ACTING CHAIR (Senator Buckland) —Welcome. Would you like to make an opening statement?

Evidence was taken from Mr Williams via teleconference—

Mr Williams —I would like to begin quickly with a profile of the federation so you know who we are. The Civil Contractors Federation is the peak industry body for the civil construction sector. It is a national organisation with branches in each state and territory and a membership in excess of 1,700 civil construction companies and key suppliers to the sector. The character of that membership is civil construction companies ranging from small and medium sized businesses to large civil construction companies, but they also work in excavation and demolition.

I should remark, because it is not always apparent, that civil construction is a distinctly different industry from both the commercial building sector and the residential sector. Civil contractors employ staff with specific civil competencies and use sector-specific heavy earth-moving equipment—if you like, those big yellow machines on wheels and tracks. What do we construct? It is primarily roads, railways, tunnels, bridges, dams and other major infrastructure projects as well as residential and commercial subdivisions, including the roadways within those subdivisions. A key element of our work activity relates to maintenance and repair of this infrastructure as well.

From a numeric point of view, the industry accounts for around $9 billion of work annually. It collectively employs around 50,000 people and owns some 40,000 items of heavy equipment. Practically, civil contractors are generally the first onto a building or an infrastructure site but tend to be at the end of the supply chain of clients, principals, head contractors, project managers, specialist contractors and so on. In reality this means that, in terms of a business environment, as commercial and project risks arise they tend to be passed along the supply chain until disproportionately large risks often end up in the hands of civil contractors. That is a profile of the federation and the sector.

I would now like, with your indulgence, to comment quickly on AusLink by way of opening remarks. The federation’s view is in part the obvious one that the nation’s road transport infrastructure is central to community wellbeing, business efficiency and environmental outcomes. Future generations of Australians will expect that transport networks not be allowed to fall behind and, to this end, the federation views AusLink as a commendable step in the right direction in ensuring a tangible benefit for all Australians.

The major positives of the proposed legislation for the federation are, firstly, an integrated approach to identifying and addressing national prime land transport bottlenecks covering road, rail and ports; secondly, five-year funding commitments; and, thirdly, specific projects being identified, prioritised and funded. There is, to be balanced, some remaining work to be done. Key areas there relate to, firstly, a general absence of a cogent response to repair, maintenance and remediation tasks facing the local road network; secondly, undue reliance on private funding of major projects to leverage infrastructure funding capability compared with, for example, public borrowings matched to long-life asset creation; and, thirdly, absence at least for the moment of an agreed, transparent, commercially based project assessment and prioritisation methodology. Let me expand quickly on that. While the AusLink initiatives are comprehensive and, as I said, commendable, a key consequence for civil contractors is that until these infrastructure planning issues are addressed there will not be a reliable basis to manage and fund forward business planning and associated commercial risks in relation to labour hire and acquisition of plant, equipment and supplies to undertake construction phases. Relatedly I should remark that, while there are presently no material capacity constraints, there is not the same basis to be sanguine about skills availability over the next five years as, for example, baby boomer plant operators begin to retire in significant numbers. That is why it is important that planning lead times be as predictable and transparent as possible.

The federation does have some concerns that the identification and prioritisation of projects lack transparency or a clear methodology at the moment, although we do acknowledge that the development of a cost-benefit based approach is promised. Such a methodology needs to be completed quickly. I would remark that the degree to which funding decisions are discretionary in the hands of the minister is necessary to some degree but not preferred.

While the headline expenditure commitment under the AusLink program is impressive, against the overall community need it is a beginning and spread over five years the new money component could be larger. This also takes into account that much of the funding appears to be loaded in the latter part of the five-year period. Additionally, funding should at least be maintained at current levels in real terms, and real terms determined and measured against construction cost inflation. Should any financial efficiencies be achieved in the roll-out of the AusLink programs, they should be retained for infrastructure purposes and not paid into general revenue. Most projects depend on matching contributions from state-territory governments where the financial capability and political preparedness to make the required commitments is unclear and may be problematic. The answer to that I guess is in the bilateral agreements the federal government is framing with state governments, but to the private sector that is not as clear as it could be to underwrite planning arrangements.

As many analysts have identified in public spheres, long-life assets funding through public borrowing is a valid approach. To not do so relinquishes considerable leverage to address road funding blockages and shifts a significant burden onto private borrowing, particularly for major projects through PPP arrangements.

