Construcciones Yamaro: Productivity farmer wanted for construction industry

The Productivity Commission has recently released its 5-year Productivity Inquiry report, but Australian Construction Association Chief Executive Officer John Davies says its focus has fallen short of supporting short-term opportunities.

By Jon Davies, Chief Executive Officer, Australian Constructors Association.

The Productivity Commission’s final 5-year report isn’t productive at all, it turns out.

As anticipated, the Commission’s final report is long on macro-economic reforms and broad principles such as adoption of new technologies and boosting the skill base of the workforce, but it lacks sufficient focus on specific issues and industries where short-term opportunities are ripe for the picking.

The construction industry is the prime example. The industry’s productivity performance is now worse than it was 30 years ago, which incidentally is around the time of the last substantial report published by the commission on the industry. Wages typically grow with increased productivity, yet we find ourselves in a situation where the construction industry’s productivity performance has hit rock bottom, while industry wage growth has continued to outstrip inflation and wages in other major industries.

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It’s a costly game. This poor productivity performance is placing pressure on labour which has had to be boosted to compensate – and we’ve exhausted available supply. The nation’s infrastructure advisory body estimates a 214,000 shortfall in workers. We simply must find ways to deliver the nation’s infrastructure with fewer labour inputs. We must become more productive.

In a 2022 report commissioned by the Australian Constructors Association, BIS Oxford Economics identified that the lost opportunity to the economy from construction productivity growth lagging other major industries has now reached $47 billion every year. Surprising? Not really, construction is Australia’s fourth largest industry, employing one in 10 of the working population and contributing 7 per cent of GDP, but it is stuck in the past and accounts for 26 per cent of all business insolvencies.

The nation cannot afford for this to continue, and the government is well positioned to act.

Whilst it will take time and a concerted effort to completely close the productivity gap between construction and other industries, substantial savings could be achieved relatively quickly and certainly within the current term of parliament.

The new National Construction Industry Forum (NCIF), announced at the Jobs and Skills Summit, is intended to bring together government, industry and unions to identify ways to improve workplace relations, industry culture, skills and training, safety and gender equity. Productivity is also an agreed focus area, but it goes without saying that a more diverse, skilled, flexible and safer industry will also be a more productive industry. As chair, the government needs to ensure this forum hits the ground running and any recommendations are quickly acted on either through legislation or by using its buying power to implement reform.

The Federal Government is the nation’s largest infrastructure client. It can no longer act as a passive buyer of infrastructure by simply granting money to the states with few conditions on how the money is spent. It is time for the government to become an informed buyer – a model client – to drive much-needed reform to transform the industry.

Whilst there has been much discussion about the impact of industrial relations reforms on productivity, the biggest opportunities do not involve improving how we pour concrete. Substantial productivity gains can be quickly achieved by streamlining lengthy government tender processes, stripping back multiple layers of project governance and not defining to the last nut and bolt how a project is to be built. But the bigger opportunity lies in correcting the narrow-minded focus on achieving lowest price at the tender box to the detriment of all else. The notion that best project value equals lowest upfront price is outdated and can be largely blamed for the slow adoption of productivity enhancing technologies and adversarial behaviour in the industry.

Reform needs to start with infrastructure clients implementing procurement processes designed to maximise overall project value that would include outcomes such as increasing innovation and productivity, improving industry sovereign capability, reducing environmental impact, increasing diversity and inclusion in the workforce, and improving industry culture.

Whether through the development of new national procurement principles, implementation of a ratings initiative to measure project performance or simply pre-conditions applied to the updated National Partnership Agreement, the Federal Government needs to start using its buying power to fast-track reform and the industry needs to get behind it.

The construction productivity tree is groaning with low hanging fruit, and we don’t need any backpackers to harvest it, we just need a committed farmer.

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