Critical labour shortages plus escalating materials costs are a spanner in the works for Australian construction businesses.

In the year to September, residential construction costs increased 7.1%, the steepest rise since 2005. Those costs are tipped to jump a further 6% this year, says the Urban Developer. Underpinning those higher prices is the worst materials shortage in more than four decades. Timber, bricks, tiles, steel, vinyl, glass, and aluminium are among the materials in short supply, says the Australian Property Journal. That’s pushing out lead times by up to 18 months.

As well, construction is experiencing the greatest demand for workers of any sector in Australia, with tradies accounting for 35% of the labour shortage.

How can your business overcome these largely pandemic-induced crises?

Why the scarcity?

The reasons for the skills and material scarcity are primarily due to the pandemic’s direct and indirect effects. These include border closures. The sector is dealing with a backlog of orders thanks to production slowed by shutdowns, customs delays, scarce shipping containers and infections in the workforce.

As well, raw material prices such as timber and iron ore prices hit record highs, affecting final products, particularly steel. For example, in the year to May 2021, iron ore rose from US$80 a tonne to US$233 a tonne. It then slumped to US$111 a tonne before Christmas.

Don’t forget the 2019-20 bushfires when an estimated 130,000 hectares of commercial plantations went up in smoke, according to the Australian Forest Products Association. Not much is salvageable and it will take several years to restock this supply. And heavy rain and flash flooding across regions such as Queensland have impeded the transport of materials.

Add to the mix, governments in Australia and overseas investing in infrastructure and construction to build their way out of the crisis, creating even more strains on supplies. The HomeBuilder scheme boosted new home builds and renovations, for example. As well, the Federal Government in its last budget announced $15.2 billion for infrastructure projects in the 10 years to 2032.

Human capital at a premium

These projects, such as for bridges, roads and railways, could be a risk due to the “worst skills shortages in decades”, says ABC News Online. Meanwhile, Infrastructure Australia has put the worker shortage at 105,000 by next year and says project managers will possibly struggle to fill one in three vacancies then. It says 34 of the 50 occupations identified as relevant to public infrastructure are rated as likely to experience shortages.

The trades in highest demand are plumbers, electricians, labourers, bricklayers, and plasterers, says construction industry software company, Procure.

Construction outlook for 2022

The construction sector is expected to grow 2.4% annual over the next five years, according to the Australian Industry and Skills Committee. That means the sector will be one of the country’s top four sectors for growth.

And, while most Australian workers can’t count on a pay rise, construction industry wages are forecast to increase by 6% because of the growing skills shortage. Monadelphous, one of the bigger players in the sector, is paying a 10% premium to recruit and retain workers.

To create their own talent pipeline, Australian construction businesses are renewing their focus on taking on more trainees and apprentices. Doing so through group training organisation (GTO), means your business is the host employer. That way if the underling isn’t a good fit, or there’s a significant downturn of trade, the GTO can re-assign them to another firm. As well, firms are casting the recruitment net wide to ensure a more diverse workforce, including dealing with the sectors’ poor record of attracting women

Strategies to mitigate supply chain disruption

Even before the pandemic, contract overruns for time and budget were commonplace, so chances are you just negotiated for more wriggle room. It may be worth communicating even earlier to find compromises about project timelines.

Consider these strategies before and after a disruption has happened, too:

• Asking developers and clients for flexibility because there isn’t a simple solution to supply chain issues – ‘rise and fall submissions’ as part of contracts are returning in popularity
• Open discussions to see if developers and contractors can agree to share the cost impact of delays, or if not then be upfront to price the risk of the delay
• Scheduling regular in-person and/or digital updates about supplies and tradie availability
• Auditing your supply chain for vulnerability points
• Creating a supply chain emergency plan and verifying with other parties the proof they’ll need from contractors of supply chain delays
• Building up your inventory and estimating available inventory
• Identifying backup suppliers and diversifying your supply base, ensuring local supplies where possible
• Investigating if 3D printing or addition manufacturing, even modular construction might be a better fit for your projects
• Examining your cash flow impact
• Partnering with a logistic expert to help you find logistics flexibilities in your system
• Harnessing risk-evaluation tools, including talking to us for risk management insights

While you may not have much control over the materials shortage and skills shortage, the above strategies allow you to better manage the risks and take a long-range view to sure up your systems for greater business resilience. That may be the mindset to learning to operate with the current crisis and beyond.