Demand for major public infrastructure projects is increasing, but so is the risk that projects will be late and over-budget, according to Infrastructure Australia’s latest market capacity report.

The 2022 capacity report released this week assesses the national infrastructure pipeline and the ability of the market to deliver on it.

It shows that risks to on-time and on-budget project delivery have increased in the last year – which also saw $15 billion worth of growth in the infrastructure pipeline.

The report says the five-year pipeline of major public infrastructure projects (not including defence) now stands at $237 billion – representing 6.7 per cent growth over the last 12 months.

However labour scarcity, increasing costs of construction materials – up 24 per cent in the last 12 months – and supply chain issues have resulted in likely project delays and cost increases for current and upcoming public infrastructure projects.

Labour shortages

The report rates looming labour shortages as the single biggest issue facing construction companies.

Public infrastructure projects, including small capital projects, face a shortage of 214,000 skilled workers, Infrastructure Australia says. In 2023, labour demand is projected to peak of 442,000, more than double the projected available supply.

“Australia’s infrastructure sector is facing significant disruption to supply chains caused by the COVID-19 pandemic, volatile demand and more recently, the war in Ukraine,” Infrastructure Australia’s Acting CEO Adam Copp  says.

“This is causing delays and cost escalations for imported items, while delivery risks are being compounded by severe labour shortages that industry report as having the greatest impact on capacity.”

Mr Copp says industry is also reporting that escalating costs, and conracts that are increasingly allocating risk responsibilities to parties that aren’t best-placed to manage them, is contributing to a sharp rise in construction insolvencies.

“This leaves fewer companies to deliver the pipeline of work, with many already operating at 90 per cent capacity and above,” he said.

The report makes a number of recommendations, including:

• Improving industry capacity and capability by prioritising procurement and portfolio management, and increasing pipeline transparency, certainty and confidence
• Improve value for money and reduce risk by adopting appropriate best-practice front-end due diligence for projects
• Ensure the industry is a sector of choice for employees and can meet current and future workforce demands by introducing cultural reform that embraces diversity and inclusion