Q&A

What is a Tier One contractor?

Tier One contractors are large civil construction companies with massive balance sheets which allow them to deliver the majority of Australia’s major public infrastructure projects ($500m+).

All but one of the Tier One companies operating in Australia are owned by massive multi-national companies from China, Europe, the UK and US.

 

Are any members of Australian Owned Contractors considered to be Tier Ones?

No, all Australian Owned Contractors members are mid-tier contractors. Our members are:

·         Majority Australian owned and controlled – at least 51% owned by Australian shareholders;

·         Have revenue in excess of $250 million;

·         Companies that have participated in Federal and State Government funded infrastructure.

 

Does it matter if our infrastructure is not built by Australian companies?

Yes. Unless the current market distortion is rectified with some form of Government-mandated involvement of Australian owned contractors, these are the likely consequences

·         Profits, expertise, knowledge and IP flows overseas.

·         Local contractors cannot build capability and grow to support the Australian economy.

·         Concentration risk – foreign multinationals have a disproportionate share of major public infrastructure projects.

·         These foreign companies are now joint venturing with other foreign companies – reducing competition even further.

·         Not good for competition and the Australian taxpayer.

 

Won’t it cost more if we mandate the use of Australian owned contractors on major projects?

No. Australian owned contractors have been involved in several head contracts on large infrastructure projects across Australia in the past which were delivered on time and on budget.

Mandating the requirement of local contractors would increase competitive tension on infrastructure bids, with Tier Ones having to partner with mid-tier contractors during procurement processes, rather than partnering up themselves.

It will eliminate instances of Tier One companies joint venturing and providing governments with one bid on major infrastructure projects.

 

Wouldn’t a mandate breach free-trade agreements and World Trade Organisation rules?

No. Foreign-owned Tier Ones would still be able to bid on projects and will still deliver the majority of major infrastructure projects in Australia.

There are several non-tariff trade barriers that exist in other countries used to mandate high-levels of domestic contracting involvement in major projects. Such stipulations, often Government-backed, are prevalent among our major trading partners.  

Yet in Australia, such practices are considered against the spirit of our international free trade obligations. Against this backdrop, as a nation we continue to lose capacity, competitiveness, skills, jobs and commercial credibility.

There is certainly capacity for governments to mandate local contractors in the head contract for major infrastructure projects across Australia without breaching any international obligations.

 

Can local contractors deliver these larger infrastructure projects?

Yes, local contractors can joint venture with Tier Ones to deliver major infrastructure projects. Australian owned contractors have been involved in several head contracts on large infrastructure projects across Australia in the past which were delivered on time and on budget.

Many Tier Ones have utilised local contractors in the past as a source for trained and qualified staff on major infrastructure projects. Local involvement allowed these Tier Ones to build capacity and achieve social outcomes (e.g. indigenous training & development) to win major Government-funded infrastructure projects.

 

Why should governments provide a competitive advantage to some companies over others?

Governments need to intervene to rectify the “crowding out” impact of the large players dominating the infrastructure market to the point where Australia now faces a contracting oligopoly that is undesirable in any market.

Government intervention will provide Australian owned contractors more opportunities to play a role in the delivery of major public infrastructure projects across Australia – injecting much needed competition and diversity into the infrastructure market.

 

Can governments mandate the involvement of local companies in infrastructure projects?

Yes, this has been done before on several infrastructure projects across Australia – we are now calling for a national and consistent approach.

Other industry sectors, including defence industry, rely hugely on such domestic mandates to guarantee the inclusion of local SMEs, suppliers and contractors, to build and supply key defence assets. 

Without this shift in the competitive dial few, if any, Australian companies would exist in the defence industry space with almost all suppliers originating overseas.

There is a direct and valid comparison with the critical infrastructure sector. The defence sector support is rationalised on national security grounds. Is there not a valid comparison with the provision of critical infrastructure?

  

Why do local companies have to be in the head contract? Can’t they just sub-contract to the Tier Ones?

Our members are substantial Australian owned mid-tier contractors seeking to deliver infrastructure as part of the head contract. Sub-contracting on these projects is usually not a viable option for our members, mainly due to the apportionment of risk.