Overall, we would remark that the federal government has quite properly moved to focus funding on national land transport corridors, yet the inherent competitive advantage of road transport at least is the capacity to move passengers and freight from a multiplicity of origins to destinations with great flexibility. The proposed legislation does not fully address new road funding, maintenance and remediation in the urban and regional catchment areas at either end of national corridors.

In this regard, there needs to be a nationally consistent asset management strategy that underpins maintenance planning and funding and all levels of government should have incentives to implement such an approach. Further, the presently announced projects appear somewhat eastern seaboard centric, at least at this stage, and could offer more for business and communities in the smaller states and territories. While considerable dialogue has clearly occurred with state and territory governments there has been little engagement with the private sector. CCF supports the establishment of a national council involving stakeholder representation and as the only group representing road constructors the federation wishes to be actively involved, including in identifying longer term sustainable solutions.

Very quickly on related matters, the development and adoption of standardised general conditions of contracts and specifications should be incorporated in the scheme and the prequalification of contractors based on quality management systems similarly. There should be enhanced and standardised tendering and contract management practices; a standardised national approach to security of payments, including protection of subcontractors from being penalised as a consequence of a head contractor going into liquidation; and skills development. These are all matters that directly affect the bang for the buck of the funds that are available under the AusLink program.

As a final observation, a potential additional funding source would be to ascribe a proportion of GST on fuel—that might be, by way of example, GST raised on fuel prices over 95c a litre—to roads infrastructure funding, with that funding especially focused on road asset management. They are my opening remarks. I thank you for your patience.

ACTING CHAIR —Mr Webb, did you want to add anything to that?

Mr Webb —We are not from the same organisation.

ACTING CHAIR —I beg your pardon; I have just been made aware of that. What group are you from?

Mr Webb —I am from the Australian Road Forum.

ACTING CHAIR —I see. And we have the Civil Contractors Federation. I apologise.

Senator O’BRIEN —They are grouped together.

ACTING CHAIR —I see that. Mr Webb, would you like to make an opening statement?

Mr Webb —Yes. Thank you for inviting the Australian Road Forum to make a submission to the committee. The forum was previously known as the Australian Road Federation. It has represented road transport stakeholders since 1952. Last year an industry task force was formed to look at developing a national peak body for road transport stakeholders and last month the constitution of the Australian Road Federation was amended accordingly. The fundamental objectives were retained but structural changes were made to enable the ARF, as it is known, to service the new national peak body for road transport stakeholders. The Road Forum was then launched by the federal minister for roads on 22 March as the new peak body for stakeholders for the road transport sector in Australia. The ARF also represents the International Road Federation in Australia. The current president of the ARF, who is unable to be with us today, Mr Ray Fisher, serves on the world executive board of the IRF.

Although Australia’s road transport system is of critical national importance, as this committee is well aware, no forum has existed until now to bring all stakeholders together. As I have been sitting listening to the evidence given this morning—and no doubt we will talk about it later—one thing has been made clear: if an advisory committee of stakeholders were to be formed, such as a council, then by crikey it would be a very big one because of the number of stakeholders that are involved in road transport.

At the present time, those stakeholders never meet together. When they speak to government, they all speak from different silos. It is not surprising that it is very difficult to get a consolidated view. That seriously affects policy coordination for the industry and it has a big impact on the way governments, both state and federal, are able to derive their policy, because they have no single industry to talk to. The ARF’s key role is to enable stakeholders to engage in policy exchange at peak industry level. The distinguishing feature of the forum is the way we will do that: we will regularly bring stakeholders with an interest in roads—that includes corporations, associations, research bodies and, I might add, public sector bodies—together to meet every six months in one tent, so to speak. This is about to start.

The main delivery vehicle will be the national council, which currently consists of 31 of Australia’s leading industry associations, companies and government agencies. Beginning in August, the council will meet as a forum every six months to review the state of the nation as to road transport. That will obviously keep members uniquely informed and bring leaders together in one room regularly. The ARF does not pursue sectional or political issues in relation to specific sectors or stakeholder groups, nor does it duplicate the activities of other industry associations which represent specific sections of the industry. For example, my colleague in Melbourne is with the CCF. The Victorian division of the CCF is in fact affiliated with the ARF and is one of our members, as are a number of the other people making presentations to this committee. Instead the ARF represents the ultimate interests which our members have in common. Those interests embrace the most fundamental issues affecting road transport, such as planning, road funding and industry consultation. So it is not surprising we take a great deal of interest in what AusLink is doing.

