By Shivendra Kumar, Principal Consultant, Shivendra and Co
The recently announced AUKUS nuclear-powered submarine pathway is the single biggest investment in defence capability in Australia's history. While there is some infrastructure construction required, questions are being raised around the impact of increased defence spending on current construction projects, especially when it comes to resource allocation, skilled workers, and supply chains. However, there may be opportunities to use what's happening in defence to overhaul construction models and ecosystems, so that it becomes a win-win for all industries.
The AUKUS initiative will be carried out in stages, with an expected $6 billion to be invested in Australia's industrial capability and workforce over the next four years.
There will be some overlap with infrastructure required for defence projects and businesses across Australia will have the opportunity to contribute. Businesses that can align themselves with these opportunities will reap enormous rewards. However, the deal also poses challenges for the industry.
Dilution of resources
An overlap between the skills required for both industries, particularly in the early phases, will inevitably result in a dilution of resources from infrastructure to defence. Not only will this impact field workers, but also engineers, commercial, administrative, IT and HR roles.
Defence provides long-term prospects, high-level skills and the opportunity for employees to engage with multinational organisations who will work across the UK and the US. There's a risk of higher skilled staff being diverted to defence, given its attractiveness with technology, exposure and hype.
Same can be said for business investment, as the benefits of a defence contract could look more rewarding than other transport, energy or utility projects. With the construction sector continuing to face financial risks, and small and medium-sized contractors often carrying the weight of these, perhaps defence could offer fairer commercial models and lower risk to businesses.
This could all lead to an increase in costs, not only labour costs, but materials, as increased pressure will be placed on supply chains. Will manufacturers be able to support the greater volume of material demand? An increase in demand for steel, electrical and other products may drive prices up.
An opportunity to transform
While the AUKUS announcement creates many questions for infrastructure, it could also be viewed as an opportunity to enact major change. When it comes to major construction projects, how can we deliver projects more reliably, efficiently, and economically?
And beyond this, could the AUKUS deal spark the change required to make construction businesses more desirable to be involved in global mega-projects?
There's a few specific things the industry must now do. Firstly, the time to review contract and risk allocation models is long overdue. We need to identify how to make construction projects less risky.
In my previous discussion with Jon Davies, CEO of the Australian Constructors Association (ACA), we agreed that innovation for the larger methodologies of projects, rather than investing in individual projects, must be a key focus.
The industry should shift away from fixating on the lowest possible price and focus attention on non-cost criteria for success.
Improving productivity is also critical. Businesses need to learn how to do more with less by utilising technology, implementing structured processes, and increasing adoption of prefabrication and standardisation.
To drive productivity improvements and deliver projects smarter, businesses should focus on innovation. This requires the prioritisation of investment and long-term vision.
The ecosystem approach
It is difficult for businesses to navigate the peaks and troughs of construction in a volatility, uncertainty, complexity and ambiguity (VUCA) world.
Whereas defence provides a secure outlook and stability, with projects like AUKUS minimising risks.
Defence is attractive as there is huge potential within one agency, whereas infrastructure projects are distributed between federal, state and local governments, and between departments/agencies.
Construction needs to build communities of businesses, skills and professionals who provide a centre of excellence for particular types of projects e.g roads and tunnels. These businesses can then be given a longer pipeline of projects with productivity incentives and the mandate to enhance local capability.
These pipelines should go beyond election dates, with the ecosystem approach enabling businesses to have a long-term view, securing investment, recruiting the best people, and investing in technology.
This also helps small to medium businesses as they can grow – instead of current models where they are engaged but may not last the project or not engage with the prime on the next projects. We need to see more small, family-owned and First Nations local businesses becoming national businesses.
Shifting military priorities
The Federal Government released its Defence Strategic Review 2023 on 23 April, providing more detail on how it is shifting the country's approach to defence and how this will impact the Australian industry.
The document contains a sense of urgency concerning the need to translate the strategy into outcomes. With the drive to recruit and train more Australians in defence and defence-related industries, one can expect to see a significant percentage of the small to medium-sized construction business workforces migrate to defence-related jobs.
As defence prioritises and streamlines approvals and acquisition, it might also be easier and faster for contractors to secure contracts and be paid on defence projects, making them more attractive overnight.
While there are still many unknowns around the impact of AUKUS – will businesses involved find it rewarding? Will it provide fairer commercial models and lower risk? Will it dilute Australia's resources and create an environment of increased costs? Regardless, this deal should be viewed as a chance for construction businesses and the wider sector to assess how productivity can be improved to deliver better projects overall.
Key Facts:
Thought-leader, Shivendra Kumar, offers his expert opinion on the defence review and how it will affect the construction sector as a whole. Shivendra is available
