Developers and builders throughout Australia are being warned to allow for cost blowouts on major construction projects the likes of which we have not seen in several decades.

As construction activity and employment soar to record highs, pressures are emerging as prices of steel and concrete rise and the cost and availability of some trades is drawn into question.

In its Construction Market Conditions 2018 report, quantity surveying firm WT Partnership says it expects tender price escalation of between four and five per cent for civil infrastructure developments and between three and four per cent for building projects throughout 2018.

It said infrastructure would drive activity as New South Wales and Victoria undertake significant investment in road, rail, water, ports, airports and telecommunications

Meanwhile, there are a substantial number of residential towers yet to be completed notwithstanding declining levels of foreign investment. Aging and population growth, meanwhile, is driving activity on healthcare, aged care and education projects.

This, WT said, will add pressure to the cost and availability of labour, materials and equipment.

“Nationally, the growing demand from the infrastructure sector is pushing up costs of personnel, plant and equipment, and base materials such as aggregates, cement and steel,” WT said in its report. “As resources become more stretched, these pressures create an industry wide challenge.”

Others issue starker warnings.

Peter Clack, director of construction cost consulting firm Ralph Beattie Bosworth and the immediate past president of the Australian Institute of Quantity Surveyors, warns of tender price escalation in the realm of six per cent by the end of the year. Cost pressures, Clack says, are evident in proportions which the industry has not seen for 35 or 40 years.

Whilst he acknowledges that stronger conditions are welcome overall, Clack warns of a ‘big risk’ of cost blowouts on major projects. Workers in structural trades such as concreters, steel workers, formworkers and fixers will be in shortage as a massive volume of infrastructure projects pulls these trades away from buildings.

In materials, the sheer volume of major infrastructure projects will push up prices of concrete and steel. Prices of steelworks, Clack reckons, could go from around $5,500 to $6,000 per tonne now to around $8,000 or $9,000 over the next 18 months.

The degree of shortage, Clack says, can be seen through talking to Tier 1 and Tier 2 builders – many of whom have order books which are close to capacity for at least two years. He relates one story of a Melbourne contractor who was invited to tender for a project worth more than $1 million but refused to even consider tendering on the basis of the company’s order books being full for two years and not being willing to accept the risk associated with new clients.

Whilst mature developers are likely to heed warnings from quantity surveyors and cost planners about likely increases, Clack warns that inexperienced ones may get hit with blowouts which send them to breaking point.

Builders who fail to allow for this within their tenders as well, will find themselves holding the can as subcontractors renege on promised prices and amid more attractive offers elsewhere.

“You are going to go from a saturated market to an overheated market,” he says. “There will be considerable cost pressures on major projects.

“I don’t mean to be doom and gloom. I think it is really good that the industry is busy. But these are some of the risks to be wary of through an overheated market phase.”

In its report, WT warned of price escalation in New South Wales and on infrastructure projects in Victoria.

In New South Wales, it issued warnings of price rises in demolition, joinery, formwork, plasterboard trades and well as partitions and ceiling pricing.

In Victoria, it warns of pressure on the availability of specialist consultants, subcontractors, suppliers and plant and equipment. With a large number of infrastructure projects running in parallel, it warns of rising prices for concrete, aggregates, reinforcement and steel.

According to WT, the outlook for tender prices and costs by state is as follows:

New South Wales

Significant cost and tender price pressures will be evident in New South Wales, where ongoing robust levels of activity across all sectors will continue to drive a busy marketplace.

Leading the way will be infrastructure, as work associated with the new Western Sydney Airport joins a list of other major civil works projects already on the go. New commercial projects including Quay Quarter, ATP, 60 Martin Place and Paramatta Square will keep the office building sector busy with a pipeline of 550,000 square metres worth of stock in the pipeline.

Added to that, there is a massive pipeline of new hotel developments and redevelopments (The Ritz Carlton, Star City Casino, Crown Sydney Barangaroo and the W Hotel Ribbon and Residences) whilst a pipeline including the upcoming redevelopment of Moore Park and Olympic Park as well as the current works at Paramatta Stadium will create a busy period in the building of stadiums and entertainment venues.

Meanwhile, funds released through asset sales are driving record investment in road, rail, healthcare and education over the forward budget estimates period. This will be a natural trigger for new retail, office and residential amenities, especially in areas such as the tight commercial market in Paramatta and further afield in areas which expect to derive an uplift from the new Airport project.

All this is not forgetting the residential sector, which is peaking but is expected to remain in the grips of record activity levels at least for 2018 following year-on-year growth in already elevated levels of residential approvals in 2017.

The amount of activity is placing massive pressure on trade availability and costs. Courtesy of the commencement of demolition works across 16 commercial office sites to make way for the Sydney Metro project, significant shortages and pricing pressures are anticipated from demolition contractors.

Meanwhile, formwork trades are returning pricing well above benchmark rates and joinery trades are nearing capacity. Contractors in are reporting difficulty in obtaining subcontract quotes, WT says, as large joinery packages are being tendered interstate. Partition and ceilings pricing has been under pressure in 2017 and will continue to be so in 2018. Labour rates are also rising and this will place pressure upon supply chains which need to pass on the increase.

As of yet, significant growth in copper and iron ore prices has not impacted prices of steelworks and hydraulics trades, but WT expects costs to rise in this sector in 2018. Building Services trades in 2019 and 2020 will come under pressure as metro projects move into construction and the Western Sydney Airport moves into procurement.

