RISKS TO PROJECT DELIVERY INCREASE AS A 5-YEAR INVESTMENT CLIMBS BY $15B
According to Infrastructure Australia’s 2022 Infrastructure Market Capacity report, effectively managing the impacts of an overheated construction market, rising input costs, labour shortages, and productivity challenges will require improved risk management and proactive sequencing of the major infrastructure pipeline.
The report reveals that risks to on-time and on-budget project delivery have increased in the past year, with demand for major public infrastructure projects growing by $15 billion. As public and private sector infrastructure investment increases, the industry is also facing supply-side risks due to ongoing uncertainty in the global economy.
The COVID-19 pandemic, volatile demand, and the war in Ukraine are causing significant disruption to supply chains, resulting in delays and cost escalations for imported items. Labour shortages are exacerbating delivery risks, with industry experts reporting that they have the greatest impact on capacity.
Fast-rising costs and contracts that allocate risk responsibilities to parties not best equipped to manage them, along with declines in profitability for tier 1 contractors, have contributed to a significant rise in construction sector insolvencies in 2022. This has left fewer companies to deliver the pipeline of work, with many already operating at or above 90% capacity.
KEY FINDINGS
- The $237 billion five-year pipeline of major public infrastructure projects has increased by $15 billion in the last 12 months, equivalent to 6.7% growth.
- Transport accounts for 63% of the total spend, and New South Wales, Victoria and Queensland receive 84% of the investment.
- The demand for materials for road construction is expected to reach a peak of $7.6 billion in 2023-24.
- Industry reports delays of up to 45 weeks in the delivery of large diameter concrete pipes.
- The scarcity of labor is the biggest challenge faced by construction companies.
- The cost of construction materials has risen by an average of 24% in the last 12 months.
- As of October 2022, public infrastructure projects, including small capital projects, face a shortage of 214,000 skilled workers.
- In 2023, labor demand is expected to increase by 42,000, reaching a peak of 442,000, which is more than double the projected available supply.
THE OPPORTUNITY TO ADDRESS SUPPLY-SIDE CHALLENGES WITH RECYCLED MATERIALS
Infrastructure Australia has extended the Market Capacity Program in 2022 to explore the feasibility of utilizing recycled materials in infrastructure construction. The program found that using current technology and standards, up to 27% of traditional materials used in road construction could be replaced with recycled materials. This would replace approximately 54 million tonnes of conventional materials with 52 million tonnes of recycled materials. As technology advances and standards are updated, up to 43% of conventional materials could be replaced, substituting 87 million tonnes with 80 million tonnes of recycled products. Infrastructure Australia’s Acting Chief Executive, Mr Copp, said that increasing the use of recycled materials is a cost-effective and sustainable way to reduce waste and emissions and create jobs. It would also help meet the growing demand for materials for road construction, which is expected to reach $7.6 billion in 2023-24. Adoption of greater quantities of recycled materials would create 9.2 jobs for every 10,000 tonnes of recycled waste compared to 2.8 jobs for sending waste to landfill. However, industry uptake depends on technology, standards, market appetite, and supply chain processes.
RECOMMENDATIONS
- To enhance the capacity and capability of the industry, it is crucial to prioritize procurement and portfolio management, as well as improve pipeline transparency, certainty, and confidence.
- Enhance cost-effectiveness and minimize risk by consistently implementing suitable best-practice front-end due diligence procedures for projects.
- Developing a roadmap for the infrastructure sector that outlines steps towards a circular economy and includes annual progress reports would help to establish support and integrate practices for sustainability.
- To meet current and future workforce demands and attract employees, introduce a cultural reform that fosters diversity and inclusion and makes the industry an attractive sector of choice.
