13 May 2014 — The latest Australian Construction Industry Forum market report shows an upswing in activity across many states, however according to ACIF executive director Peter Barda, the industry remains volatile in response to shifts in government policy and wider business trends.
ACIF will release its new Construction Market Reports this week, with the first of the national business briefings starting Wednesday in Sydney.
In an interview with The Fifth Estate in which Mr Barda also canvassed the broad move to sustainability in “business as usual” for builders, Mr Barda analysed the micro trends and also provided some advice to businesses on how to deal with a rapidly changing landscape.
In the Australian Capital Territory, government job shedding has led to a rapid slump in terms of commercial office activity, and this is also likely to translate into a downturn in demand for new residential construction, Mr Barda said.
“Whatever the Commonwealth does in the ACT has a huge impact locally because of the influence of the public sector, and it is difficult for the private sector and the ACT Government to fill the gap [in terms of commercial office demand].
“However, the thing with the Canberra market – as it is with the Hobart market – is being so small, just one big road project or hotel will change the numbers in terms of activity. In Canberra, Capital Airport Corporation could build more offices, and the ACT Government is trying to attract the private sector [to occupy commercial space].”
The national trends – residential growth slow but steady, slump in mining
Nationwide, growth in construction for heavy industrial engineering and mining is on a downward trend, while expenditure in residential construction is expected to increase over the short to medium term, due to the combination of population growth driving demand and low interest rates.
In the non-residential sector, modest growth is forecast, with spending in health, aged care, accommodation and entertainment driving most of the increased expenditure.
Total construction activity is projected to amount to around $228 billion in 2014-15, slightly down in comparison to an estimate of $237 billion in 2013-14.
The data shows that overall growth is picking up in New South Wales, but slowing in Western Australia and Victoria. In Queensland, the number of approved residential projects in the pipeline gives a strong indication the supply of housing in the state will grow in the short to medium term.
Mr Barda said in media reports on Tuesday that the federal government should balance spending on roads with that on ports and rail facilities because a “roads-only budget” focus would not help the non residential sector, which included schools, hospitals, high-rise buildings and shopping centres.
Renewable energy projects are a bright spot
Data from Cordell Information in the ACIF forecasts shows that renewable energy projects are contributing to a slow but steady increase in activity in the electricity and pipelines sector, including projects such as Bango Wind Farm (estimated value $700 million) and Liverpool Range Wind Farm (estimated value of $800 million) in NSW, and the Williamsdale Solar Farm in Canberra (estimated value of over $600 million).
However, this view is ahead of the federal budget and other potential measures that flag a major attack on renewables from the government.
The level of detail in the forecasts includes a full comparison breakdown of each subsector of the industry. This shows, for example, that the small renovations and extensions element of residential building continues to perform strongly, with growth predicted to increase.
Government influence is clear
In sector after sector, however, the influence of government policy is clear, particularly in terms of projects that rely on public funds such as infrastructure, major entertainment projects, telecommunications and data, water, and education.
Interest rates, the value of the Australian dollar and the demand for mineral exports also play their part. For this reason, historical comparisons are given for key figures and commentary developed by ACIF, Cordell Information and ACIL Allen Consulting.
The cost forecasts part of the reports gives firms a guideline of prices, which Mr Barda said is valuable for tendering in a highly competitive market, as it reduces the chances projects with a long lead time will see initial price estimates exceeded past the planned contingency amounts.
“Quantity surveying is something of a black art,” he said. “In the past most contracts had a rise and fall clause which applied in the event prices moved. What has now replaced that is the use of contingencies, so [tenderers] have to make an estimate of prices and their possible change.
“We have a lot of estimators who use our [Market Report] data to get an accurate picture of price estimates. WorkCover also uses our information to get a picture of future revenue flows from premiums.”
Some advice: the bottom line is that cleverness, collaboration and sustainable approaches will pay off
What it all boils down to for firms in the building sector and inter-related sectors such as design, interiors, landscaping, consultants and suppliers, is that firms need to be adaptable, informed and innovative, including adopting sustainable practise.
“Firstly, firms have got to be nimble, and be prepared to move from one type of construction to another,” Mr Barda said.
“The second most important thing is you have to play to your strengths. Stick to what you know best and [particularly for tier two firms], keep the overheads down so you can compete aggressively on major projects with tier one firms.
“Thirdly, the smaller firms need to build good personal relationships with the pool of clients for the type of assets they are good at, for example, building relationships with schools, sports clubs or churches. The Department of Defence is a good example; the firms who have built relationships there through projects are pre-qualified in terms of Defence contracts.
“The lesson [of this kind of market] is it is also important to focus on your limits.”
Mr Barda also stressed the need for firms to understand that clients have their own priorities.
Mr Barda flagged that sustainability was rising up the agenda.
“You can be technically terrific, but you also need to see [projects] from the client’s point of view,” he said. “It’s about horses for courses, and sustainability is part and parcel of that.
“The builders have got to be across [sustainability] now.”
“So much of the smarts [in a sustainable building] are in the services,” Mr Barda said, explaining that many of the trades, such as electricians, have adopted the sustainability approach as business as usual.
He said projects now require all the “bells and whistles”, including energy efficient mechanical, electrical and lighting systems, in addition to smart facades.
To achieve this in a value-conscious way, he said the relationship needed to be closer between contractors and subcontractors, with building information modelling as a platform to enable subcontractors to contribute to design and resolve issues such as materials and onsite storage. He also said he believed clients should be engaged in these early stage dialogues, and that educating clients was a key task for contractors.
“Clients get a better deal [in terms of the project] if they understand what the benefits are of trade people being involved early,” Mr Barda said.
“The smart people have been doing things that way for years. When you get all the trades involved, and the client, you get fewer defects, less waste, a cleaner site, better safety, and a project that finishes on time.
“Utilising BIM and using collaborative approaches minimises both hard construction waste and time waste.”
Refurbishment is an area he sees as delivering an increasing share of the opportunities, particularly with projects driven by the goals of power saving and carbon savings.
“I’m not hearing many stories about subcontractors going out backwards [who do those types of projects],” Mr Barda observed. “This is a source of work that wasn’t there five years ago.”
For details on the ACIF briefings in Brisbane, Sydney, Canberra and Melbourne, see the event listings here.