Inflationary crisis continues to impact the construction industry
The construction industry has continued to feel the impact of the inflationary crisis according to the latest construction industry market sentiment report by Arcadis and the Australian Constructors Association.
Australian Constructors Association (ACA) chief executive officer Jon Davies says every single surveyed contractor reported having to absorb material price escalation in 2022 that could not be recovered or offset in any way.
“Some contractors are hurting more than others with nearly half of the respondents stating that the unrecovered cost increases amounted to more than 10% of their project budgets which could result in losses of many millions of dollars,” Jon says.
“Despite some improvement since the last survey, a significant 76% of respondents believe that the current commercial environment still unfairly and unreasonably allocates risk between clients and contractors.
“Risk allocation has been identified as the most significant barrier to innovation and productivity growth in the industry and, to put this into perspective, the industry’s productivity performance is at a 30-year low.”
While the report indicates material price inflation is beginning to moderate the cost of labour is starting to increase significantly.
Arcadis’ Cost & Commercial Management executive director Matthew Mackey says more than half of respondents rated trade labour capacity as severely constrained compared to only 20% last year.
“The industry expects that the market will remain overheated in 2023 with a shortage of contractors relative to demand and prices remaining high,” Matthew says.
“Based upon the responses received, Queensland and Western Australia are anticipated to be the hottest markets while overall sentiment has fallen in Victoria compared to last year’s survey.
“In terms of asset classes, defence, energy and power, health, data centres and aviation are the strongest performers. Interestingly, enthusiasm for the retirement living sector has fallen since last year with just 36% of respondents indicating that this is a rising market compared to 78% in 2022.
“While material pricing appears to be a softening picture, this is now being offset by increasing labour costs ahead of the next round of EBA negotiations. We, therefore, anticipate that labour costs will become a primary driver of the next wave of construction cost inflation.”
Jon says the industry is doing it tough as a result of having to absorb significant rises in material and labour costs.
“The government can help by compensating contractors undertaking government projects for these increased costs,” Jon says.
“It is not reasonable for the government to pay less than it costs for a contractor to deliver a piece of infrastructure through no fault of the contractor, especially given the cost to the economy of the current high level of industry insolvencies.”