Australia’s civil construction sector is being severely impacted by the current surge in fuel prices, a new report suggests.

And there are calls for action to avoid a new wave of insolvencies.

Prepared by economist Saul Eslake for the Civil Contractors Federation (CCF), the report examined the effect of the current fuel crisis on Australia’s civil construction sector.

The report comes as the ongoing closure of the Strait of Hormuz has caused severe disruption to global oil supplies and sent prices skyrocketing.

In Australia, this has led to a surge in diesel prices and a substantial increase in petrol prices.

As of April 3, average wholesale prices for diesel across the country had risen by 78 percent or 127 cents per liter since the beginning of the latest conflict and now stand at more than $3 per litre.

As of that same date, wholesale petrol prices were up by 38 percent or 49.2 cents per litre (see chart).

According to the report, the impact upon civil construction is massive.

This includes both the direct effect of rising energy/transport costs in operations as well as indirect effects in relation to key material prices.

In terms of the direct effect, the report says that the construction sector is more dependent on diesel fuel than any other industry (see chart).

In 2023/24, diesel fuel accounted for approximately 79 percent of the sector’s overall energy use.

The effect is particularly severe for heavy and civil engineering construction, which accounts for around two-and-a-half times the volume of diesel consumption as residential and non-residential building construction combined.

The impact is massive.

All up, the 1,150 firms who are members of the CCF use around 88 million liters of diesel per month.

Across all of these business combined, the aggregate cost which is associated with the rise in diesel prices since the latest outbreak is estimated at $128 million per month.

If sustained for a full year, the annual cost to the industry would be around $1.43 billion or 1.2 percent of the annual value of engineering work done.

Beyond the direct fuel expenses, the crisis is also affecting material availability and price.

According to the report, prices of many civil construction products for which petroleum is a significant input have risen by between 35 and 50 percent since the start of the conflict.

These include bitumen and asphalt, explosives, PVC and polyethylene pipes, electrical conduits and geo-textiles.

This is in addition to the rise in the cost of transporting bulky materials such as cement, concrete and steel to construction sites.

(image source: Te Impact of the Middle East Fuel Crisis on Australia’s Civil Construction Sector report, prepared for the Civil Contractors Federation Australia Ltd by Saul Eslake, Principal at Carina Economic Advisory, April 2026)

Insolvency challenge

The report warns that all this will challenge the financial viability of many civil construction enterprises.

All up, data from the Australian Bureau of Statistics indicates that the value of work done in heavy and civil and engineering construction throughout Australia amounts to between $100 billion and $150 billion each year (constant dollar terms, 2023/24 dollars).

Comprising around 10,000 businesses, heavy and civil engineering construction employs around 193,000 people and plays an important role in delivering local, state and national infrastructure.

However, the sector faces challenges as it operates primarily on fixed price contracts with narrow margins.

According to CCF, average profit margins for civil construction projects stand at between one and five percent, depending on the size of the project.

Moreover, between 80 and 95 percent of civil construction contracts are fixed price in nature. Many of these agreements contain limited if any provision for price adjustments in response to unexpected cost fluctuations.

This leaves contractors needing to absorb the massive additional cost burdens despite being on wafer thin margins.

If not addressed, the report warns that the latest situation could lead to a new wave of contractor insolvencies.

It points out that construction insolvencies surged following the outbreak of COVID based supply disruptions, the Russia/Ukraine energy crisis and higher interest rates.

It warns that any further increases in insolvencies would disrupt projects that are needed to deliver upon government objectives in important policy areas such as housing and energy.

(source: as above)

Action needed

In response, the report calls for five actions to be undertaken by Federal, State and Territory Governments.

These include:

• Recognising civil construction as an essential industry similar to agriculture or transport in the event that fuel rationing becomes necessary.
• Establishing a consistent and practical mechanism through which to adjust contract values in response to significant price movements in either direction on public sector projects. This would apply to both new and existing contracts.
• Additionally or alternatively, providing time limited support to agencies and project owners in cases where abnormal input cost increases cannot be absorbed within existing budgets on public sector projects. This could be done through established infrastructure funding channels and would help to avoid delays, scope reductions and project failures.
• Providing top-up grant funding to local councils in order to address unanticipated cost increases on municipal level projects.
• Enhancing the long-term resilience of Australia’s civil construction sector in the face of unforeseen cost pressures and supply chain disruption by directing agencies to ensure that all future civil- construction contracts include rise and fall provisions which are fit for purpose in respect of items such as fuel, bitumen and key oil-linked products.

(mage source: as above)

Situation critical

CCF Chief Executive Officer Nicholas Proud said that the gravity of the situation should not be underestimated.

“Civil construction is the most diesel-exposed sector in the Australian economy and is being hit hardest by this fuel shock,” Proud said.

“At its core construction and civil in particular Australia’s exposed industry, beyond agriculture, mining and others, with a 79% reliance on diesel for energy. When prices spike at this scale, the impacts are immediate, systemic and unavoidable.”

“As per the report, the construction industry has the highest insolvency rates of any industry and they have almost doubled since covid with around 3,500 businesses going under in the last year which sees around 50,000 workers losing their jobs which will only increase in this period ahead.

“Our industry operates predominantly under fixed-price contracts. Where there are no rise-and-fall mechanisms to recover increased input costs such as diesel and materials, already thin margins of 1–3% are quickly eroded, placing projects at risk of becoming unviable or being cancelled.

“Whilst the CCF is undertaking engagements at ministerial and departmental levels across the Commonwealth, states and territories to explore cost recovery options, there remains little prospect today of relief for private-to-private projects, including subdivision and housing works across water, sewer, energy and utilities.”

“The cessation of projects and potential insolvency of civil infrastructure contractors will begin to flow through to household budgets and cost of living, particularly where the cost of essential maintenance and upgrade works is passed on. With families already facing pressure from fuel, mortgages and rents, and the prospect of rising electricity, gas, water and sewer prices, there must be a balanced approach to keep businesses going.

“This report makes clear that the risk is not theoretical. It is being felt across projects right now.”

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