The NSW Government's new plan 9 min read
Since releasing the NSW Government Action Plan: A ten point commitment to the construction sector (the Ten Point Commitment) in 2018, the construction sector has undergone significant change. Having met the challenges of unpredictable external factors like COVID-19, extreme weather and geopolitical instability, the construction sector continues to grapple with supply chain constraints, rising material costs, labour shortages and skills gaps, increasing pressure to reduce carbon emissions and adapting to technological change.
In recognition of this, at the end of last year, Infrastructure NSW published the NSW Government Principles for Partnership with the Construction Industry (the Principles), which will replace the Ten Point Commitment.
The Principles aim to streamline the delivery of infrastructure projects by bolstering cooperation between the NSW Government and construction industry participants to face these challenges together. The refreshed Principles signal an increased government focus on local industry, growing a skilled and diverse Australian construction workforce and embedding decarbonisation into procurement processes.
In this Insight, we cover:
- what the seven Principles are;
- how they compare against the Ten Point Commitment; and
- how these Principles can be used to secure success for your projects.
Jump to
- Key takeaways
- The story so far: why were the Principles introduced?
- The next chapter: the Principles for Partnership with the Construction Industry
- Renewed commitments: the similarities between the Ten Point Commitment and the Principles
- Shifting priorities: the differences between the Ten Point Commitment and the Principles
- What's next?
- Contact the team
Key takeaways
- While the Ten Point Commitment focused on government action to improve the delivery of NSW's infrastructure pipeline, the new Principles invite greater collaboration between government and industry.
- The Principles place a sharper focus on social and environmental policy objectives than the Ten Point Commitment, including in relation to gender equality, workforce flexibility and decarbonisation.
- Given that the policy objectives promoted by the Principles are likely to become explicit tender requirements and performance benchmarks for future NSW Government projects, industry partners will need to consider how to adhere to the Principles. Steps may involve, for example, implementing workplace flexibility plans, changing work, health and safety requirements in supply chains and downstream contractor arrangements, and meeting new carbon reporting requirements.
The story so far: why were the Principles introduced?
In 2018, through the Ten Point Commitment, the NSW Government made the following commitments in relation to the procurement and delivery of the NSW infrastructure pipeline:
- procure and manage projects in a more collaborative way;
- adopt partnership-based approaches to risk allocation;
- standardise contracts and procurement methods;
- develop and promote a transparent pipeline of projects;
- reduce the cost of bidding;
- establish a consistent NSW Government policy on bid cost contributions;
- monitor and reward high performance;
- improve the security and timeliness of contract payments;
- improve skills and training; and
- increase industry diversity.
In the six years since then, the construction sector has been heavily impacted by evolving market conditions, including:
- significant supply chain risks and inefficiencies, exacerbated by COVID-19, extreme weather events, inflation and geopolitical instability;
- a surge in construction insolvencies – the twelve months prior to June 2024 witnessed the highest number of construction insolvencies in the past decade;1
- rising labour shortages and skills gaps in the construction sector, especially in residential construction and the roles of construction managers, carpenters, and civil engineering professionals;
- fiscal and labour capacity constraints, which limit delivery of concurrent major projects in the infrastructure pipeline – the Infrastructure Australia Market Capacity report anticipates a shortfall of almost 98,000 skilled construction workers in NSW for public infrastructure in 2025.2 However, in counterpoint, tapering public infrastructure spending is rumoured to have led to layoffs across the construction sector as a whole;
- a reduced ability to attract investment;
- increased focus on environmental, sustainability and social policy objectives; and
- technological advancements.
The Principles seek to refresh the Ten Point Commitment in light of these changing market conditions. Infrastructure NSW and its member agencies are also devising an implementation plan to ensure that the Principles are implemented effectively, although a release date for this plan is yet to be announced.
The next chapter: the Principles for Partnership with the Construction Industry
Before diving into the detail of the Principles, there are two key differences between the Ten Point Commitment and Principles in the NSW Government's approach to setting down principles for partnership with the construction industry:
- While the Ten Point Commitment focused on government commitments, the Principles place a much greater focus on collaboration between government and industry. Each principle has three components: (1) the objectives to be achieved, (2) the actions that the NSW Government commits to, and (3) the actions that industry partners are invited to take. As such, the Principles go further than its predecessor by inviting actions for participants, not just government.
- While the Ten Point Commitment focused on streamlining and optimising the procurement and delivery process for infrastructure projects in NSW, the Principles have a much broader focus on the general health of the construction supply chain in NSW, with four of the seven Principles geared towards developing a healthy, sustainable, local industry and a workforce that can attract and retain employees. The Principles also integrate other social and sustainability goals, including in relation to housing and decarbonisation.
Turning to the detail, the seven Principles are:
The NSW Government has committed to promoting the local construction industry by signalling early opportunities for local manufacturing, establishing new functions to boost participation (such as the Future Jobs and Investment Authority), mandating tender weighting towards local content, job creation, SME participation and ethical supply chains, expanding the Industry Capability Network portal and providing opportunities to the local workforce. It remains to be seen how mandating tender weighting towards local content at the state level will interact with Australia's obligations under its free trade agreements.
