The Issue

97 per cent of Australia’s largest public infrastructure projects are delivered by Tier One contractors.
Nearly 80 per cent of this work is delivered by foreign owned multinationals.
Australian owned mid-tier companies deliver less than three per cent.
Australian owned mid-tier contractors have the physical and technical capacity to play a significant role in building public infrastructure but are being locked out of the market.
Governments across Australia need to look at ways to increase competition and support the growth, capability and sustainability of the local mid-tier construction sector.

Profits, expertise, knowledge and IP flows overseas.
Local mid-tier contractors cannot build capability and grow to support the Australian economy.
Concentration risk – Tier One companies (foreign multinationals) have a disproportionate share of major infrastructure projects.
These Tier One companies are now joint venturing with other Tier One businesses – reducing competition even further.
Not good for competition and the Australian taxpayer.
No growth path for Australian owned mid-tier contractors.

Most AOC members can comfortably bid jobs between $100m-$200m – separately or in a joint venture.
Our members are currently locked out of major infrastructure projects because they do not have the balance sheet or the ability to take on the risk associated with these projects by themselves.
To be able to participate in these projects – and to build local industry capability – Australian Owned Contractors members need to joint venture with Tier One companies by taking a strategic stake in these projects – anywhere from 10 per cent to 30 per cent.
Tier One businesses will not voluntarily enter joint ventures with mid-tier contractors because they can do the jobs by themselves or joint venture with another Tier One company.
Tier One businesses do not support building local industry capability or sustainability because they do not want to create more competition in a market which they currently totally dominate.
The only way to get mid-tier contractors to play a role in delivering the country’s major public infrastructure is for governments to encourage the participation of mid-tier contractors in the head contract of major public infrastructure projects.

Australian Owned Contractors members support the breaking up of public infrastructure projects into smaller packages which allow our members to bid for them.
When projects cannot be broken up and become major public infrastructure projects, Australian Owned Contractors 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.
The criteria would assess the nature and extent of mid-tier contractor involvement in the delivery consortium as part of the broader evaluation process, which would include design, construction and project management capability.
Commonwealth Government funding for major public infrastructure should be conditional on the States including an “industry sustainability” criteria as part of the procurement process.
Including an “industry sustainability” component on major infrastructure projects will encourage Tier One companies to joint venture with Australian mid-tier contractors, but it would not be mandated.

“Industry sustainability” criteria on major infrastructure projects would provide the following benefits:

Partnerships between foreign multinationals and Australian owned mid-tier contractors
Increase the knowledge, skills, expertise and capability of local mid-tier contractors
Support the growth of the Australian contracting industry
Allows local mid-tier contractors to compete and participate in major infrastructure projects
A more competitive environment for major infrastructure projects

Value: $1 billion project

Agency: Main Roads WA

Project: Major road highway upgrade to improve access to Perth Airport and Kewdale industrial precinct

Procurement included “industry capability” criteria during the EOI process, asking respondents to outline how mid-tier contractors would be included in the delivery of the project.
The criteria had an evaluation weighting of 5 per cent.
Every respondent had a mid-tier contractor in the delivery consortium.
Successful alliance included Leighton Contractors (Tier One) and Georgiou (mid-tier contractor).
18 per cent of the project delivered by an Australian mid-tier contractor.
Georgiou was able to build its capability and grow due to its participation in the project.

In its Expression Of Interest document released in September 2019, Main Roads states its preference for Tier Two and Tier Three contractors to be included in the head contract.
Includes an “industry sustainability” criteria – with a weighting of 10 per cent – asking respondents to outline how they will include Tier Two and Tier Three contractors in the delivery consortium.
Tender document states increasing the capability of Tier Two and Tier Three contractors is one of the key objectives of the project.
All respondents included Tier Two and Tier Three contractors in their delivery consortium.
The procurement process for this project is still underway, but an Australian mid-tier contractor is likely to be part of the head contract of this major public infrastructure project building industry capability and sustainability.

Australia has a proud history of developing Tier One construction companies.
These businesses were built by industry titans like Sir John Holland, Dick Dusseldorp AO and Stanley Leighton.
They were supported by governments across the country and encouraged to work with foreign companies to build the nation’s public infrastructure.
These Australian companies built iconic projects such as the Snowy Mountains Scheme, Sydney Opera House, Parliament House in Canberra and the West Gate Bridge.
With the Lendlease engineering business expected to soon be sold, Australia will no longer have a local Tier One civil construction firm.
Unless governments provide pathways for growth for local mid-tier contractors, the country’s major infrastructure work will continue to be dominated by foreign multinationals and Australia will never produce another Tier One construction business ever again.