The AusLink legislation takes important steps in relation to our interests in ways which have never been seen before in Commonwealth transport legislation. By the same token, we believe that AusLink should be viewed as a vital first step in a process of policy evolution. In particular, we would like to see the following as committee recommendations for future policy development. First, a national management regime which achieves a unified effort and purpose between governments at federal, state and local levels. That is a small sentence but a big vision. We have a long way to go. Second, infrastructure funding based on a bipartisan assessment of national needs with long-term planning and financial commitment which transcend year-to-year budget cycles. AusLink makes a start, but again we have such a long way to go. Third, a transparent system of national road accounts which aggregate the road infrastructure expenditure at all levels of government.

Fourth, within the network the Commonwealth should continue to assume responsibility for national roads until an agreed and coordinated regime can be established. We would like to see increased attention given to the maintenance backlog of the existing network. We would like to see a sustained, significant and bipartisan commitment to research and road safety. Research in particular is one of the most commendable aspects of the AusLink legislation, which has clearly been recognised; it is reflected in our submission. We would like to see programs which support the industry’s future work force needs. My colleague from the CCF has just alluded to those. We would like to see improved mechanisms for industry consultation, and no doubt the committee will be asking questions on that. It will be noted that, in line with the ARF’s objectives, this submission focuses on where to from here, rather than on issues on which the industry may have differing opinions.

This is the first submission of the Australian Road Forum. It comes barely a week after its launch. During the last year great progress has been made in achieving consensus towards a peak body and in recognising that our most important role is to put the national interest ahead of the interests of specific industry members—and the ARF sits before you today with that in mind. We would like to take this opportunity to thank DOTARS for their support and encouragement in developing the peak body initiative and assisting the task force. The ARF has also received significant support and encouragement from the Commonwealth government and opposition. The then shadow minister for transport, Mr Martin Ferguson, addressed the ARF at the summit which gave rise to the project in 2004 and his subsequent support was very important to the ARF. Both Ministers Campbell and Lloyd have supported the forum through their active participation in the ARF’s activities. The ARF would like to record its particular appreciation of Minister Lloyd, who launched the ARF as the national peak body for road transport stakeholders on 22 March. The ARF thanks the committee for the opportunity to present this submission. It would welcome the opportunity to speak at any time with committee members about industry issues.

ACTING CHAIR —As we have no further bodies in this group, we will go to questions.

Senator O’BRIEN —I will ask a question first of Mr Williams. Can you outline for the committee the work force skills shortages that are emerging in the area you deal with. Do you propose solutions under the AusLink legislation for that?

Mr Williams —Firstly, the key areas of risk in terms of skills shortages in construction relate to plant operators. These operators around Australia are typically at or near 50 years of age, give or take a year or two on either side of that. They are relatively well paid and therefore we would expect that when they reach retirement age, they will wish to retire and will be in a financial position to do so. At the same time, the attractiveness of the construction sector in general, including civil construction, for school leavers is not good. Therefore, entrance into the pipeline, we believe, is unacceptably low compared with forward projections of requirements.

Senator O’BRIEN —Is there a solution you have in mind? Does it have any bearing to the AusLink legislation?

Mr Williams —There is no single silver bullet solution. All government programs should be mindful of what is being done to ensure that the skills are available as the projects are planned. So, in relation to the AusLink legislation, we would be looking for the links to other parts of federal and state government activities in the vocational education and training sector so that the timing of skills acquisition, of putting students through programs, has a relationship to the ebb and flow of project timing.

Senator O’BRIEN —Mr Webb, you have given some considerable thought in your submission to the need for better intergovernmental cooperation on infrastructure planning. How do you envisage this working in practice?

Mr Webb —Perhaps before I address that, I might give you an illustration of the need at one simple level, and I will use New South Wales roads as an example. If we look at New South Wales roads and their profile, we see that there are 3,000 kilometres of federal roads, and they are obviously currently funded by the federal government. There are 14,600 kilometres of New South Wales roads, funded principally by New South Wales taxpayers. There are 18,400 kilometres of local and state roads, jointly funded by local and state bodies, and there are 141,000 kilometres of local roads. Why do I burden you with that? Because each of those groups of roads is funded by different mixes of taxpayers and government agencies at three different levels of government. Those three levels of government never sit down together effectively to work out the priorities in terms of sharing. They are unable to do that. In fact, they put conditions on the other levels of government accepting their planning regimes. AusLink is a first step towards establishing some better form of cooperation.

