Sustainable community infrastructure is essential for the day-to-day functioning and wellbeing of communities and will become even more critical as Australia’s urban centres continue to grow.
Building and maintaining local infrastructure – such as roads, libraries, swimming centres, community sporting facilities, public toilets and parks – enables economic development and job creation. It also enhances quality of life while delivering positive social impacts, including improved accessibility, better access to services, and social cohesion.
However, it’s a challenging time to be responsible for delivering infrastructure. Even when local governments have the funding they need, it can be hard to stimulate market interest in projects, engaging the right contractors and completing projects on time, and within scope and budget.
To overcome these issues, we recommend that councils reframe their thinking and embrace a more strategic, collaborative and flexible approach to infrastructure procurement.
Understanding the challenges facing councils
There are many valid reasons for the challenges councils currently face. Australia is experiencing an infrastructure boom, which means that local governments are competing with state and federal projects, as well as the private sector. Rising material costs and ongoing skills shortages are driving up project expenses, making financial sustainability a growing concern. Councils must carefully manage costs, optimise resources, and find innovative ways to deliver infrastructure projects within budget while maintaining high-quality outcomes. Additionally, there is a greater community expectation that infrastructure projects not only achieve their purpose but also consider environmental, social and economic outcomes as they’re delivered.
Some challenges are also particular to local government. These include projects that are relatively small in scope and often located in regional and remote areas, where it can be doubly hard to source suppliers and expertise. Many local councils also favour fixed-dollar contracts that are attractive from a cost control point of view, but can be less attractive to suppliers.
OCM understands these issues because we work with all levels of government across the nation. Our team of experts also have deep backgrounds in infrastructure delivery. Based on this experience and discussions with our clients, we believe councils can overcome their challenges through innovation – especially in the underappreciated area of procurement.
A more strategic and collaborative approach to infrastructure procurement
Procurement is the process of securing all the goods and services needed to complete a project and achieve whole-of-asset-life value for money and performance. But from an organisational point of view, it’s also a team of experts who are uniquely well placed to help local councils transform their results by transforming the way they complete this key tasks.
Here are some innovative procurement strategies that can help local governments optimise costs, drive financial sustainability, and enhance infrastructure delivery through a more strategic and flexible approach.
- Strengthening cost planning and lifecycle budgeting. Beyond short-term project costs, councils should consider whole-of-life cost planning. By factoring in maintenance, operational expenses, and asset lifecycle costs at the procurement stage, councils can ensure long-term financial sustainability and reduce unexpected budget overruns.
- Planning your infrastructure programs by bundling similar projects into larger programs of work. Good procurement starts with good planning. Grouping projects into larger programs of work based on asset type is likely to make them more attractive to contractors. It can also deliver better social value and efficiencies, and stimulate local job generation. For example, when funding became available for councils on the NSW North Coast to replace ageing bridges in rural areas, several councils joined forces to procure all replacements as a single program of work. The Six Bridges Project demonstrated that bundling multiple bridge replacements into one contract was far more appealing to contractors than bidding for individual projects. This attracted greater marketing interest, resulting in a better value-for-money outcome.
- Leveraging collaborative procurement for cost savings. By teaming up with other councils, local governments can significantly reduce procurement costs through economies of scale, bulk purchasing, and shared contract management. This approach not only drives down unit costs but also reduces administrative overheads and increases negotiation power. For example, working collaboratively with other local councils may enable a council to explore sustainable waste management solutions they wouldn’t be able to afford individually.
- Taking a more commercial approach to contracts, including risk sharing. Local governments often adopt a standardised approach to projects. However, there is an opportunity to design innovative commercial models and contract structures that share risk and incentivise supplier performance. In particular, the market wants to move away from fixed-dollar contracts. These have contributed to many building contractors going out of business in recent years and government projects running over time and budget.
- Engaging earlier with suppliers and sharing more information. Early engagement with suppliers can unlock innovation and drive better community outcomes. Traditionally, public sector procurement has been very process-driven and prescriptive, with requests for tenders outlining the solution they want rather than the desired outcome. This compares to private sector procurement, which invites the market to propose ideas for achieving the outcomes. This approach can help deliver better economic and social value, especially as the market is telling us that suppliers want to be involved in co-designing solutions and would value having access to more information throughout the procurement process.
- Investing in procurement capabilities that support better infrastructure projects. Local government procurement is often managed by infrastructure or engineering teams without specific procurement expertise. By developing internal capabilities or partnering with experts like OCM, councils can enhance their procurement approach and deliver more sustainable infrastructure outcomes for their communities.
- Transforming the procurement function within your organisation. Councils can maximise cost efficiency by embedding financial sustainability principles into their procurement function. Strengthening internal cost control measures, using data-driven procurement insights, and prioritising high-value initiatives can help local government make better financial decisions. Councils can also partner better with the rest of the organisation by co-designing a more strategic approach to sourcing the goods and services needed for projects, with the goal of boosting organisational performance and improving business outcomes.
Putting ideas into action
With Australia’s infrastructure boom and skills shortages showing no signs of slowing, local governments can improve their competitiveness by reframing how they engage with the market. By embedding cost control mechanisms, planning projects with a long-term financial lens, and leveraging strategic partnerships, councils can enhance financial sustainability while ensuring high-quality infrastructure delivery. A more commercially minded procurement approach will help local governments achieve the best possible outcomes within constrained budgets, ensuring taxpayer dollars are used effectively.
