Q&A
What is a Tier One contractor?
Tier One contractors are defined by Infrastructure Australia as large contractors capable of delivering mega-projects over $1 billion without partnering.
Are any members of Australian Owned Contractors considered to be Tier Ones?
No, all Australian Owned Contractors members are mid-tier contractors. Infrastructure Australia defines mid-tier contractors as medium-sized construction firms that undertake projects up to around $500 million, before requiring support of a joint venture partner. AOC members are:
· Majority Australian owned and controlled – at least 51% owned by Australian shareholders;
· Have revenue in excess of $250 million;
· Companies that have participated in Federal and State Government funded infrastructure.
Does it matter if our infrastructure is not built by Australian companies?
Yes. Unless the current market distortion is rectified with some form of Government-mandated involvement of Australian owned contractors, these are the likely consequences
· Profits, expertise, knowledge and IP flows overseas.
· Local contractors cannot build capability and grow to support the Australian economy.
· Concentration risk – foreign multinationals have a disproportionate share of major public infrastructure projects.
· These foreign companies are now joint venturing with other foreign companies – reducing competition even further.
· Not good for competition and the Australian taxpayer.
Won’t it cost more if Governments require the use of Australian owned contractors on major projects?
No. Australian owned contractors have been involved in several head contracts on large infrastructure projects across Australia in the past which were delivered on time and on budget.
AOC members are advocating for public infrastructure projects to be broken up into smaller packages which allow our members to bid for them.
However, when projects cannot be broken up and become major public infrastructure projects, AOC members still want to be involved in the delivery of these projects. State Governments should include an “industry sustainability” criteria as part of the procurement process for all major public infrastructure projects. The “industry sustainability” criteria would encourage the participation of mid-tier contractors in head contracts.
Commonwealth Government funding for major public infrastructure should be conditional on the States including an “industry sustainability” criteria as part of the procurement process. This would increase competitive tension on infrastructure bids, with Tier Ones having to partner with mid-tier contractors during procurement processes, rather than partnering up themselves.
It will eliminate instances of Tier One companies joint venturing and providing governments with one bid on major infrastructure projects.
Wouldn’t breaking up projects or requiring mid-tier contractors to participate in head contracts breach free-trade agreements and World Trade Organisation rules?
No. Foreign-owned Tier Ones would still be able to bid on projects and will still deliver the majority of major infrastructure projects in Australia.
Can local contractors deliver these larger infrastructure projects?
Yes, local contractors can joint venture with Tier Ones to deliver major infrastructure projects. Australian owned contractors have been involved in several head contracts on large infrastructure projects across Australia in the past which were delivered on time and on budget.
Many Tier Ones have utilised local contractors in the past as a source for trained and qualified staff on major infrastructure projects. Local involvement allowed these Tier Ones to build capacity and achieve social outcomes (e.g. indigenous training & development) to win major Government-funded infrastructure projects.
Why should governments provide a competitive advantage to some companies over others?
Governments need to intervene to rectify the “crowding out” impact of the large players dominating the infrastructure market to the point where Australia now faces a contracting oligopoly that is undesirable in any market.
Government intervention will provide Australian owned contractors more opportunities to play a role in the delivery of major public infrastructure projects across Australia – injecting much needed competition and diversity into the infrastructure market.
Can governments mandate the involvement of local companies in infrastructure projects?
AOC members want governments across Australia to encourage Tier One companies - through the procurement process with an “industry sustainability” criteria - to joint venture with Australian mid-tier contractors on major public infrastructure projects, but it would not be mandated.
Why do local companies have to be in the head contract? Can’t they just sub-contract to the Tier Ones?
Our members are substantial Australian owned mid-tier contractors seeking to deliver infrastructure as part of the head contract. Sub-contracting on these projects is usually not a viable option for our members, mainly due to the apportionment of risk.