An inquiry isn’t going to fix Australia’s broken construction sector
David Chandler, Western Sydney University | 6 July 2017
In the wake of the UK’s Grenfell fire scandal, there have been multiple calls for inquiries and audits of buildings across Australia that may contain flammable aluminium panelling.
However, an inquiry has been running since 23 June 2015. The outrage associated with Melbourne’s Lacrosse fire sparked the non-conforming building products inquiry. The inquiry’s terms of reference were altered on 13 October 2016. More outrage – asbestos. The Senate Economics Committee dealing with this appears to have cranked back into action in January 2017, some months after last year’s election.
There is a lot going on in Canberra these days, but one would imagine the inquiry into non-conforming building materials and asbestos may have been a priority, given the outrage?
The construction industry is treated like an oily hinge
The construction industry in Australia is treated like an oily hinge. It always seems to be throwing up a variety of complex issues that politicians seem comfortable to avoid – inquiries into industrial lawlessness, security of payments, injuries, compliance and certification, home owner warranty insurance, declining productivity and out of control costs are not the dilemmas that a budding minister would wish to have portfolio responsibility for.
Hence the abandonment of ministers of construction and public works long ago. And, in most jurisdictions, the abandonment of public works agencies and virtually all the “informed buyer” capabilities within government. Better to outsource to industry and pay the price.
At a time when many governments worldwide are recognising the need to make their construction industries more competitive and productive in the face of forces reshaping the industry, Australian governments seem to be headed in the opposite direction.
Despite the efforts to achieve a more unified approach to modernising the industry up to 2013, this was dealt a significant blow soon after the election of the Coalition government led by Tony Abbott. The first COAG communique in December 2013 stated:
“The Commonwealth respects the States and Territories … are sovereign in their own sphere. They should be able to get on with delivering on their responsibilities, with appropriate accountability and without unnecessary interference from the Commonwealth.”
The Australian and New Zealand construction industries represent about three per cent of global construction turnover, which is expected to reach US$15 trillion (AU$19.8 trillion) by 2025. Some industries such as steel account for far less.
Increasing offshore procurement
The national accounts do not fully reflect the full scope or impact of the industry in the economy or on jobs. For example, forestry and wood products are accounted with fish. This is despite the growing trade deficit in value added wood products such as Cross Laminated Timber now exceeding $4 billion a year.
For Australia to turn around some of these business flows, it would take 20 years of determined forest policy and planting. That seems unlikely.
But, wood products are not the only construction input losing out to the growing trends to off-site-manufacture and offshore supply channels. Most of Australia’s large construction and engineering companies have dedicated offshore procurement offices. This momentum is not about to change.
The Victorian and South Australian governments are trying to salvage something from the scrapheap of the motor vehicle industry by trying to transfer advanced manufacturing capabilities into construction. The progress is slow and uncertain. These strategies lack any measurable purpose to demonstrate how a modern construction industry will deliver “more for less”.
For now, these strategies seem more about a glad-bag of research grants and vendor driven offerings that mostly avoid the rigour of a serious value proposition or business plans. There is no national approach to modernising the Australian construction industry.
A dysfunctional status quo at the root of non-conforming materials inquiry
At best the Australian construction industry is characterised by the sometimes-united federation of Australian states and territories, and the various industry associations who fight for the preservation of a dysfunctional status quo, which goes to the root of this inquiry.
It is no wonder that the public utterances in the case of events like the fires in Melbourne and more recently the UK are left to the more opportunistic and self-justifying spokespersons that the media are happy to deliver, along with graphic accounts in the evening news.
The reality is that the challenges confronting the issues of standards, compliance and certifications today are very complex. They need a very deep understanding of a construction industry that has been broken for a long time. The issues are systemic and go well beyond materials. They include non-compliant construction work and shoddy businesses. And they include unproductive work and procurement practices. They include governments and industry prepared to sweep serious issues and risks under the carpet.
Everyone I have spoken to is cynical about this inquiry being able to make a difference, as with any inquiry past. There is a lot of noise about the need to raise standards and lock down the borders to non-compliant and, dare it be said, also more competitive construction inputs – many better that our own.
Everyone knows that our construction procurement practices are outdated, and so are construction contracts that accommodate defects and the acceptance of non-compliant work. In fact, one major public client with a recurrent procurement running at $3 billion a year-plus told me they were going back to directly hiring clerks of work to try to arrest the poor quality of construction compliance on their projects. How about that for back to the future?
Australia’s compliance institutions are impotent
Australia’s domestic construction compliance institutions (both public and private) are impotent in trying to turn the industry around. Their efforts are inconsistent and continually dumbed down by pressure from noisy, influential advocates looking to improve efficiency and cut red-tape – code for less accountability and capitulation.
Everyone knows it, and no one expects this to change.
The current off-site manufacturing moves should be good for construction productivity, innovation, new jobs and quality assurance – but not on the current trajectory.
The domestic industry remains in denial of the deep transformation of business models and culture needed to be part of a digitised, industrialised and global industry where traceability, chains of custody and quality assurance will become the norm.
It is already possible for the level of construction impairment, on a project-by-project basis, to be identified. The impact of digitisation, the Internet of Things, big data and smart construction translating into smart buildings are reshaping how global construction supply chains will operate in only a few years from now.
Once the level of impairment, compliance and resilience of buildings occurs on an individual building basis this information will enable future insurance risk premiums to be set on a per building basis. This data will enable their ongoing maintenance compliance to be tracked and the risk beta for each building priced accordingly. It won’t take months to investigate buildings at risk – they will be known. This will then determine their quality and value when assessing lending by financial institutions.
Two options for the inquiry
The current Senate inquiry has two options. One is to take stock – to look at what must be done to enable the Australian construction industry to punch above its weight in a modern global construction industry – a market from which we already import as much as 30 per cent of all construction inputs today. It is the same focus that the Farmer Review into the UK’s industry applied in mapping what needed to be done to turn around its future.
The alternate is to allow the current noisy opportunists and conflicted self-interests to chart the ongoing demise of an industry that is fundamental to the nation-building challenges that a modern industry should be meeting. In doing so we should be very careful of “living in a glass house and throwing stones”.
This will not solve the cause of this inquiry. The government should make sure it runs this inquiry on more than ad-hoc reaction.
David Chandler is adjunct fellow and industry engagement lead at Western Sydney University’s Centre for Smart Modern Construction.