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Standing Committee on Economics
31/07/2018
Impediments to business investment

GRAYSON, Mrs Nicola, Director, Policy and Government Relations, Consult Australia

CHAIR: Welcome. Although the committee does not require you to give evidence on oath, I should advise you that these hearings are legal proceedings of the parliament and therefore have the same standing as proceedings of the respective houses. The giving of false or misleading evidence is a serious matter and may be regarded as contempt of parliament. Would you like to make an opening statement before proceeding to discussion?

Mrs Grayson : I'm happy to make a short opening statement to you, just to reinforce some of the points from our submission, if I may.

CHAIR: Go ahead.

Mrs Grayson : Thank you very much for having me this morning. Consult Australia represents businesses. Our members are consultants in the built and natural environment; they're professional service providers. Essentially, our firms develop intellectual property. Their strength is in their people, through their design, through the advice that they provide in contributing to building infrastructure right down to helping mums and dads decide on how best to redevelop their home, for example. So we have the full breadth of big business and small business covered in our membership.

Many of the skills employed by our member companies are STEM based—science, technology, engineering and mathematics. As we've said in our submission, we are very concerned about the declining STEM performance through the education system, which we fear is going to continue to deepen through the ongoing skills shortages in our sector. We are doing a significant piece of work, through Consult Australia, looking at that in more depth to provide more policy recommendations around how we think we can better invest in STEM skills going forward. We have put some of those recommendations in the submission before you, but we have got more in development.

Clearly we think we need to recognise in Australia that we are underinvesting in STEM, which is obviously critical not only to our sector but also to many other sectors for the benefit of productivity in Australia and our economy in Australia. We particularly are concerned about the decline of specialist teachers in providing STEM teaching in schools, and we think that really probably is the root of the problem. Unless you've got good, engaging STEM teachers, how can we expect to produce engaged, keen people with disciplines and skills in STEM that will then come into the workplace and other areas of the economy. We really would ask that the inquiry takes that on board and will look very seriously at our recommendations around investing in STEM, because that really is obviously a major inhibitor to business investment in our sector.

Shortages in skills and capacities aren't something we're experiencing just in the private sector; we see it in the public service as well, particularly around procurement skills. We do see a diminished capacity. We have seen the very successful outsourcing of procurement skills from the public service, from the old traditional public works agencies; however, we're now at a point where reinvestment in those procurement skills is desperately needed. We are asking public servants to now manage bigger, more complex and more costly projects than ever before, and the loss of procurement skills in government is driving a change averse, risk averse culture. Change averse, risk averse: those are two things that are really the enemy of innovation, so we really need to think about reinvesting in those skills.

We are seeing, through the procurement process, that that risk averse, change averse culture is coming through strongly in the way in which the procurement process is run, and particularly the way the contracts are drawn up to engage the services of our firms. They are being heavily driven by external legal advice, rather than really thinking about scoping, what's best for a project and bringing together a team in a collaborative way that minimises disputation. Unfortunately, Australia's building and construction sector is now known as the most litigious in the world, and we see that through significantly increasing premiums for professional indemnity insurance. Professional indemnity insurance is really the key asset held by our member firms who are providers, as I say, of intellectual property and professional advisers. Without that PII coverage, they can't operate; their licence to operate falls away unless they can self-insure. So that is a major concern.

Overall, just a small note about regulation more broadly. Obviously we are concerned about the ever-increasing amount of red tape on business and its constraint of business investment. What we see is a lack of consistent application nationally. Our member firms don't see state borders; they work everywhere. And so really, if we're going to have systems and regulatory policies put in place that put up false barriers to the movement of people and skills, we are going to inhibit our ability to deliver on some of these major infrastructure projects we have ahead of us.

When I talk about barriers, I'm talking about things like licensing regimes in particular. The Building Ministers' Forum at the moment is talking about building licensing. That is a very worthy thing to consider for public safety; however, because licensing is done at a state by state level, what we worry about is the inconsistency of application and therefore the unintended consequences, which then potentially can reduce public safety rather than increase it. That is just one example of where we suffer from business constraint because of state-based regulation that is inconsistent in its application.

So those are my opening remarks. However, I will just finish by saying in our submission we really have tried to focus on some solutions for you. We've laid out some of our ambit claim, obviously, but we have provided some solutions and recommendations to those issues for you that we hope you will take into consideration. Thank you.

