Asset Management Maturity Stalling – $30 Billion Needed for Ageing Infrastructure

A new report (summary below) has revealed the local government sector’s asset management knowledge and capability is in decline, jeopardising the industry’s ability to plan and finance future services.

The National State of the Assets (NSoA) 2018 report also found that despite a steady increase in infrastructure renewal spending, there’s been no improvement in the proportion of ageing infrastructure assets in poor condition since the first NSoA report was released in 2012.

More than 400 councils, or 75% of the sector, contributed to the Australian Local Government Association (ALGA) report, which was launched at the 2018 National Road and Transport Congress.

Collectively, participating councils reported that 9% – equivalent to $30 billion – of community infrastructure assets are in poor condition and require attention.

Principal author Steve Verity, a civil engineer and strategic asset management consultant at TechnologyOne, says there’s several reasons why current efforts aren’t making a dent in the performance of local government infrastructure assets.

“The primary one is the need to invest in additional assets to cope with the drivers of change such as population, technology, and climate change,” he says.

“In the past 10 to 20 years, there has been an increasing uptake of additional assets and services. Clearly, local government is not just focused on roads, rates and rubbish anymore.

The operating environment has changed significantly, becoming complex and challenging, particularly when we have a portfolio of non-current assets that are increasing in number and age.

“There is also evidence of a ‘run to fail’ mentality, resulting in a high-cost spend to mitigate risk and public safety while an increasing number of assets move from the fair to the poor performing category.”

Safety implications

Verity says the consequences of poor infrastructure management can be catastrophic. The 2007 Piles Creek disaster on the Central Coast of New South Wales saw a family of five lose their lives when a section of roadway collapsed during a significant rain event.

“The subsequent, scathing coronial inquest found authorities not only knew about the dangers, but were so incompetent they failed to act,” Verity says.

Where infrastructure assets have a high consequence of failure, Verity says it’s critical a management plan is in place to ensure these assets’ ongoing service potential is considered in an informed manner.

“In the case of timber bridges, the 2017 IPWEA (NSW) Timber Bridge Management Report found more than 300 timber bridges in the rural coastal regions of New South Wales are in poor condition, located in rural areas with wet climates and steep terrain,” Verity says.

“This is high risk and high cost.”

Asset management maturity is stalling

Across Australia, local governments are responsible for managing more than $345 billion worth of infrastructure as at June 2017.

In 2006, a national framework for managing community infrastructure was agreed to and led to local government reform including better management and long-term financial planning and reporting for infrastructure assets, leading to significant improvements in how assets were managed, and services were delivered.

“Since then, the NSoA report has found a decline in the number of councils having adopted asset and financial plans, raising concerns around the currency and credibility of these plans to meet the minimum requirements prescribed by legislation,” Verity says.

Take roads, for example. Roads (both sealed and unsealed) are easily the single largest asset class by value that local governments manage, accounting for around 39% of the total asset stock.

Despite a slight increase in 2015, the report found the proportion of road asset management plans in place is the same as they were in 2012, at 82%. That means 18% of councils that participated don’t have a road asset management plan in place, or if they do it’s out of date.

Similar findings across all other asset classes were noted, despite legislation requiring local government entities to have them in place and be up to date.

Verity says this trend is not just being seen in cash-strapped rural and regional councils.

“We are seeing evidence of this is urban metro areas as well. As a strategic asset management consultant operating in the sector for many years this finding comes as no surprise, and others in the industry have made similar comments and observations,” Verity says.

No need to cry poor

Verity clarified that although the report found $30 billion of infrastructure is in poor condition, it doesn’t mean there’s a $30 billion shortfall in local government coffers – it comes down to how the assets and risks are managed.

“If local government is managing its infrastructure assets effectively then we would expect to see a position in our communities where the assets and services they provide would be at an acceptable and affordable level overall,” he explains.

“This can only be achieved in part by having a sensible and informed conversation with local communities and stakeholders, supported by robust asset management processes aligned to an affordable financial strategy.”

Verity says the local government sector needs to take “a long, hard look at how and when it chooses to allocate the available funds at its disposal.”

“Local government needs to be careful when it is seen to be putting a hand out for more money, when evidence suggests the financial capacity of most indicates they have the ability to renew assets when they reach the end of their life,” he says.

“It’s a very conflicting message when financial reports forecast an operating surplus (net of capital grants and subsidies) in the short to medium-term, combined with relatively low debt and high values of assets. There’s no reason why it can’t fund renewal of assets when they fall due, it’s just that some choose to do otherwise.”

Consider function and capacity

The NSoA report also found local governments had poor knowledge and low confidence in their reporting against demand and growth measures such as function (the suitability of assets) and capacity (whether the asset is under or over utilised).

Verity says this indicates a low level of knowledge and confidence in:

  • Planning for infrastructure that meets needs now and in the future; and
  • Understanding whether local government is accommodating asset renewal and replacement in a timely, optimal, and cost-effective way, relative to the risks it is prepared to accept and the service levels it wishes to maintain.

“Local authorities that have high level asset management capability and confidence in the integrity of the underlying data used by their management systems can rely upon it to make informed decisions, highlight opportunities, and identify and manage risks,” Verity says.

“In urban-metro areas where population is increasing at levels not witnessed before, it is essential we demonstrate a clear understanding of how infrastructure is complying with its intended and future purpose (function) and its capability to stand up to under or over utilisation (capacity).

“We only heard recently the Prime Minister saying, ‘The roads are clogged, the buses and trains are full’ and the current projections indicate that’s going to continue and our tolerance levels may be tested. If local government is struggling to measure and report against core measures today, then we need to do something about it now.

“We may need to look at the demand and growth in the major centers in response to that situation. Therefore, it’s necessary for all levels of government to understand what the demand drivers are, and have a plan in place so that local, state and federal governments can manage the impacts if and when they arise.”

What now?

Without action, there is likely to be an increasing inability to forecast with confidence and finance future infrastructure renewal and upgrade infrastructure to meet future needs.

The NSoA report recommends that local governments:

  • Ensure asset management and long-term financial plans are compliant with best practice – aligned, credible, reliable, and up-to-date; and
  • Continue to improve their asset management capability to a position that they can demonstrate and provide a sustainable and affordable service delivery model to their communities.

The report also recommends the regulators:

  • Audit asset management and long-term financial plans; and
  • Assist local councils increase their knowledge and confidence in forecasting future infrastructure needs.

IPWEA NAMS Chair Murray Erbs says IPWEA supports the findings and recommendations in the report.

“The report points to IPWEA resources, including the IIMM, the AIFMM and the NAMS.PLUS tool, as guidelines available to assist local governments in their asset management planning,” Erbs says.

CT Management Group Managing Director Michael Courtney said, “the contents of this report support the research that our company has undertaken and we assist Councils with our extensive resources to undertake reviews of Asset Management Plans and Long Term Financial Plans to improve the level of proficiency in asset management.”

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