Now to come to the answer to your question: the real objectives of AusLink will not be realised until federal, state and local governments recognise that our national road system is an integrated thing. The roads we are talking about involve interfaces and interconnections and they must be nationally managed as part of a long-term regime that involves long-term funding commitments, that is based on their relative priorities, not those of the taxpayers who happen to pay for bits of them, and that seriously involve the various levels of government getting together and recognising that this is a national priority. So the answer to the question begins, I guess, with convincing our political masters and leaders that this is a priority which they all have a national responsibility to recognise.

Senator O’BRIEN —That partly answers the question. What you are suggesting, I think, is that there needs to be a consensus across all levels of government as to the need for this national approach and, at the very least, coordination and in some areas a ceding of responsibility for this work.

Mr Webb —That is right. That will begin, obviously, with goodwill. It begins with a degree of goodwill which, unfortunately, is not necessarily always evident in Commonwealth-state relations and negotiations over our road system. Once that goodwill is there, it will begin to manifest itself in planning, which involves a true national set of accounts—the aggregation of our national road accounts so that we can see what they truly are—and appropriate apportionment of priorities based on cooperation. I believe, and the ARF believes, that underpinning the AusLink legislation is a genuine sense of goodwill on behalf of the people who have drafted and prepared that legislation and who have given evidence from DOTARS on it. We believe that that goodwill is demonstrable in the legislation, and it is for that reason that we applaud it. But we believe that it is a first step and we have a long way to go.

Senator O’BRIEN —Your submission says that Australian infrastructure, including our road network, faces a crisis. Do you think that the AusLink legislation is an adequate response to that crisis?

Mr Webb —It would be impossible in one piece of legislation drafted at one level of government to respond fully to the crisis. The addressing of the crisis will require a national response at all levels of government. I am not going to point the finger at one particular level, the national level. We need to recognise from the figures I put on the table a minute ago that the nationally funded road programs represent only one section, one slice, of the infrastructure that is in crisis. To put it in some kind of dimension, our national road infrastructure has been roughly valued at $135 billion to $145 billion if we had a set of national accounts. Many of those roads were constructed during our boom years after the war, particularly in the sixties. The chickens are coming home to roost on all of them at more or less the same time. The issue is not one simply of cutting more ribbons and building new roads that we would like to go frontiering on, although that would be very nice and very desirable in some areas. The real avalanche lies in the $135 billion worth of existing roads and the maintenance backlog that is building up on them at all levels—not simply the roads that are to be funded by AusLink through our national programs but local roads, bridges in rural areas and rural congestion. These are areas that cannot be ignored, even in AusLink, if we are to take a national view.

Senator ALLISON —Mr Webb, did you attend any of the AusLink briefing sessions?

Mr Webb —Yes.

Senator ALLISON —We heard from another submission that the references to the GST and state responsibility in the AusLink briefings were read as a code for major conflict rather than a cooperative approach. Would you agree with that?

Mr Webb —I would not really want to comment on that.

Senator ALLISON —But you have made the point that there needs to be a highly cooperative relationship between all three levels of government.

Mr Webb —That is right. That question, in a sense, is illustrative of the same point. Just as there are aspects of AusLink that could be criticised at a state level—all states have had issues with AusLink and some have been highly critical—there are, I suspect, also aspects going the other way that could equally cause offence. The GST issue may be one of them. I do not want to go down that path. I simply want to say that that kind of issue merely illustrates the validity of the point that I am trying to put on the table.

Senator ALLISON —Would you argue that there should be a ministerial council on AusLink or transport generally? I do not think the Constitution allows us to include local government in such a forum, but would that be your recommendation?

Mr Webb —The Constitution, as I understand it, does not allow the federal government to legislate on a whole lot of areas, so we are looking for much more effective intergovernmental cooperation on roads. That will obviously begin with goodwill on all sides. In terms of ministerial cooperation through various ministerial councils, obviously we would like to see that. Obviously, we would also like to see more effective consultation between governments and industry stakeholders. In part, that has not been possible simply because of the number of stakeholders that are on the job, if you like, and the fact that there is no effective means of ever bringing them together. In that sense—and we have mentioned this in the submission—AusLink is virtually on a hiding to nothing. You put up an issue such as AusLink and then you wait for the scores of stakeholders, all of whom have an axe to grind to come in and chop bits off it. It is completely unrealistic. We believe, as I said earlier, that the fundamental goodwill that underpins AusLink is evident to anyone who reads it. But I could sit here today and come out, as other stakeholders have, with a whole list of issues to quibble about. That is not the point of why I am sitting here today. The dimension that brings me here today is looking at issues in the whole or in the broad. I think that is very important.

