16/06/2021 - 14:46

Labour shortages, costs hurt contractors

16/06/2021 - 14:46

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WA’s civil construction industry could be facing the perfect storm.

Labour shortages, costs hurt contractors
About $3 billion of major transport projects are planned next financial year. Photo: Attila Csaszar

A worsening labour shortage, border closures, record-high materials costs, and billions of dollars’ worth of projects in the pipeline are combining to pose a unique threat to the civil sector.

At the end of this month, Civil Contractors Federation WA chief executive Andy Graham will take those concerns to the state government’s Skills Summit, joining leaders in the resources, defence, construction and health care sectors, all of whom are currently competing for the same labour pool.

Mark McGowan said the summit would provide insight into addressing the labour shortage and ensuring Western Australia remained globally competitive.

With shortages of labour, materials and equipment expected to intensify over the next year as road and rail projects ramp up, Mr Graham said he hoped the urgency would help industry uncover a silver bullet.

“The planned spend on major transport projects alone is around $3 billion next financial year, and at the same time civil works for the private sector are also strong and competing for the same pool of people, machines and materials,” Mr Graham told Business News.

Civil construction and steel fabrication company Enviro Infrastructure is among those feeling the pinch, with general manager Dave Schlueter confirming it was battling just to retain its staff.

“I would say labour is the most significant pain across the board,” he said.

“We’re just trying to retain our staff; the poaching of staff that is happening right now is something I haven’t seen since the boom.”

In recent months, Enviro Infrastructure has lost eight staff members as a result of poaching.

While that may not seem like a significant number, it constitutes about 7.5 per cent of the company’s total workforce.

It also presents a major loss for the company in terms of its investment in time and resources for training and upskilling.

But Mr Schlueter said his biggest frustration was with the Enterprise Bargaining Agreement negotiations by the union on state government projects, which he believed were pushing wages to an unmanageable level for industry.

“Take the Thornlie-Cockburn line project, for instance; that is a project that is able to offer excellent site conditions and competitive pay,” he said.

“Typically, staff wouldn’t leave a stable, permanent position at a company for a short-term contract, but these projects are providing guaranteed work for at least three years.

“But we don’t have that same flexibility, because we’re locked into our rates and have no capacity to move unless we take the hit.

“We have always paid well above the award, and we just can’t compete.”

Addressing the shortages would require a multi-pronged approach to deliver short-, medium-, and long-term outcomes, including attracting industry entrants, upskilling existing workers, tapping into national worker pools and skilled migration options, Mr Graham said.

Migration stagnation

 Industry may be in need of labour, but the federal government’s stance on the international border remains unchanged.

When questioned about the issue last week at a Business News Politics & Policy event, WA senator Michaelia Cash said the federal government was aware of the issues posed by the ongoing labour shortage, having already engaged in talks with the Pacific nations to facilitate more overseas labour.

But Senator Cash stopped short of giving a date for the reopening of the international border.

“The labour shortage is an ongoing issue in Australia and the closure of the international border is a problem and we have been working closely with the Pacific nations to facilitate more Pacific Island labour,” she said.

“Everyone is asking ‘Hang on, when are you going to start allowing people back in?’ “But it is still a tough call.

“We have employers now screaming at us, and that’s going to be exacerbated by the demand for labour.

“It is something we’re looking at, I can assure you, but the international borders are not going to open any time soon.”

For the civil construction industry, access to overseas workers is further complicated by the Australian and New Zealand Standard Classification of Occupations, according to Mr Graham, classifications that determine eligibility for skilled migration.

Costs escalate

Mr Graham said contractors had warned the federation they were not only dealing with labour shortages, but also experiencing increased materials costs.

While some official data had been published by the Australian Bureau of Statistics producer price indexes, Mr Graham said those figures did not adequately capture the major movements in costs the industry was experiencing, especially in labour.

“I am concerned that some civil construction companies are trying to deal with major shortages and price increases in labour and materials, yet they’re locked in to fixed-price contracts that were signed one or two years ago,” he said.