CHAIR: Thank you very much, Mrs Grayson, and we do very much appreciate your submission and the time that you have taken to make that submission to us. I'd like to ask you about the recent review to achieve educational excellence. Do you support the recommendations of that review? And are you aware that the government is now working with the states in the territories to implement those recommendations?

Mrs Grayson : Yes, we do have some awareness and obviously we do support any review that picks up on the points we've made about the declining STEM outputs from our education sector. However, overall, we're not convinced that as yet there is enough impetus behind that to really drive change and we want to see that happen.

CHAIR: I also just want to touch on procurement—that's obviously a major issue in your submission. Can you give some examples of where governments, state and federal, have worked well together with respect to procurement—if there are some good examples, compelling examples. More broadly, where do you see the drivers for excellence when it comes to proper procurement practices?

Mrs Grayson : To answer the first question, across Australia, across, all of the agencies within our local, state and Commonwealth governments consider themselves under a devolved system for procurement. So while every state and the Commonwealth have procurement guidelines, all of the agencies essentially work under a devolved model, so there is no consistency at all around the ways in which our members will be able to tender for work and will be contracted with. This is one of the major problems. There is no Australia wide standard to even engage our member firms despite the fact that we did go through a Standards Australia process to negotiate a standard form contract for the engagement of consultants, which we thought was well worth investing in. We had government around the table, we had the private sector contractors round the table and ourselves. We had a very healthy and robust negotiation. That Australian Standard was published. It is: AS 4122-2010. I'm sad to say that while it has had some take up, it is so broadly amended that it barely resembles the Australian Standard of which it bears that name.

You might have had a contract with an agency last week and been given a contract which is 23 pages long. And then the next week you could be contracting with them again and you could have a contract that is 150 pages long, yet the risk profile in that project is no different from the former, and, indeed, often the fee is no different from the former. So the lack of consistency is quite staggering and we consistently push this message for greater standardisation, which we have some sympathy at a policy level for, but, at an agency level, we haven't had that behavioural change yet to accept that actually standardisation is an excellent way of saving taxpayer cost. There is a win in it for government, not just for industry.

CHAIR: I just want to refer you to your submission on page 13 where you say:

Poor and costly procurement practices directly inhibit business investment. With approximately $43 billion invested in public infrastructure annually, improving the procurement practices of Australia's various jurisdictions can add $5.1 billion to the nation’s Gross Domestic Product (GDP) over a fifteen-year period.

So this is obviously, for you and for the nation, a significant issue.

Mrs Grayson : Yes, absolutely right. I think I referred to it in the report: Deloitte Access Economics did a report for us called Economic benefits of better procurement practice. We think the statistics and the data show that the potential cost saving to government is well worth doing. We can get better. We can do this better and we can do it more efficiently. I think, time and time again, we see projects fall over budget and run over time, and a lot of that is to do with the way in which the contract was set up at the very beginning. It wasn't set up in a collaborative way. It was set up very much as a sort of master-servant arrangement, which is not conducive to the parties working well together and innovation. It often leads to disputation, which is why we unfortunately have that reputation of being very litigious in our building and construction sector in Australia and we've got to get better at that.

Mr THISTLETHWAITE: The statistic on page 7 of your submission about the number of STEM graduates in China is incredible. Do you know what the Australian numbers are?

Mrs Grayson : I haven't got them with me, but I can certainly give them to you. They will obviously be lower than the US.

Mr THISTLETHWAITE: Why is it in your view that we aren't getting enough people interested in STEM and taking on STEM courses at university?

Mrs Grayson : There's no silver bullet answer here. I think it comes across a range of issues. We have a cultural problem, particularly in engineering. Engineering is still seen very much as a male-dominated field to go into. One of the things that we think about at Consult Australia is: how can we change the public dialogue around engineering, maths and those studies as being something that girls can do, enjoy and have a really successful career in? It's not just something for boys. We've got to look at the language that we use in schools, the language that we use at home, to think about encouraging girls and boys into the study of STEM. Obviously, there's a big disparity between males and females coming into our industry. We've got some real cultural issues there.

Again, as we've identified, we are underinvesting in our teaching sector and we need to value our teachers much more strongly than we do. They do a massive service in our society, and we still undervalue their contribution. The teaching of maths, science and engineering is so fundamental to what we all rely on and we know that those fields are going to become more and more prevalent and important in our economy going forward. We would argue the investment in teaching is going to be well worth the productivity outcome.

