Economic and social infrastructure are likely to rise higher on the agenda for federal and state governments facing the polls this year. But there are some other curve balls coming as well.

Making any sort of prediction in these uncertain times, is an activity fraught with risk. A prediction that may have appeared insightful at the outset of the year, may well be proven to be soon misguided if not hopelessly wrong. We have lowered our sights a little, and focused on what we think are likely trends for the Australian infrastructure and construction industry over the next 12 months.

As a result of COVID including the rapid move to flexible working arrangements, we expect that demand for commercial and traditional retail space will be very soft for the forthcoming year.

This will have a major impact on construction.

However, to limit the impact of any downturn in construction activity, we expect state and federal governments to support the economy by continuing to procure economic and social infrastructure. The federal election due in the first half of the year, as well as state elections in both Victoria and South Australia, also present opportunities for the likely announcement of further new major infrastructure projects to add to the already burgeoning pipeline.

We have seen strong inflation in other markets, and Australia is not immune from this. In particular, there has been very little migration into Australia in the past two years, and there are emerging trends of shortages of workers in the Australian construction industry.

So far, this has primarily caused project delays, but we expect to see wage pressures in this industry during the year.

If there is a change in government at the federal level, the Australian Building and Construction Commission may also be abolished. We consider these factors are likely to lead to increases in blue collar wages in the construction industry.

It will be interesting to see whether the opposing trend of reduced commercial and retail building will soften this push.

In recent times, following a series of heavy losses on major projects, the major design and construct contractors have become much less willing to accept open ended time and cost risk, particularly on major projects. And the past two years have made this situation much worse.

Accordingly, the recent moves by the Victorian and NSW governments to collaborative contracting models will continue apace. In particular, models that share procurement risks, the costs of delays, unknowns and wage increases.

There has been a shift away from traditional Public Private Partnerships (PPPs) models for high-risk and high-value procurement, although it may be some years before it becomes apparent whether more collaborative models deliver value for money outcomes.

As the Australian market becomes slightly friendlier for major contractors, we can expect to see continued interest from established, overseas contractors looking to take a share of the available work (particularly, those from Italy, Spain, Korea and Malaysia). 

International contractors see Australia as a greenfield opportunity with a big project pipeline and the ability to expand their global footprints. Although in the recent past some international contractors have struggled to succeed in the Australian market, the move to more balanced risk allocation makes Australia more attractive.

As an international firm with a large global client base, we are aware of numerous examples of clients from overseas markets asking us to actively keep them updated on upcoming project opportunities in Australia.

Renewables, battery and hydrogen generation

We are still seeing an active renewables sector, with a greater focus on battery storage and hydrogen generation. Continuing regulatory and technical challenges in this market, as well as curtailment of renewable power at periods of peak production, mean that batteries, hydrogen production and other storage methods will become increasingly popular.

Joshua Saunders, Baker McKenzie

Joshua Saunders is a partner in the Sydney office of Baker McKenzie and specialises in infrastructure and construction law. With nearly 20 years’ experience including 14 years in-house at Lendlease. More by Joshua Saunders, Baker McKenzie

Matt Coleman, Baker McKenzie

Matt Coleman is a partner in Baker McKenzie’s Melbourne office. Matt is a specialist infrastructure, construction and major projects lawyer with over 17 years’ experience advising in relation to the development and delivery of complex, large-scale projects across a broad range of industry sectors including rail, roads, education, energy, water and property. More by Matt Coleman, Baker McKenzie

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