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Practice profile: Infrastructure and construction

Practice profile: Infrastructure and construction

Work for lawyers in infrastructure and construction practices across the country has been sluggish as a res

ult of the global financial crisis, writes Craig Donaldson.

As with most industries in Australia, infrastructure and construction has suffered as a result of the global financial crisis. In August 2008, Access Economics estimated that $160 billion of construction activity was currently in market, with an additional $80 billion committed but not delivered.

However, the capacity of industry to secure the debt needed to deliver large infrastructure projects has been severely curtailed as a result of the GFC. Already, Australia has seen major projects such as Brisbane's Northern Link toll road ($2 billion) delayed, while there have also been questions asked about major projects such as the Melbourne Desalination Plant ($3 billion), the South Australian Prisons PPP ($1 billion) and the Sunshine Coast Hospital ($1.2 billion).

A legal perspective

The slowdown in the infrastructure and construction market has impacted on the legal market in Australia. Doug Jones, partner and national head of the construction practice for Clayton Utz, believes there has been a decline in project work, most notably in the property and mining sectors and public sector infrastructure space.

"My impression is that some construction and projects practices are quieter than they have been." He says, however, that Clayton Utz's practice nationally has not suffered because of its involvement in the few major projects that are going ahead at the moment.

Mark Darian-Smith, a senior dispute resolution partner who specialises in advising on major infrastructure and construction disputes at Mallesons Stephen Jaques, says that the state of the economy has made front-end work patchy, but it has resulted in a rise in disputes surrounding insolvency issues.

"Financial pressure on a wide range of industry participants has meant that disputes are arising in ongoing projects on a regular basis, and these disputes frequently involve issues around the liquidity or solvency of project participants," he says.

John Cooper, a partner who specialises in construction and infrastructure law at Allens Arthur Robinson, says that many projects are getting through the planning phase for private sector work, but they don't make it any further. "Projects that had already started and maybe got through the feasibility stage and progressed through to completion of the planning phase are often being put on hold, and that's particularly the case in the resources sector," he says.

"Some projects are going ahead, some have been canned altogether, but a large number of them have been put on hold."

The impact of Infrastructure Australia

The Federal Government has announced more than $82 billion in funding to support infrastructure development. Infrastructure Australia, an independent infrastructure advisory body, aims to harmonise the identification, financing and procurement of infrastructure investment between government and the private sector.

While this will lead to a healthy amount of work for law firms, there is likely to be a time lag before some of these projects get up and running, according to Darian-Smith. "Aspects of the package will assist in generating work, but delays may be experienced," he says.

Mega-projects, such as the announced national broadband network, could potentially generate legal work, but he says the detail is not yet developed and released and the timing is medium-term at best (at the time of writing, competitive tenders for building the national broadband network had just been released in Tasmania).

Jones agrees that there will be quite a long lead time with bigger projects, and, as such, Infrastructure Australia has had very little effect on legal work, largely because projects already under way don't require significant legal input. "Insulating homes, building assembly halls for schools and the like is very good for lower-tier contractors and subcontractors, but not an area which is consumptive of either contentious or non-contentious legal work," he says.

Cooper says some of the smaller Infrastructure Australia projects have the potential to replace work which has decreased as a result of the reduction in the implementation of private sector projects.

"As we see projects like the national broadband network and some of the other bigger ticket projects come out of or go into the RFP phase, I think it will compensate for [this loss of work from the private sector] totally," he says.

"The one trend at the moment is a sense of urgency, particularly in governments at state and federal levels, which is a good thing. They are getting on and doing things, particularly with the projects identified by Infrastructure Australia."

Changing delivery methods

The burst infrastructure and construction bubble is forcing big players in the sector to rethink how they do business, and this could have flow-on effects for law firms, according to Jones.

"I think the change in market conditions - from a buoyant market, where there was more work than the industry could handle, to one where there is now less work available and more competition to get that work - has meant that there is a change looming in the type of delivery models which are going to be used in the future," he predicts.

Rather than pursuing alliances for big projects, Jones says businesses will be seeking to go back to delivery methods which are based more on lump sum payments. For a number of the big projects that Clayton Utz is working on at present, he says delivery methods are being aligned to meet market conditions.

"So if you've got public money to pay for the projects, there is a more competitive environment in which they are being met, and the delivery methods are following that," Jones says. "Where there is private money being sought for public infrastructure, the global financial crisis problems in debt and equity are influencing the way in which those projects are being put to market.

"So the challenge is very much innovative delivery to meet changing market conditions, rather than just rolling out the project models that have been successful in boom times. We need to think innovatively about how to get value for money for clients in changed market conditions," he says.

>> Click here to read more articles from our Practice Profile series

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Practice profile: Infrastructure and construction
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