The poor productivity performance of Australia’s fourth largest industry is costing the economy $47 billion annually and is indicative of a business that is stuck in the past.
The Australian Constructors Association’s latest report, Disrupt or die, reveals the construction industry’s woeful productivity performance and points to an emerging new threat—a lack of willing workers.
Australian Constructors Association CEO Jon Davies said the construction industry must substantially transform if it is to have any chance of delivering the substantial pipeline of work before it.
“Over the last 30 years, almost every other industry has advanced yet Australia’s construction industry has gone backwards,” said Mr Davies.
“Construction productivity today is lower than it was in 1990 and 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.”
Associate Director Adrian Hart from BIS Oxford Economics said the industry’s inability to improve productivity performance is placing pressure on labour which has had to be boosted to compensate for the lack of productivity improvement.
“Where labour and capital have been scarce, this has led to increased demand pressure on resources, increasing construction costs and, in some cases, project delays,” said Mr Hart.
The Australian Constructors Association believe the biggest opportunity to disrupt the industry and improve productivity lies in fundamentally improving how projects are procured, delivered and governed—essentially white-collar activities.
“White collar occupations account for the majority of the construction industry’s 105,000 skills shortage estimated by mid-2023,” said Mr Davies.
“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 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.”
“All too often, procurement processes encourage competition on willingness to price and accept unquantifiable risk rather than ideas to deliver improved project outcomes.”
The Australian Constructors Association agrees that 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.
“The industry cannot afford to continue down the path of slow incremental change. It is time to fundamentally disrupt how it operates to ensure we have sufficient workers delivering infrastructure that Australia can afford.
“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 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.
But to fully address this problem, government, industry and unions need to come together and collaborate as never before and the recently announced National Construction Industry Forum represents a good opportunity to do this.
Download the report.
- Since the peak of the resources boom in 2014, construction industry productivity has declined a massive 16.5 per cent. Not only is this a more significant drop than felt by other industries, but it also takes the construction industry below its late 1990s productivity performance.
- Overall, productivity in the construction industry was 1.8 per cent lower in FY 2021 than in FY 1990. This represents an average growth rate of -0.1 per cent per annum since FY 1990 which is well below transport at 0.9 per cent per annum and manufacturing at 0.8 per cent per annum.
- Over the 31 years since 1990, the ‘gap’ between productivity of the construction industry and that of other industries has grown. Other industries achieved productivity growth of 31.8 per cent since 1990, while construction has seen productivity fall 1.8 per cent over the same period—a differential of 33.6 per cent.
- In FY 2019 alone, the opportunity cost—that is, the potential foregone construction output from a 30-year period of relatively weak productivity performance—was roughly $35 billion. Two years later, the opportunity cost has blown out to $47 billion. To put the size of this loss into context, the $47 billion figure for FY2021 alone dwarfs the cost of some of Australia’s largest infrastructure projects currently in planning or under construction such as the North East Link, the Western Harbour Tunnel and Beaches Link, and Inland Rail—all $10 billion plus projects.
- At a state level the opportunity costs from relatively weaker construction industry productivity ranges from $493 million for the Northern Territory to $15.4 billion for New South Wales for FY 2021 alone. These costs will rise further in future years if construction industry productivity growth continues to lag that of broader industries.
- White collar occupations account for the majority of the construction industry’s 105,000 skills shortage estimated by mid-2023.