Improving risk management and proactively sequencing the major infrastructure pipeline will be key to managing the impacts of an overheated construction market, escalating input costs, labour shortages and productivity challenges, Infrastructure Australia’s 2022 Infrastructure Market Capacity report has found.
The Infrastructure Market Capacity Program in Australia is unique in the world in that it gives a national picture of the country’s infrastructure pipeline and the market’s capacity to deliver on it.
The 2022 edition reveals that risks to on-time and on-budget project delivery have grown in the previous 12 months, with demand for large public infrastructure projects growing by $15 billion in a year.
Despite an increase in public and private sector infrastructure investment, Infrastructure Australia’s Acting Chief Executive Adam Copp warned that the industry will face a jump in supply-side risks in 2021-22 due to global economic instability.
“Australia’s infrastructure sector is facing significant disruption to supply chains caused by the COVID-19 pandemic, volatile demand and more recently, the war in Ukraine,” he said.
“This is causing delays and cost escalations for imported items, while delivery risks are being compounded by severe labour shortages that industry report as having the greatest impact on capacity.
“Industry also reports that fast-rising costs and contracts that are increasingly allocating risk responsibilities to parties not best-placed to manage them, combined with sharp declines in tier 1 contractor’s profitability observed in our 2021 edition, has contributed to a sharp rise in construction sector insolvencies in 2022. This leaves fewer companies to deliver the pipeline of work, with many already operating at 90 per cent capacity and above.”
Key findings
- The five-year pipeline of major public infrastructure projects is valued at $237 billion – an increase of $15 billion in the last 12 months and equivalent to 6.7 per cent growth.
- Transport accounts for 63 per cent of spend. Investment is concentrated in New South Wales, Victoria and Queensland (84 per cent of spend).
- The demand for materials for use in road construction projects is expected to grow to a peak of $7.6 billion in 2023−24.
- Industry reports delays of up to 45 weeks in delivery of large diameter concrete pipe.
- Labour scarcity is the single biggest issue faced by construction companies.
- The cost of construction materials has risen by an average 24 per cent 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, labour demand is projected to increase 42,000 to a peak of 442,000. This is more than double the projected available supply.
Infrastructure Australia extended the Market Capacity Program this year to look at the possibility for new supply chains of recycled materials for infrastructure building.
It concluded that based on current technology and standards, roughly 27 per cent of conventional materials used for road construction might be replaced with a spectrum of recycled resources. This would imply replacing around 54 million tonnes of conventional road infrastructure materials with approximately 52 million tonnes of recycled materials.
With improvements in technology and updated regulations, the number of conventional materials that might be replaced by recycled goods may increase by 43 per cent, from 87 million tonnes to 80 million tonnes.
“Increasing the use of recycled materials is a cost-effective way to reduce waste and emissions and to deliver safe, sustainable and reliable infrastructure,” Mr Copp said.
“However, in terms of embracing this opportunity, industry uptake is highly dependent on the technology, standards, market appetite and processes across the supply chain.
“The increased adoption of recycled materials in infrastructure projects can be expected to create additional jobs. Adopting greater quantities of recycled materials would create 9.2 jobs for every 10,000 tonnes of recycled waste, compared with only 2.8 for sending waste to landfill.
“With demand for materials for use in road construction projects expected to grow to a peak of $7.6 billion in 2023−24, there are substantial economic, social and sustainability benefits in utilising more recycled materials in delivering the infrastructure pipeline.”