The Future of Infrastructure Delivery
- November 1, 2022
- Posted by: MK Consultus
- Category: infrastructure
With time energy, construction, and infrastructure projects are becoming increasingly complex and are being implemented on a much larger scale. We face many issues in every aspect of business operations; however, it is down to the business leaders to make it resilient and be able to identify, evaluate and mitigate these issues.
COVID-19 brought unprecedented challenges for us. It has had a global impact in ways we could not have foreseen, and our sector is no exception. Notably, however, the public and private sectors have demonstrated remarkable resilience and commitment in working collaboratively to ensure that we emerge from this crisis with the capability and capacity required to support the necessary economic rebuilding.
However, COVID-19 is not the only pandemic plaguing the construction and infrastructure industry. The sector is marred with costly delays, cost overruns, disputes, and liabilities. There is an increasing need to have a clear strategy on how to draft, manage and negotiate contracts in a way that protects the intended goals and objectives.
The construction sector, especially infrastructure is being challenged like never before by a range of issues that, taken together, have the potential to radically change the way the industry works. A combination of sustainability requirements, cost pressures, skills scarcity, claims & disputes, digitalization, and a new breed of players entering the sector, looks set to transform construction businesses in the years ahead.
The construction sector underpins the economy; as transport, digital, energy, and utility networks – all directly or indirectly dependent on the construction sector – are vital components for employment, business, and general economic growth. This means that they also have a profound impact on people’s daily lives. Hence, governments globally, ceaselessly plan and wish to deliver an infrastructure revolution. Taking a closer look at the infrastructure and development of the Pakistan Government, a general trend of a radical improvement in the quality of the infrastructure to help improve the country, strengthen trade, and put Pakistan on the path to economic success up North towards the Karakoram Highway and down South to Gwadar and via Superhighway to Karachi Port.
Infrastructure is long-term. CPEC investment has seen unprecedented upskilling in our industry. Decisions taken today on new rail lines, power plants, or road upgrades, will affect lives and livelihoods for decades to come. But infrastructure investment also has an important short-term role to help support jobs and stimulate the economy. This Strategy brings together the government’s long-term goals with the short-term imperative to rebuild the economy following the COVID-19 pandemic
As the government helps the economy to recover it will also seek to address the long-term issues that have held back Pakistan’s infrastructure. These issues include ‘stop-start’ public investment, insufficient funding for regions outside of major cities, slow adoption of new technology, policy uncertainty that undermines private and foreign investment, and project delivery plagued by corruption, delays, and cost overruns.
When we talk about infrastructure, I always want to clarify that we need to think beyond buildings.
The OECD distinguishes two categories of infrastructure:
Horizontal Infrastructure, which is composed mainly of:
- Transportation: roads, railways, and bridges
- Power & Communication: transmission facilities, electric lines, energy generation
- Subterranean: pipelines, sewer, waterlines.
Vertical Infrastructure, also called Social Infrastructure (buildings and spaces that facilitate the delivery of social services by governments and other service providers):
- Buildings: hospitals, public universities, public housing, etc.
- Surface: parking areas, subsurface or structured facilities
- Structure: any building foundation and site work that facilitates the delivery of buildings.
The infrastructure sector is highly diverse. As a result, the efforts around resilience, carbon mitigation, and circularity are different across sectors, markets, and stakeholders.
Although the infrastructure and building sectors vary, they are certainly interdependent and have areas of overlap, primarily:
- Interdependency in use: despite their difference in purpose, together buildings and infrastructure comprise a shared urban ecosystem.
- Shared construction supply chain: buildings and infrastructure use broadly similar materials and operate similar processes of design of construction, with a shared material supply chain.
Investment and Future Outlook
construction market to grow $8 trillion by 2030: driven by economic leaders China, the United States, and India.
- The US construction market to grow faster than China over the next 15 years
- Despite the size, China’s powerhouse dropped to a historic low in construction growth in 2016
- India to provide a new engine of global growth for construction in emerging markets, growing at almost twice as fast as China
- Europe will not recoup its ‘lost decade’ but the UK will be continental Europe’s stand-out growth market, overtaking Germany to become the world’s sixth-largest construction market by 2030.
A new – Global Construction 2030 – forecasts the volume of construction output will grow by 85% to $15.5 trillion worldwide by 2030, with three countries – China, the US, and India – leading the way and accounting for 57% of all global growth.
The benchmark global study – the fourth in a series from Global Construction Perspectives and Oxford Economics – shows average global construction growth of 3.9% pa to 2030, outpacing that of global GDP by over one percentage point, driven by developed countries recovering from economic instability and emerging countries continuing to industrialize.
When it comes to Europe, whilst it won’t recover to reach pre-crisis levels until 2025, the UK is a stand-out growth market, overtaking Germany to become the largest in Europe and the world’s sixth-largest construction market by 2030.
The construction industry is known to be one of the most disputatious of all due to the regular occurrence of disputes during or after the completion of projects. As a result, we need to develop and adopt a strategy that can not only manage disputes but also the common issues that can escalate into a dispute to be proactively managed. Rather than simply responding to disputes when they arise, actions are required much earlier; avoidance is better than cure.
Commercial risk management strategies help in avoiding conflicts in the first instance and will include a thorough assessment of the risks of disputes occurring with agreed procedures for dealing with differences of opinion amicably. It is also understood that claims and disputes cannot be completely avoided in construction and the PCDR.PK (Pakistan’s First Construction Disputes Report) highlights this with 95% of projects having one or more disputes.
Insurances and limitation of liability are some ways of mitigating the risks associated with such issues, however, there are several other means of avoiding and managing these risks before they escalate and before legal costs are incurred and commercial relationships suffer.
As Theodore Roosevelt said, “In any moment of decision, the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing.”
For more information on discussions about setting up an infrastructure investment strategy, please liaise with the MKC team.