Why do we have these barriers? We know that everybody's talking about it. We know that state governments are looking at it. We know the Commonwealth is looking at it, but why aren't we cutting through? Why aren't we seeing the results through the programs? One of the things we're identifying is that we're not very good at post-project evaluation. So, while all these programs might be going on, how are we actually measuring their success and ensuring that we're backing the right ones so we are actually getting a better uptake rather than just throwing money at the problem and then hoping that some of that sticks and some of those children will then go through the process and ultimately take up a career in STEM? I think we need to get a lot better at that evaluation piece.

Mr THISTLETHWAITE: The other frightening statistic in your submission on the same page is:

About 30% of year 7 to 10 teachers in information technology have no real qualification in the field.

Do you think that we need to actively push people into this area of the teaching profession through incentives like scholarships and writing off HECS debts perhaps so that there's an incentive for people who might be on the margin of thinking about a career in that field but might say, 'Oh well, I can earn more money working in law or medicine where I know I'll be able to get into that course?'

Mrs Grayson : Yes, absolutely. I think the time has come for us to incentivise people thinking about coming into teaching and then pursuing that STEM discipline of teaching. Clearly it is very difficult for the education sector to compete with the private sector in attracting the best and brightest to come in and teach. There's that old adage, isn't there: those that can do and those that can't teach. We've got to get rid of that. It's just the worst saying that the teaching profession carries around its neck, and we've really got to change our attitude towards the teaching profession and recognise them for the highly qualified people that they are and the care and love they have for our students. So we think that investment is absolutely critical. We do need to be incentivising more teachers into STEM. There's no doubt about it.

Mr THISTLETHWAITE: Thanks. Finally, with the recommendations that you make on page 23 regarding the R&D tax incentive and a proposal to target it to reward outcome rather than process, I'm not clear on what you're envisaging there. Is that proposing that the tax incentive would only be available for R&D projects that ultimately end up being successful?

Mrs Grayson : The problem in our sector with the R&D incentive is that we have two issues. One is that R&D is often seen as business as usual, because in our world we don't get to build a prototype. You can't engineer a building and build a life-size model as a prototype. Once you're in the project, you're in the project. That's it. There's no prototype opportunity. So, unfortunately, the way in which the policy has been drawn makes it very difficult for our members to get recognition for the R&D that is put into these projects. So where we're coming from on that is that it shouldn't just be about the process—that is, what goes on in a laboratory to test the R&D in that environment, because we don't have that laboratory equivalent. So what we're saying for our sector is that we think a better way of measuring would be to look at the outcome. Was the outcome innovative or new in some way? If the answer is yes, surely that should attract some form of recognition.

Mr THISTLETHWAITE: Thanks.

Mr EVANS: Most of my questions, I think, have been answered, but I just want to come back to the issue that was discussed a little bit before around having enough STEM teachers. That has been very topical in recent weeks. I think I saw the federal minister announce a STEM scheme to ensure that more STEM teachers are available in all high schools, and I think we also flagged or signalled that the government might further intervene to ensure that, through the universities, enough places are offered and then ultimately taken up and filled for those STEM teaching places that we want to see. So I just thought I'd bounce those recent outcomes off you and see whether you thought that was in the right direction and whether you thought intervening in terms of the undergraduate university places is a good thing for the government to consider.

Mrs Grayson : Yes, I think this does need to be tackled at all levels. One of our concerns is that many of the programs are targeted at secondary or tertiary level but in fact, if you haven't built the foundation skills in primary, those children are never going to take up the level of maths at secondary that's going to help them to get into an engineering degree at tertiary level. So what we are concerned about is that sometimes these measures come in at a very targeted point. On the face of it you might say it's good to see that there's a program happening, but we're concerned that that's somewhat piecemeal. We need to look at the whole education flow through, not just segment it and say, 'Well this is what we need to do at tertiary and this is what we need to do at secondary.' We need to look at an all-through process for these children, getting that earliest spark of interest in science and maths and then seeing that grow as they move through the education system into tertiary. So that's really what we're looking for: a more holistic approach.

Mr EVANS: Understood. Thank you.

Ms KEARNEY: Thank you for your submission. I'm interested in the issues around procurement and the linkage with the other issue you raised, around the need for professional indemnity insurance. I've been on a superannuation board and I know the level of ability and skill that is needed to go through a tender process for massive infrastructure projects. It is extraordinary, the effort and the teamwork and the skill that are needed. If indeed our Public Service did reinvest in that level of skill in the procurement process, would there be less litigation, if we got those contracts right in the beginning?

