Contractors concerned by budget cuts

Civil construction contractors are concerned that capital works budget cuts in the recent state budget won’t be offset by the raft of ‘mega-projects’ announced in last week’s federal budget, placing pressure on small to mid-tier contracting groups.

Civil Contractors Federation WA chief executive Jeff Miller told Business News that capital works cuts to major infrastructure agencies such as Western Power, Main Roads, and the Water Corporation in the state budget earlier this month would affect the civil industry deeply.

Western Power’s asset investment budget in 2013-14 was $1.19 billion, but that will drop to $793 million in 2014-15, and $499 million in 2015-16.

Main Roads’ capital works budget is also set to be cut significantly, falling from more than $1 billion in 2013-14 to $888 million in 2014-15, and $763 million in 2015-16.

Mr Miller said his major concern was for small to mid-tier contractors, with the low-profile jobs that sustained the broader industry likely to be among the projects cut.

“Obviously we would like the government to spend more, and the reason we would like to see that is because there is huge capacity in the industry at the moment,” he said.

“Capacity in the industry has built up to an all-time high, and while that capacity is there, contractors are willing to put it to work at very competitive rates.

“If that capacity is diminished, and if contracting firms cut staff and downsize, it is very difficult to build that capacity back up again.”

Mr Miller said the current environment was conducive to competitive pricing, but if the major works get bundled into larger contracts, the number of contractors who could bid for that work was greatly reduced.

“With the recently announced Perth Freight Link, the trouble with that is if it gets delivered as a billion dollar-plus project in one hit, one contractor and its sub-contractors will benefit,’’ he said.

“If you divide the pie up more, and several contractors are on a piece of road each, think about the competitive advantage each of them wants to provide.

“They’ve all got a similar job to do and they are all going to want to shine.

“Even that project competition is healthy, let alone price competition.”

Mr Miller said the industry would be keen for more design and construct and construct-only contracts pulled out of the major jobs, so the entire industry could be sustained by the works.