By Jonathan Cartledge, Chief Executive Officer, Consult Australia
Consult Australia has undertaken a wide-ranging member survey to understand the critical challenges currently facing the infrastructure sector and explore ways to overcome them.
The confidence of businesses designing and delivering Australia’s infrastructure depends on our ability to see what’s on the horizon. But three quarters of the respondents to Consult Australia’s 2024 membership survey are operating in a higher risk environment that is harder to predict than just 12 months ago.
Australia’s infrastructure industry has spent the last four years buffeted by pandemic lockdowns and supply chain bottlenecks, labour shortages, cost escalation and record rates of insolvencies. Local businesses have dealt with the consequences of international conflicts and global inflation.
Yet Consult Australia members tell us the most unpredictable aspects of running their businesses are the creeping or sudden uncertainties in the pipeline of projects, ‘death by a thousand cuts’ through increasing regulation and red tape, unaffordable insurance and unfair contracts. Some of these uncertainties are outside of our control; but many of these issues sit well within our governments’ sphere of influence.
Pipeline paradox
Each year we survey our members to gain insights into current business capacity, staffing impacts, market confidence and future challenges.
The findings of our 2024 survey, published in the Confidence & Continuity report, reveal a “reversal of fortunes” since 2023.
The nation’s five-year infrastructure and buildings pipeline stands at $691 billion according to Infrastructure Australia. However, the federal government’s snap strategic review of infrastructure investment slashed funding for 50 projects in 2023. State governments are now moderating their spending. This has led to uncertainty in the shorter-term, and conflicts with the clear recommendation of the review for reforms that deliver “greater transparency and certainty”.
In 12 months, we’ve witnessed a shift from most businesses saying they had “too much work” to most saying they have capacity. The sectors most likely to identify a lack of work are commercial buildings, rail and roads – no surprises there. Yet 77 per cent of respondents across almost all sectors expect to have capacity within the next 12 months.
Having some capacity gives businesses the breathing room to bid on new work; but this can become a concern when the continuity of work is not assured. Pipeline changes mean that almost half (46 per cent) of consulting businesses have made resource cuts. These cuts make it much harder for them to ramp back up when the market does and risks inflationary pressures on labour costs.
More than half of respondents to our survey said pipeline uncertainty was their biggest challenge. Professionals who plan, design and deliver infrastructure to last 100 years or more can’t get a view of their own businesses past the next six months. This erodes confidence and creates a vicious circle where businesses can’t risk investing in a future they cannot clearly see.
Contract conundrums
Pipeline uncertainty isn’t the only crimp on confidence. Seven in ten respondents cited the escalating costs of doing business as their biggest challenge. When asked what was making business so hard, the response was conclusive. Consultants are being asked to sign contracts that pass risk unfairly down the supply chain, often to the party least able to manage that risk. There are “unreasonable T&Cs” and contracts that severely limit the coverage offered through professional indemnity insurance. Builders are becoming more “litigious” while government clients fail to acknowledge the ongoing risks for small businesses in a landscape of “ever-changing and increasing legislation and mandatory reporting”. These issues come on top of deferred or delayed projects – often after they have passed the tender stage.
This feedback aligns with the recent Arcadis and Australian Constructors Association (ACA) Market Sentiment Survey, in which 71 per cent of respondents said current contracts did not adequately and fairly allocate risk between the contracting parties. “The apportionment of contract risk and liability is the single largest impediment to growth of our business,” one industry participant told the ACA.
Australia’s federation model can be a source of competitive strength that fuels a race to the top. But we currently risk a race to the bottom as regulatory overreach and red tape stifle business growth. In some states this means uncoordinated professional registration schemes or non-standard contract forms, in others it is in the guise of unreasonable management of liabilities or retrospective duty of care.
We know consultants are struggling to access affordable professional indemnity insurance; premiums for consulting engineers have grown by 75 per cent over the last seven years, according to the Australian Prudential and Regulation Authority. Nearly half (47 per cent) of respondents to the Consult Australia 2024 survey noted insurance premium increases of up to 10 per cent, and 62 per cent said fewer insurers were offering cover. Recent new regulations, notably the NSW Government’s proposed Practice Standard for Professional Engineers, introduce new obligations that will make it very hard for smaller engineering firms to bid for work.
Collaborative contracting
What’s the solution? The best way to bring the future into focus is to start at the front end of contracts. This means better planning and coordination of the pipeline of work from the outset, together with fairer risk allocation of work.
Jonathan Cartledge – CEO Consult Australia
Consult Australia champions eight ‘model client’ behaviours, including avoidance of non-standard or heavily amended contracts, and ‘collaborative contracting’ principles which maintain proportionate liability, balance rights and obligations, and fairly allocate risk. Collaborative contracting encourages industry and governments to use standardised collaborative contracts that prioritise communication and problem solving over disputation.
With the cost of poor productivity exceeding $56 billion each year, according to the ACA, collaborative contracting offers a pathway to more streamlined project delivery, as well as greater pipeline certainty.
Consult Australia’s team continues to champion greater infrastructure pipeline transparency and certainty in every roundtable, forum and committee meeting we host. It’s a message that we carry throughout the halls of power in every meeting with ministers and policymakers. We know restoring confidence and continuity in Australia’s infrastructure sector requires a concerted effort from us all. With fairer contract practices, fewer regulatory burdens and greater pipeline certainty, we can look to the future together.
To learn more, visit www.consultaustralia.com.au
