Focus on Construction: Boom as input costs rise
Peaking infrastructure pipeline and rising input costs, without tech adoption, threaten benefits of construction boom | December 2021 | Edition #2
Major public infrastructure activity is expected to double, peaking at $52 billion in 2023, as slower burning COVID impacts and supply chain pressures hamper efficient project delivery.
Construction and development businesses were disproportionately impacted in year two of the pandemic, recording a 38 percent increase in insolvencies in the December quarter.
Head contractors are turning to tech to scale early progress claim payments in order to garner loyalty with subcontractors and mitigate cost pressures in supply chains, with nearly five times more subcontractor registrations on Earlytrade last quarter.
Boom to crest as input costs rise
As Australia’s builders and subcontractors face a tsunami of projects, peaking at $52 billion in 20231, historically low productivity growth and escalating input costs threaten to hamper flow-through benefits for businesses and the economy.
After a comparatively uninterrupted 2020, the pandemic headache is now setting in, with many subcontractors still attempting to regain ground from the snap government shutdowns in NSW and Victoria in 2021.
The slower recovery has been compounded by labour shortages and supply chain pressures caused, in part, by global issues created by the pandemic response, with both factors also behind the inflationary environment construction firms currently face.
Surging insolvencies
According to the latest ASIC data, the number of construction firms entering external administration surged by 38 percent in the December quarter.
Although not yet at all-time highs, it was underpinned by a 57 percent increase in November alone, as the construction shutdowns, lockdowns and the removal of government support packages took their toll on subcontractors.
Whilst there is an element of seasonality to the data, when compared year-on-year it’s still a 29 percent increase for the latest quarter.
Disproportionately affected
All industries have been severely impacted by the events of the last two years, however, the construction industry has been disproportionately impacted by the Covid-19 response.
From calendar year 2020 to 2021, there was a 17 percent increase in construction insolvencies. Conversely, other prominent affected industries, such as hospitality, retail and agriculture, all marked reductions in insolvency events during 2021.
This is, in part, due to the ability of these industries to access government support. But it also highlights the slow burn for construction, which has seen pressure build for subcontractors for 18 months before something finally had to give.
Further highlighting this is the fact that construction companies now represent 28 percent of all insolvencies in Australia. That’s increased 1.8 times since March 2020 (the start of the pandemic), when that figure was at 16 percent.
Contractors turn to tech to generate productivity
All of this is creating a perfect storm in the construction industry. Supply chain pressures and labour shortages are thwarting activity levels, which should be picking up.
In an industry where, according to the Australian Constructors Association (ACA), productivity growth over the last 30 years has lagged other major industries by 25 percent, it’s no surprise that we are seeing huge demand for early progress claim payments from subcontractors using Earlytrade.
Early payments garner loyalty from subbies In the December quarter, the number of registered subcontractors on Earlytrade increased almost five-fold versus the previous quarter.
In the ultra-competitive and inflationary environment, builders are automating and scaling early progress claim programs to garner loyalty with subcontractors, in an effort to retain the best trades and skills across projects.
Similarly, demand for early progress claim payments from subcontractors increased by 3.6 times in the same quarter, further demonstrating the value of greater payment flexibility in the hands of subcontractors.
Bridging the productivity gap
Moreover, according to the ACA, if the gap in productivity growth between the construction industry and other industries over the past 30 years could be halved, the industry could construct an extra $15 billion of infrastructure every year for the same level of expenditure and employ an extra 15,000 people.
“To deliver the record pipeline of infrastructure projects, the industry must innovate to find ways to do more with less... closing the gap in productivity growth between construction and other major industries is essential.”
Jon Davies, CEO, Australian Constructors Association
Adoption of technology solutions designed for Australia’s construction supply chains will be crucial for head contractors to close the gap and realise those broad economic benefits.
Learn more:
Australian Constructors Association