A report by global law firm DLA Piper – which surveyed senior construction executives globally – has found the biggest risk for the construction sector in the Asia Pacific is the rising cost of raw materials (53 per cent), followed by local regulations and taxes (53 per cent).
According to report - Constructing the Future: Surviving and thriving in the era of disruption - the Australian construction sector has faced price escalation in the region of 70 per cent for some materials.
“In Australia the key development risks concern price, supply chains and financing. This is now having a knock-on effect in insolvencies,” says Perth-based Richard Edwards, Global Co-Head of Construction, Infrastructure and Engineering Disputes, DLA Piper. “The recent appointment of administrators to FIRM Construction and the sale of Clough Engineering to international construction company Webuild demonstrates how challenging the market has been and how spiralling project costs have punished contractors working on long-term fixed price contracts. Supply chains and labour supply remain key challenges in Western Australia.”
“While it appears there has been some recent improvement in supply chains, which is reflected in falling prices in certain parts of the shipping market, these will take a while to wash through. The labour supply challenges will persist for some time yet, although government has taken positive steps to address the issue,” Richard added.
“In terms of financing, interest rates are increasing along with overall project prices. We’re seeing developments here in Western Australia being put off or recast in circumstances where previously estimated costs are no longer achievable. Projects are being modified to make them smaller or simpler, such as the Bunbury Outer Ring Road” he said.
In terms of ESG, the report found that while regulatory pressure is likely to rise, there were concerns at a lack of standardised metrics for reaching environmental, social and governance (ESG) targets. A further 55 per cent of respondents in APAC identified challenges in tracking and measuring ESG progress.
“Compliance with new regulations like emerging ESG frameworks is becoming a must-have in government contracts and this is likely to spread, but some respondents have expressed concerns about a lack of metrics to make effective comparisons and adequately prepare,” Richard said.
Despite all these challenges, the construction industry remained resilient and optimistic about the future. This translated into a steady stream of project work at all stages of the project lifecycle. DLA Piper Australia has recently advised on a steady stream of market leading and industry defining transactions and projects that our team is working on across the renewable energy and broader energy and infrastructure sectors in support of Australia's push towards net zero – including, our role in advising BlackRock Real Assets on its commitment to investing more than $1 billion to drive the build-out of 1GW of battery energy storage systems ("BESS") across Australia through the acquisition of the impressive Akaysha Energy.
For a copy of Constructing the Future: Surviving and thriving in the era of disruption, visit our web page.
