, they should slash the current exorbitant time delays and costs of nationally important projects. In no sector will that front-end productivity gain be more significant than renewables.