The Principles also prioritise the development of local off-site and prefabricated manufacturing to support the delivery of the NSW Government's housing objectives.
The Principles aim to support worker safety and wellbeing by improving safety and culture in the construction industry. Notably, the Principles include a government promise to update the WHS Management Guidelines for Construction to reflect the need to protect psychosocial safety, in addition to physical safety. This Principle seems particularly germane given the Federal Government's decision to place the construction arm of the CMFEU into administration after allegations of corruption and bullying resurfaced in August last year.
The Principles also request that industry partners update their subcontract and supply chain arrangements to include safety and wellbeing expectations. The NSW Government will consider a company's performance against this metric when awarding future work opportunities.
This principle seeks to simplify procurement processes, and in turn, boost productivity, by committing to:
- enhancing tender processes to reduce the cost of bidding (for example, by allowing reliance on technical documents);
- involving stakeholders earlier in project development to avoid over-engineering (which may involve capping the amount of pre-tender, internal design at, for example, 30%);
- streamlining government processes by harmonising requirements and standards with other jurisdictions (for example, in the area of trade qualifications) and promoting whole-of-government GC21 (D&C) standard form contracts; and
- encouraging innovation in contractual arrangements and exploring uses for modern methods of construction (eg prefabrication).
It will be particularly interesting to see which NSW Government departments, if any, allow reliance on tender documents and choose to cap pre-tender design, given this has been a point of discussion between government and industry for some time now.
This principle also focuses on opportunities to harness digitisation to increase productivity by streamlining data creation and management, and deploying digital tools in project design, procurement and delivery.
The NSW Government has committed to improving diversity and ensuring high-quality training across the construction industry. Practically, this will be implemented by prioritising construction skills in the 2024-2028 NSW Skills Plan and supporting vocational training courses, amongst other things.
This Principle aligns with a nationwide push to increase skills in the construction industry – the Federal Government committed $90.6 million towards upskilling the construction and housing sector in the 2024-25 Federal Budget, and is considering the implementation of a National Energy Workforce Strategy after receiving submissions during August and September 2024 on the same.
The Principles' overall focus on investing in skills and jobs is made explicit in Principle 5, which aims to enhance industry culture and diversity (and therefore retention). Women only constitute 2% of qualified construction trade workers in Australia – this is a marginal improvement from the '1-2%' recorded in the Ten Point Commitment (but less than the 'doubling' that was targeted in that Commitment). The NSW Government proposes to introduce a Culture in Construction Taskforce and pilot programs under a draft Culture Standard for the Construction Industry to collate data and implement measures to improve diversity. It will be interesting to see how this Principle will play out in the NSW market, given the rolling back of similar diversity, equality and inclusion programs in the US federal and private sectors.
The NSW Government is also proposing a whole-of-government Contractor Performance Reporting system to deliver enhanced insights into culture and diversity in the industry. In an effort to promote work-life balance, industry partners have been asked to adopt workforce flexibility plans, with a view to achieving working weeks of ≤50 hours per week and a five-day work week where possible, or a 5 in 7 day work week. While this is a noble ambition, the Principle does not explain how industry partners will be supported to achieve this ambition in light of the increasing prevalence of painshare/gainshare models and the long-staying 'stick' of liquidated damages for late delivery, which incentivise timely completion.
Like the Ten Point Commitment, the Principles reiterate the NSW Government's focus on achieving value for money, and delivering projects on time and on budget. However, the Principles also acknowledge that contractors have been facing increased financial capacity constraints and, as such, seek to foster collaborative risk allocation and transparency in relation to financial capacity to ensure the sustainability of each project throughout its lifecycle.
To achieve this, the NSW Government has committed to:
- monitoring the financial capacity of its contractors, with a view to identifying and mitigating capacity risks;
- sizing its contract packages to accommodate a diverse range of contractors;
- improving the guidance available to contractors in relation to financial capacity assessments; and
- tailoring its security requirements to contractors' financial capacity risk profiles and revising payment frequencies, where appropriate, to assist with cashflow.
At this stage, there are still open questions about whether 'tailored' security means that contractors will be required to put up less security (to alleviate financing costs) or more security (to guard against contractor insolvencies). However, a shift in government payment frequencies would certainly support the construction industry by improving cash flow and reducing reliance upon (and the cost of) lines of credit. A new gold standard in public infrastructure contracts may lead to a shift away from monthly payment terms more broadly.
The Principles acknowledge that decarbonising infrastructure delivery will be critical to the NSW Government realising its commitment to net zero by 2050, and its interim emission reduction targets of 50% and 70% by 2030 and 2035. As such, the NSW Government has committed to considering the carbon impact of each project in its existing infrastructure decision-making processes and challenging the need for new infrastructure, where possible.
