Lost in Translation

31 Jan 2016

Take yourself back all of 5 years ago, to the year 2010 and have a look around. Specifically, take a look at the Australian construction industry. If you were to name the top 10 construction companies operating across the country, you’d be hard pressed to find anything but Australian local companies. Within the major infrastructure development market, the biggest players included Leighton, Thiess, John Holland, Abigroup, Baulderstone (should I succumb to the very Australian tradition of claiming successful New Zealanders such as Downer, Fulton Hogan and McConnell Dowell?!). It’s a traditional, conventional market, with traditional and conventional thinking and very little motivation to change or give up any market share. It’s a market that has relied on and developed a culture predicated on predictability, tradition and conventionalism.

 

My point is, where was all the international competition?

 

Australia has always been a land of big things – opportunities, ideas and projects. We’ve got the Big Pineapple, the Big Banana, the Big Prawn… We have iconic, internationally recognised engineering feats, like the Opera House, the Sydney Harbour Bridge, The Gorgon LNG plant, The Kalgoorlie Super Pit… Whatever the reason, we’ve never been shy of challenging ourselves. I guess when you’re surrounded by the world’s most poisonous and venomous plants and wildlife, we need to reassure ourselves that we’ll still be here tomorrow by building big and memorable monuments that will survive our temporary lives…

 

 

So it was only a matter of time until big (construction) business sat up and took notice.

Not just in the fleeting, momentary raising of the eyebrow sense, but in the sense that Australia had a monopolised major contracting market, a stagnant contract procurement model that discouraged innovation and competition and a government that rode out the GFC and had money to burn on new infrastructure.

 

Fast forward to 2016 and what do we see? The greater Sydney area has over $40 billion in major development underway. Tunnels, highways, light rail, a second airport, major residential and commercial development… Melbourne, Perth, Adelaide and Brisbane (including the Gold Coast and Darling Downs regions), are all currently investing billions in transport infrastructure. Regionally, we’re spending $5 billion on the Pacific Highway, $1 billion on the Bruce Highway and another lazy $5 billion developing northern Australia. This doesn’t even touch on the ongoing investment in resources (oil, gas, minerals) infrastructure. In layman’s terms, we’re spending a buttload on infrastructure right now.

 

So who wouldn’t want a piece of that action?

 

Our top 10 infrastructure contractors now looks radically different to our 2010 list. Leighton and Thiess have mutated into the Spanish owned CPB and CIMIC. John Holland are Chinese owned. Abigroup and Baulderstone were rolled into their international parent company, Lendlease. And we have a plethora of new, international faces rounding out the list – Acciona, Ferrovial and OHL from Spain, Bouygues from France, Ghella and Salini from Italy, Samsung C&T from Korea…

 

Certainly there are still plenty of successful Australian contractors still toiling away, but no one really at the level of these international construction giants. It seems for now that Australian companies have been relegated to the ‘Tier 2’ bench while the qualifying benchmark for ‘Tier 1’ categorisation has certainly been raised.

 

This eventually brings me back around to my point. What was the point of encouraging international competition for major infrastructure development?

 

Financial investment initially. Technical innovation subsequently. Value for money ultimately.

On the back of the GFC, we needed to maintain our well performing economy. What drives our economy? Employed citizens that spend their hard earned cash on houses, V8 utes, unnecessary consumer items, bad habits and groceries. As we’ve noted, we have a nation of builders – miners, engineers, blue collar heavy lifters – pumping out one oversized novelty icon after the next. But how did we intend on keeping all these people in gainful employment without spending all our taxpayer dollars on building these things ourselves?

 

So we invited greater international investment in infrastructure development and opened up foreign investment in Australian assets. And the world started to see Australia as a good investment. But you want a decent return on your investment right? So how do you increase your margin? How does the government reduce their invested amount? Let’s call that, “technical innovation”.

 

We’ve aggressively pursued international interest in developing major infrastructure to shake up our traditional, conventional and safe engineering industry to bring in international innovation with new construction technology, broader engineering experience and more competitive and collaborative procurement models. But don’t be misled into thinking this was a charitable and forward thinking move on our Government’s behalf; this is entirely borne of financial self interest.

 

And it comes with great risk. We’ve invited rapid integration of international contracting attitudes and cultures with our admittedly old fashioned contracting way of life. While we’ve spent many, many years developing a risk averse culture of safety, commercial conservatism and collaborative relationships, our international counterparts see this as economically pointless. Why do we inflate our contracts with onerous safety, environmental and quality constraints? Why do we need 5 people to do the same job as 2 overworked, underpaid (but grateful to be employed), engineers back in Spain? And why the hell is concrete $180 per cubic metre when it’s only $85 back home?

 

 It’s this clash of culture that’s rubbing a lot of people up the wrong way. It’s a teeth cutting exercise where mid sized Australian contractors who are determined to compete for major infrastructure projects look to partner with anyone with the technical and financial capacity and desire to break into the market and then spend months or years waiting to have the divorce documents drawn up. We’ve grown used to a certain way of life, and while we hoped for the best, our new international sweethearts aren’t necessarily willing to commit on the same level. It’s a clash of expectations.

 

It’s truly amazing (at least to me), that these world renowned international giants have established themselves with such lean, in-country teams. It’s an extreme way to minimise the risk in their investment in our construction industry. We’ve been involved in a number of major bid teams with international partners where the international contribution has amounted to 2 or 3 management personnel of a team of 50 to 60, flying in from Madrid to provide critique and opinion at technical and commercial reviews. RedAnt Group have been engaged by international contractors to be their part of ‘chipping in’ to the project partnership. There’s no equity in this arrangement, so who’s really winning in the long run? What benefit are we deriving as an industry in the long run?

 

For Australian Tier 2 contractors, there’s an opportunity to expose their workforce and management teams to bigger, more technically and commercially complex engineering projects. There’s an opportunity to maintain turnover in a marketplace increasingly inclined towards bundling smaller projects into mega projects.

 

For many of our home grown contractors though, it has meant ‘adapt or die’. Increased competition has driven down profitability and ensured our top performing contractors (previously comfortable with the safe, predictable industry), became largely unprofitable and are having to adapt, merge or sell off to survive.

 

For government, there’s value for money. Maybe not in the true sense of improved quality of work and better performing infrastructure with lower lifespan costs, but in the decrease in financial investment required thanks to international concessions, divested infrastructure ownership and rock bottom market prices.

 

Over time, we may see a decline in those lost in translation moments and an increase to margins and market rates as our international compatriots seek to start clawing back profit from underperforming projects suffering from the effects of these unexpected cultural clashes. But that all depends on whether we as a nation can sustain the interest of the contracting world with a steady and tempting pipeline of work.

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