Is it possible that 2022 was even more challenging for the construction industry than 2021? The industry rebounded from the closure of construction sites brought on by Covid-19, but nothing could have prepared us for what was ahead.
By Jon Davies, CEO, Australian Constructors Association.
We didn’t know what we didn’t know
The construction industry faced a perfect storm in 2022. Covid-19 prompted record investment in infrastructure by governments nationwide and at the same time caused significant delays and disruption to many projects. The increase in work caused huge demand for workers, and flooding events and ongoing wet weather on the East Coast further delayed projects and increased demand for workers. Then Russia invaded Ukraine, and, with it, oil prices skyrocketed along with the cost of materials.
To top it all off, a new Federal Government was elected, triggering substantial changes to the industrial relations system including the abolition of the Australian Building and Construction Commission.
This year’s storm was arguably a one in 100- year event.
Rock bottom
In 2022, construction businesses account for 26 per cent of all insolvencies – more than any other industry – and hyper-escalation of construction costs this year caused more to fail. Contractors locked into fixed price contracts felt the heat, revealing the many weaknesses of the industry’s operating model.
No fun for anyone
Behind the headlines the industry has been peddling hard but not really going anywhere – and workers have become tired.
Over the last 30 years, almost every other industry has moved forward, yet Australia’s construction industry has gone backwards. Construction productivity today is lower than it was in 1990. Just keeping pace with the productivity performance of other major industries would save Australia $47 billion annually.
Arguably, the bigger problem is retaining and attracting a workforce that is big enough to deliver the project pipeline. The reality is the industry is out of touch with the next generation of workers who no longer view it as an industry of choice. Workers do not want a job in an industry where the hours are long and disputes are commonplace, excel spreadsheets are considered the height of tech and little focus is placed on the impact we are having on the environment.
We can do better
Government, industry and unions all agree on the opportunity and, more importantly, the need for change. Incremental change and 10-year horizons are out. To keep the industry alive it must transform, and it must transform now.
There is significant wastage of skilled resources through inefficient tender processes, but the bigger problem is the myopic focus on selecting the lowest price at the tender box to the detriment of all else. The practice of accepting the lowest bid at the tender box is a completely false economy and is the direct cause of the adversarial contracting environment in which we now find ourselves. Time and cost are important components of value; however, assessed value should include outcomes such as improving industry sovereign capability, increasing innovation and productivity, reducing the impact on the environment, increasing diversity and inclusion in the workforce and improving industry culture.
Everyone has a part to play, including contractors, but it is the government, if it chooses to, that has the biggest power to disrupt. To equip the Federal Government for the role of Disrupter in Chief, the Australian Constructors Association has developed the Future Australian Infrastructure Rating (FAIR) to rate government funded projects on how well they performed against key reform areas such as improved productivity. The FAIR initiative, or components of it, could be included in the next iteration of the National Partnership Agreement as a requirement for all federally funded projects.
Light at the end of 2022
If we’ve learnt anything these past few years, it’s that working together is the only way forward. It has been encouraging to see the Federal Government take the lead on reform and to approach it collaboratively with industry and unions in announcing the new National Construction Industry Forum.
The forum is expected to comprise representatives from government, unions and business, including the Australian Constructors Association. This is an opportunity to work together to transform, as other sectors have. Construction could be an industry of choice and equal opportunity for all genders, nationalities and ages. It could be an industry that constructs resilient infrastructure without damaging the environment. It could be an industry at the forefront of technological advancement. Construction could be a profitable industry that rewards collaboration over conflict and innovation over status quo and an industry prepared to take risks on new ideas rather than unknown ground conditions.
Australia’s construction industry could be the envy of the world, delivering high value infrastructure at a greatly reduced cost, for the benefit of all Australians. What are we waiting for?
Related stories:
- ACA’s 2022 Year in Review
- ACA addresses Federal Budget
- Australian Constructors Association unpacks NSW progress report