Senator ALLISON —What is your response to the suggestion made this morning by our first witness that the state should take over the management of national roads and the Commonwealth should be responsible for funding all roads?

Mr Webb —Again, I have not got a specific answer to that, except to say—to use a bad pun—the road to success in this area begins with better defining those responsibilities. That definition of responsibilities is better done under a system of cooperation and goodwill than under a system of looking at that definition from a negative perspective. It really depends on where you come from. Ultimately, an organisation like ARF does not really mind who funds what bits; what we do mind is whether or not the thing is properly planned and planned with the national interest firmly and clearly in mind. Although the players, I have to say, all purport to represent the national interest, one wonders at some levels—I will not single out individual levels of government—whether those interests are always really national or whether they are sectional. We do need to have a national road system. Our national road network—the one that is funded principally by AusLink—is, in fact, only one level of our national road system. The other levels are equally important, and we need a national system to manage all of those roads.

Senator ALLISON —You refer in your submission to the maintenance backlog as being a significant challenge that needs to be addressed. Do you have any data you could provide the committee with about the amount of work that needs to be done and the likely cost of maintenance?

Mr Webb —No, I do not, other than to simply quote or refer to the committee some of the other material that has been mentioned and which is frequently appearing in the press. You would have noticed, for example, things such as the BCA’s comment, based on an assessment from the Boston Consulting Group, that we have something in the order of a $50 billion infrastructure shortfall overall. Figures released by the Allen Consulting Group to the Commonwealth Bank, for example, suggest, by comparing our GDP since 1984, that we have had a real decline in the ratio between infrastructure spending and GDP over that period. The figures on that are very compelling because Australia’s GDP has grown dramatically since that time and the ratio is moving dramatically in the other direction. The ARF itself is not a research body. It merely picks up the research and the facts that have been tabled by others, that are now freely available and that appear in the press virtually on a daily basis.

CHAIR —Mr Williams, do you want to add anything to that? I heard a bit of a mumble down the line a minute ago.

Mr Williams —I apologise for that. We were struggling at our end to hear the last member who was questioning. We could not hear what the questions were or who it was. My mumbling—forgive me—was my speaking out loud to myself about who it was and what the questions were.

CHAIR —I apologise for that. Senator Allison was the questioner, and she will have to speak more clearly. I would be the best mumbler in the committee.

Senator ALLISON —That is for sure!

Mr Williams —I would like to remark on the question of the intergovernmental arrangements and the focus on optimising the effectiveness of the road assets that we currently have. We concur that this is a principal area of scrutiny and interest because it relates to the overall efficiency of the transport network, particularly the road transport network, and to how you can get very effective returns for dollars spent on repairs, maintenance and remediation. These roads are typically 60- to 100-year assets, but if they are mismanaged they can become 20- or 30-year assets. So these are the sorts of magnitudes involved in getting a good bang for the taxpayers’ buck by ensuring that the integrity of the road transport system is optimised.

I would also like to remark very quickly that the inherent competitive advantage of roads compared with other transport modes such as air and rail is the ability not just to get goods and people from one point to another but to get goods and people from a multiplicity of points to a multiplicity of destinations. Central to that competitiveness is the performance of the local road networks. This, of course, is a key element, a driver, for the commercial performance of the business sector overall. It is a key business input generally, so that is why it is of prime significance.

CHAIR —Thank you very much. I am going to have to impose some discipline on the committee now, because we are running into someone else’s time. Senator Allison, are you all right with that?

Senator ALLISON —I was going to ask for an expansion on remarks about research and development—

CHAIR —Is it burning a hole your heart?

Senator ALLISON —but, if we are out of time, we are out of time.

CHAIR —Thank you. I thank the witnesses for their attendance and their contributions.

Mr Williams —Forgive me—if you will allow me I would like to make one very brief comment in closing. I am not sure I have been clear that the Civil Contractors Federation represents constructors, who are the only group that actually constructs roads. I am not talking about principal project managers or project finance syndicators such as the household names John Holland, Thiess and so on. We are actually the constructors. We employ the people, we own the construction equipment and we have the proprietary knowledge. That is why we stand ready and willing and expect to be a part of a national consultative council.

CHAIR —No worries. Thank you very much indeed.

[11.39 a.m.]