The NSW Government will also provide a consistent approach to measuring carbon across different asset types and will mandate a measurement of embodied carbon emissions to be included in the business case, planning approval, design and procurement and practical completion requirements of each project. These commitments sit alongside the measures in the Decarbonising Infrastructure Delivery Policy and Measurement Guidance, released by the NSW Government in April 2024, and join the groundswell of momentum towards better carbon reporting and transparency in both the government and private sectors (see our Insight on mandatory climate-related financial disclosures).
Renewed commitments: the similarities between the Ten Point Commitment and the Principles
Some aspects of the Principles reiterate or build upon the NSW Government's existing commitments under the Ten Point Commitment. For example:
- Early market engagement: both the Principles and the Ten Point Commitment stress the importance of early market engagement to inform project design and delivery;
- Collaborative contracting: while the Principles do not explicitly discuss collaborative contracting, they promote innovative contractual arrangements and benefit-sharing arrangements to improve productivity. Given the market trajectory, we expect that collaborative contracting is here to stay for a while yet (see our Insights here and here on the rising trend of collaborative contracting);
- Sizing of contract packages: both the Principles and the Ten Point Commitment recognise the need to offer contract packages that are accessible to a diverse range of contractors, including small and medium-sized firms. This echoes the move towards split and disaggregated procurements for Original Equipment Manufacturer ('OEM') supply and Balance of Plants ('BOP') civil works in the energy sector, whereby projects are divided into smaller packages to allow for greater flexibility (see our Insight on the split contracting trend in the batteries space);
- Standardisation of contracts and procurement methods: both the Principles and the Ten Point Commitment encourage the standardisation of contracts and procurement methods, including by publishing 'best practice' guidance materials to assist tenderers and contractors;
- Local skills development and manufacturing capacity: both the Principles and the Ten Point Commitment emphasise the importance of upskilling local workers and local manufacturing to address the ongoing skills shortages. The requirement to mandate tender weightings to support local content, local job creation and ethical supply chains in the Principles takes this even further than the Ten Point Commitment.
Shifting priorities: the differences between the Ten Point Commitment and the Principles
On the other hand, the Principles also herald some new areas of focus, with much stronger commitments around decarbonisation and workforce culture. The key differences between the Ten Point Commitment and the Principles include:
- Decarbonisation: while the Ten Point Commitment is silent on decarbonisation, the Principles set out specific measures that the NSW Government will implement to track and report on embodied carbon within its infrastructure projects. This shift reflects the broader changes in global environmental commitments, regulation and stakeholder expectations in the last six years.
- Gender diversity and equity:while the Ten Point Commitment acknowledged the need to boost diversity within the workforce, the Principles particularly focus on women's participation in the construction industry. For example, the NSW Government has committed to considering a company's progress towards citation by the Workplace Gender Equality Agency (WGEA) as a 'Gender equitable employer of choice' as part of the tender process.
- Workforce culture: whereas the Ten Point Commitment sought to reward 'high performing' contractors exhibiting 'key behaviours and values expected of good clients and contractors', the Principles go beyond that by explicitly calling out the need to improve psychosocial safety and wellbeing on construction sites. Industry participants are asked to incorporate these expectations within their downstream and supply chain arrangements, and will be assessed on their performance in respect of future opportunities for work.
- Financial sustainability: with the rise in contractor insolvencies in the last six years, the Principles purport to have a much greater focus on assessing and improving the financial capacity of contractor entities than the Ten Point Commitment.
- Innovation and digital practices: the Principles have embraced the potential for digital tools to improve productivity much more explicitly than the Ten Point Commitment (which did not mention technology or digital practices at all). The Principles push for standardised data and baseline productivity metrics to be developed, alongside accelerated implementation of digital practices and tools across the lifecycle of the project.
What's next?
While there is some overlap between the Ten Point Commitment and the Principles, the Principles demonstrate a clear shift in priority towards addressing some of the more structural issues facing the Australian construction industry (particularly around skills shortages, workforce retention and financial capacity).
Collaboration between industry and government (at both the state and federal levels) will be imperative in achieving a coordinated response to these structural issues and bolstering the local construction industry. Decarbonisation has also emerged as a key priority for partnership with the construction industry. This priority aligns with the increasing focus more generally on reducing emissions in hard-to-abate industries as corporations and governments chase down their decarbonisation targets.
Infrastructure NSW will track progress against the Principles for Partnership in its annual Progress Report, as it has previously done with the Ten Point Commitment.
Footnotes
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Australian Institute of Credit Management, Construction Insolvencies Hit Decade-High in 2024 <https://www.aicm.com.au/news-item/16917/construction-insolvencies-hit-decade-high-in-2024>.
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Infrastructure Partnerships Australia and Allens Linklaters, Australian Infrastructure Investment Monitor 2023 (15 November 2023) <https://infrastructure.org.au/wp-content/uploads/2023/11/Australian-Infrastructure-Investment-Monitor-2023-1.pdf>; NSW Government