Mrs Grayson : We would certainly hope so. That is the end game, because, at the end of the day, no project benefits through a disputation amongst the parties delivering that project. Not only does it sour the relationship between the parties but it potentially sours and compromises the outcome of the project itself. So getting those procurement skills right at the beginning and having that ability for the person in charge of the procurement to make some sensible decisions, to say, 'Actually we don't need to tick the box here; this company is offering us something really interesting and really different, and we can get behind that and we think we can drive a great process and work together.' What we're asking for is that collaboration, that freedom, that ability. But that freedom and that ability only come with people who are confident and knowledgeable in their procurement skills.

The problem is that, without that at the moment, what we are finding is very much that 'tick box' approach in the procurement process. Even if you're trying to say: 'You've got a contract term in here where, on the one hand, you're asking for us to have professional indemnity insurance cover, but you've got a warranty clause in here that extends our liability far beyond that which we would be responsible for at common law. Therefore our professional indemnity policy will not respond. Surely that is not in your interest to ask us then to give you that warranty.' The answer can be: 'If you want to make that change then this is a non-conforming tender, and you're out of the process. Take it or leave it.' We think that's a very poor attitude. Again, we think if we had stronger procurement skills probably that contract clause wouldn't even be in there.

Ms KEARNEY: On the STEM issue, two things: anecdotally—and I'm wondering if there is a cyclical problem here—we are told that students graduating from university in STEM subjects are actually finding it hard to get work, which is interesting. Perhaps they don't want to go into teaching, which is the first part of the cycle that we need. I don't know. Perhaps we're not encouraging the growth of the new engineering businesses or STEM businesses that you represent. What's your feeling on the ground? This is what I'm getting told by universities—that their graduates are simply not getting employed. Have you had a sense of that?

Mrs Grayson : We produce a skills survey every year. We touch base with our member firms to find out where they are finding capacity constraints. Interestingly enough, the biggest constraint that they find is in that mid-tier, senior level engineer. That's where the biggest skill gap is. There are certainly graduates out there that they can recruit. However, that has been a diminishing pool, and we are concerned about it continuing to diminish. Imagine you've already got the gap at your senior level. You're able to recruit a certain level of graduates; however, if that pool diminishes, you will then get a smaller number again coming through into that mid-tier, senior level as they progress through their career. So we're worried that this pool is going to be ever shrinking. And at a time when we've got enormous infrastructure projects to deliver, we really need to make sure that we've got a strong pipeline of skills coming through the system. Otherwise, we have to rely on the short-term fix of immigration, temporary skills visas to bring skills in from overseas.

Ms KEARNEY: So there really needs to be an investment in graduate programs. It's a policy area that we potentially look at.

Mrs Grayson : Exactly. I think that's right. Our firms are very keen. They will go into universities. They will participate in those careers fairs and try and attract them in. Engineering skills, particularly, are highly sought after not only by engineering firms but also by broader consultancy firms. They are seen as highly desirable skills to have. We're in a very competitive market for these skills as well. So I think the risk of having lots of underemployed or unemployed engineers is probably fairly low. However, one of the issues we didn't raise in our submission is that we feel we need to make sure industry isn't continually falling victim to the cyclical nature of the boom and bust we've been in.

We've had a mining boom and an enormous number of mining engineers employed. Then that mining boom fell away. Our skills survey reflected that directly. Even in the number of participant firms responding, the numbers dropped significantly because firms found, 'We're not so concerned about skills shortages right now because we've just come out of a boom period.' Now you can see that cycle changing again. It's upticking. We're getting more people reporting a shortage, but this time it's around—unsurprisingly—traffic, transport, rail engineering, which is reflective of the work. But what we're saying to governments around the country is that we need to smooth out the pipeline of work.

We can't continue in this boom-and-bust cycle. It makes it harder for us to attract graduates into our sector if they're concerned about the longevity of their careers. If we had a smoother pipeline rolling out infrastructure projects, into the future, then we could give more assurance to graduates that they have long-term prospects in our sector.

Ms KEARNEY: That's a whole new conversation there.

Mrs Grayson : Yes. I didn't put that in the submission, because it's a whole other area. But it's pertinent.

CHAIR: Thank you very much for your submission and attendance today, Mrs Grayson. If you've been asked to provide additional material, could you please forward it to the secretariat. You'll be sent a copy of the transcript of your evidence, to which you can make corrections of grammar and fact.