Australia faces significant capacity challenges in delivering a record pipeline of public infrastructure work, a new report has found.

Releasing the 2022 edition of its Market Capacity Report, Infrastructure Australia says the five-year pipeline of public infrastructure projects has increased in value by more than $15 billion compared with its previous assessment and now stands at $237 billion.

This will further exacerbate current difficulties in labour and plant/equipment/material availability along with concerns about the financial capacity of overstretched contractors.

In terms of plant, equipment and materials, the report found that requirements are likely to double over the three years spanning 2020/21 until the peak of the infrastructure boom in 2023/24.

On labour, it found that the nation currently faces a whopping shortage of 212,000 skilled workers as at October 2022) to deliver upon public infrastructure work.

Across 2023, demand for public infrastructure workers will further increase by 42,00 to peak at 442,000 – more than double the available worker supply.

All this raises further concerns about potential cost blowouts and delays on major projects.

Moreover, the report says capacity may be further impacted by consolidation of major construction contractors and a rise in construction insolvencies which occurred in 2021/22.

With a significant number of contractors reporting that they are running at 90 percent capacity or greater, there are concerns that project delivery may be further impacted as some existing contractors may become financially overstretched and/or insolvent.

In addition to the sheer volume of work, such concerns are being driven by increasing project cost and complexity as well as poor allocation of project risk.

In its report, Infrastructure Australia called for several measures.

First, it called on governments to proactively manage infrastructure demand.

On this score, it called for more prioritisation of procurement and portfolio management as well as greater transparency, clarity and certainty surrounding the project pipeline. This would would help to improve productivity by providing greater industry confidence to adopt and invest in production and manufacturing approaches to project delivery.

To help reduce the level of project risk and improve risk management, meanwhile, IA says governments should maximise the level of front-end engineering and design and due diligence which is applied to projects. Such diligence should be employed as early as possible and should certainly be applied before major commercial contracts are awarded.

Next, the report urges measures to improve industry capacity regarding material supply and labour.

On material supply, it recommends helping to foster and embed circular economy approaches and practices through the creation of a circular economy roadmap (with annual progress reports) for the infrastructure sector.

According to the report, opportunities to repurpose or recycle materials are significant. As many as 27 percent of the materials which are currently used in road construction, for example could be replaced with recycled materials.

On workforce capacity, meanwhile, the report urges cultural reform to promote greater inclusion of women and other marginalised groups in the construction workforce.

This is important as women make up 47 percent of the overall workforce but only 12 percent of the construction workforce.

Finally, the report calls for a roadmap of measures to drive innovation and improve productivity.

This would be based on a Delivering Outcomes roadmap published earlier this year by Infrastructure Australia. That report outlined seven areas of reform and 30 best practice principles which focus on changing how projects are procured and delivered.

This is important as multifactor productivity in construction has been stagnant for 30 years and has lagged that in other related industries such as transport, manufacturing and logistics.

Infrastructure Australia’s Acting Chief Executive Adam Copp said challenges facing the sector are significant.

He says reforms are needed to improve market capacity.

“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,” Copp 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% capacity and above.

“Our latest research on market capacity points to an increasingly urgent need to better manage these risks and proactively sequence the major infrastructure pipeline. A focus on productivity improvements in planning and delivery, and more ambitious reform to sustainably expand the market’s capacity through supply of labour and materials is increasingly critical for successful, timely and cost-effective delivery.”

Engineers Australia CEO Romily Madew agrees says the need for change is strong.

She stressed the need for Australia to increase its workforce capacity across engineering, science, architecture and other areas – including by attracting and retaining more women into the workforce.

“Infrastructure Australia’s market capacity report highlights the need for change within a sector that is at breaking-point, Madew said.

“Implementing reforms that overcome flaws in project planning, procurement, and capability is long overdue. This requires commitment and collaboration from federal, state and territory governments through application of risk management practices, a mature approach to project governance and procurement, and funding for infrastructure investments.

“The Clough Group collapse is a sad example of the challenges the sector is facing. Unfair allocation of risk is leading to a lose-lose scenario. Frameworks are needed to manage risk across the value chain and to ensure appropriate allocation and reporting. As the [Market Capacity] report states, time pressures are reducing the risk discovery stage, which is leading to contractors assuming an increased, and often unsustainable, level of risk.

Key report takeaways

According to the report:

• 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% growth.
• Transport accounts for 63% of spend. Investment is concentrated in New South Wales, Victoria and Queensland (84% 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% 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

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