We’ve dived headfirst into 2023/24, with important reports released and big initiatives launched. And we are not about to take our foot off the gas.
Nailing construction productivity
This month we released one of our most significant reports for 2024, Nailing construction productivity. The report reveals the key to lifting national productivity is improving the performance of the construction industry. There is no other industry that compares to the level of combined value and job creation that the construction industry produces yet its productivity performance is among the worst.
Improving the efficiency of the construction industry is a matter of national importance.
Just raising construction productivity to the national average would restore the nation’s faltering productivity growth to levels not seen since the 1990s and deliver billions of dollars of savings. On the current trajectory, we will simply be unable to deliver the current pipeline of new energy, housing, defence, transport and social infrastructure in a timely manner.
With ever increasing project costs it is no surprise that governments are reviewing whether to pause or cancel projects but they don’t have to do either if we get serious about improving productivity. Sydney Metro West, Melbourne Airport Rail Link and Inland Rail could all proceed as planned and with money to spare if we address this issue. The Intergenerational Report also released this month reaffirmed budget pressures will only become more intense, and the Federal Government must shift attention from the pressures to the opportunities at hand. The greatest opportunities lie in the construction industry.
ACA’s report reveals there is no shortage of solutions available to drive construction productivity but the sector’s ‘operating system’ requires a complete overhaul to realise the benefits. We are calling on the federal government to bring together state and territory governments, industry and unions, to urgently develop a comprehensive National Construction Strategy. With National Cabinet oversight, implementation of the National Construction Strategy will provide a focus on improving this critical industry that has been missing for too long.
National Construction Industry Forum
Tomorrow marks the one-year anniversary since the Jobs and Skills Summit and we are pleased to have been appointed members of the newly formed National Construction Industry Forum (NCIF). The announcement of the NCIF highlights the forum’s significance as a space for collaboration so we can tackle the industry’s most pressing challenges together, head-on. It is all about a tripartite forum and this is exactly what the National Construction Strategy proposed in our Nailing construction productivity report aims to achieve.
All risk, no reward
Just weeks before Nailing construction productivity was released, ACA released a report shining a spotlight on the poor health of the building industry and the need for urgent action. The report is called All risk, no reward.
The message is clear – the industry is in deep trouble, and government must act now to stop the contagion and create a more sustainable industry able to build the housing and infrastructure the nation requires. Building firms are entering administration at more than twice the rate of other industries. Building sector profit margins have fallen from around 3 per cent to below 1 per cent and liquidity has collapsed from 15 per cent to below 5 per cent. Most concerningly, over half of all large builders are now carrying current liabilities in excess of current assets—a technical definition of insolvency. The building industry is a textbook example of market failure.
The basic lesson is simple: fixed price contracts work well when the buyer knows exactly what they want, and the seller knows exactly how much it costs to produce. That market is not construction. In the building industry, all the uncertainty and risks are the responsibility of the contractor and, when those risks are realised, they are funded out of the contractor’s already razor thin profits. This practice of transferring all the risks to contractors under fixed price contracts has led to a deeply unstable industry. No contract can account for all the unexpected events that will complicate a building project as it unfolds, but it can incorporate mechanisms to encourage the client and contractor to resolve them fairly and reasonably.
All risk, no reward, proposes government clients lead the way by committing to new rules of engagement. The new guidelines recommend that building contracts become less transactional and involve the builder at the earliest opportunity to ensure an accurate price can be determined. This is to the benefit not only of the contractor but also the client who can be confident the builder will survive the delivery of their project.
A profitable construction industry is in everyone’s interests and should be a key priority for all governments.
Infrastructure Net Zero
The Australian Constructors Association is excited to join forces with other private sector peak bodies and federal agencies in the newly formed ‘Infrastructure Net Zero’ initiative.
The Infrastructure Net Zero initiative underscores the close collaboration between government and industry in creating a clear path for the sector to reach net zero emissions. We are entering a time where we need everything all at once – net zero, decarbonisation, sustainability – and navigating the policy landscape is challenging. This initiative will help to join the dots.
If we are to reach our goal, we need to start doing things differently now. The immediate priority areas will include defining net zero for infrastructure, reaching alignment between public and private sectors, uplifting capability in the supply chain and procuring for net zero.
Infrastructure Net Zero members:
- Australian Constructors Association
- Australasian Railways Association
- Clean Energy Finance Corporation
- Consult Australia
- Department of Infrastructure, Transport, Regional Development, Communications & the Arts
- Green Building Council Australia
- Infrastructure Australia
- Infrastructure Partnerships Australia
- Infrastructure Sustainability Council
- Roads Australia.