Because of all this, WT expects tender prices increase of four per cent in calendar 2018 and 4.5 per cent in 2019.


Substantial cost pressures are expected in Victoria especially in civil construction but also in buildings as well.

In civil, we are seeing major government work including the widening of CityLink and the Tullamarine Freeways as well as Melbourne Metro Rail and the level crossing removal projects. Going forward, these will be joined by the West Gate Tunnel project and North East Link.

All this is expected to add pressure to already tight areas in specialist consultants, subcontractors, suppliers and plane and equipment. The pipeline of large projects will place enormous pressure upon material availability including concrete aggregates, reinforcement and steel. Already, WT says, there is ‘inconsistent’ pricing results in reinforced concrete trades, precast concrete, structural steel, mechanical services and electrical services. Both contractors and subcontractors are enjoying greater choice in the work which they accept.

Accordingly, WT expects tender price escalation for infrastructure projects to surge by between four and five per cent in 2018 and by between 4.5 and 5.5 per cent in 2019.

Whilst this is not anticipated to flow through into building sector costs, tender price increase of between 2.75 and 3.25 per cent are expected in buildings for 2018 followed by a modest increase in 2019 on the back of continued (though peaking) work in apartment construction as well as a good number of office projects.


Cost pressures are also evident in Tasmania as a strong pipeline of work keeps the market at capacity.

In its forecasts, WT says it expects tender prices increases of 3.5 per cent per annum over the next three years. But it warns that these assumptions are based on developments in the pipeline coming online with a relatively even spread. Should a number of these come online concurrently, it warns the market could be saturated and that spikes in prices and costs are possible.

Thanks to projects such as the Royal Hobart Hospital Redevelopment, UTAS Hedberg Performing Arts Project, Myers Stage 2, Parliament Square State 2, the Mona extension works and the Hyatt Hotel development (expected to start in first half of 2018), current conditions in Hobart are strong.

This is being complemented by smaller scale developments from private investors, the Department of Health and the Education Departments which are either underway or expected to start over the next 12 months.

All of this, WT says, is keeping both Tier 1 and Tier 2 contractors busy.

Going forward, activity will be supported by larger projects in planning stages such as Kangaroo Bay Hotel and Hospitality Training School, Federal Hotels Port Arthur Resort, several Fragrance Group Hotel developments and a number of other hotel developments.

In the north, contractors are at capacity thanks to large projects in Launceston, whilst there is significant work happening in regional developments.


Reasonable pricing pressures are expected in the ACT, although the report from contractors is that subcontractors are keen for work and tenders remain competitive.

Although office vacancy rates remain high, participants in the most recent Property Council of Australia/ANZ Property Industry Confidence Survey report improving levels of confidence in respect of forward work schedules.


Modest cost pressures are expected for Queensland notwithstanding an easing in inactivity amid greater competition for construction labour, plant and materials from NSW and Victoria.

Whilst there has been a decline in investment, the residential market will remain busy throughout 2018 courtesy of Queens Wharf and other developments such as Herston Quarter, 300 George and No 1 Brisbane. Detached home building and townhouse development will continue in new communities such as Aura Caloundra South, Springfield Lakes, Northlakes, the Brisbane South West corridor and the Gold Coast region.

South Australia

Although modest pricing pressures are evident for South Australia overall, signals from the market about how this will play out vary.

Having endured several years of subdued conditions, Tier 1 contractors are no longer willing to tender with nil margin to win cashflow projects and are now tendering with more sustainable margins. The market at this tier is also suffering from a reduced pool of qualified trade contractors and a lack of labour in key trades for Tier 1 work.

Added to this, shortages in scrap steel from China have driven price rises of 15 per cent in steel reinforcement whilst concrete supply costs are also rising. Hungry for a ‘catch-up’ after several lean years, Tier 1 Adelaide and National Tier 1 contractors are forecasting price escalation of up to four per cent.

A different story emerges, however, at the Tier 2 and Tier 3 end of the market where tenders remain extremely competitive, EBA labour cost increases are being absorbed in pricing and tender submissions with limited or no margins are common.

Reasonable levels of activity are expected, driven by projects in areas such as hospital and aged care, student accommodation, defence and retail as well as the new $330 million Adelaide Casino. Around $679 million worth of work will also go toward the South Australian government Building Better Schools program in 2018/19.

Western Australia

Modest price pressures are re-emerging in WA as the state’s economy and construction sector emerge from their post-mining boom slump.

Excess capacity still exists, but WT expects much of this will be absorbed throughout 2018.

A number of retail projects such as Forest Chase Redevelopment and Karringup Shopping Centre are expected to come online in 2018. Though oversupply continues, WT says the hospitality sector is showing signs of recovery.

Resource sector activity is also increasing and there are a number of road, rail and port projects such as Metronet in the pipeline.

There are also a decent number of projects in the longer term pipeline for defence, student accommodation, aged care, private health care and the Department of Justice.

Northern Territory

As the massive INPEX LNG gas project moves from its construction to operation phase, cost and pricing pressures in the Northern Territory construction market are expected to remain modest.

Though small in comparison to INPEX, commercial projects either planned or underway will support the sector for several years. These include the Darwin City Waterfront development, a $500 million upgrade of the HMAS Coonawarra and Larrakeyah Barracks and the $250 million Westin Hotel development at the Darwin Waterfront. Two gas projects worth a combined $3.5 billion are awaiting approval.