“Margins can evaporate quickly, and companies find themselves working at a loss, and that isn’t sustainable.

“We would urge our clients in government and in the private sector to work with their contractors and suppliers and allow reasonable costs for escalation.”

Mr Schlueter said Enviro Infrastructure was not always able to pass on the added costs of materials and labour.

“As far as labour shortages and price increases go, we’re copping it,” he said.

“We’re seeing significant price rises in timber and steel, but we’re also dealing with rises in the cost of labour, and difficulties with plant hire and equipment.

“We’ve seen consistent increases in the price of steel every month for the last eight consecutive months.

“In some cases, we’re talking about a 15 per cent jump.”

Some of the priced contracts had been signed more than a year in advance, Mr Schlueter said, well before the introduction of the federal government’s HomeBuilder stimulus program.

“Fortunately, the vast majority of our jobs involve working almost exclusively for the state government as the head contractor, so we have the capacity to negotiate it back,” he said.

“But many other businesses are not able to revisit those prices.

“We’ve definitely taken a hit and, in some circumstances, had to cop the price increase.”

Shortages in structural timber and steel have sent prices skyrocketing, with Bunnings parent company Wesfarmers reporting a 20 per cent increase in local lumber prices.

The cost of steel rebar reached an all-time high in May, buoyed by the soaring price of iron ore (a key ingredient in what is one of the most critical materials for construction).

The price has since dropped but remains at higher levels than for the past five years.

According to the US Bureau of Statistics, the cost of plastics reached its highest level since the 1970s in April, while the price of PVC reached a 10-year high in May, almost doubling in cost within a 12-month period.

Those same unexpected price increases are believed to have contributed to the demise of construction giant Pindan Group, which ranked on Business News’s Data & Insights as WA’s second largest construction company until administrators were appointed to three of its entities late last month.

The state’s construction union claimed it had warned that Pindan was one of the building and construction companies in WA leading a race to the bottom, joining forces with opposition commerce spokesperson Vince Catania to fight for changes to security of payment for subcontractors.

“We have people here who have lost tens of thousands of dollars and, in some cases, hundreds of thousands of dollars because of the inaction of the McGowan Labor government,” Mr Catania told the press after a rally at Parliament House early this month.

Industry sources have told Business News the financial issues facing Pindan were exacerbated by razor thin margins and rising costs on some of its 80 active projects, many of which were tendered for more than a year ago.

During a creditors’ meeting of hundreds of unpaid subcontractors and trade suppliers, directors of the embattled multi-disciplinary construction group appeared to corroborate those reports, citing the construction industry’s competitive conditions and tight margins among the key contributing factors of the company’s collapse.

Vince Catania at a rally for subcontractors of (now collapsed) Pindan Group. Photo: David Henry

Supply chains

Mr Graham said the industry was experiencing supply chain constraints on everything from earthmoving machinery to plastic pipe.

He said even the supply of readily available, locally sourced basic raw materials was being constrained by the lack of truck drivers.

Bibra Lake-based Engine Protection Equipment (EPE) specialises in diesel engine parts and exhaust systems, providing and repairing generators, trucks, loaders and diesel engine utility vehicles for the civil construction industry.

In recent months, according to EPE managing director Peter Gardner, escalating demand, manufacturing restrictions and staff shortages were resulting in issues with supply.

He said businesses across WA were feeling the pressure, with a lack of drivers for couriers and major logistics providers sending transport costs higher and increasing wait times by 20 to 30 per cent.

Mr Gardner said WA was particularly sensitive to the fluctuations due to the number of projects under way across the mining, infrastructure and major construction sectors.

EPE is experiencing delays in deliveries from the US, India and other overseas markets, with lockdowns and restrictions to shipping creating a backlog for suppliers.

Some US manufacturers are also dealing with shortages of raw materials that are exacerbating costs, according to Mr Gardner, including silicone, which is a key component in engine hoses.

With cost increases in every step in the supply chain, Mr Gardner warned the additional upstream costs would eventually have to be passed down to users.

Education

The state government has spent the better half of the past year working with industry to ensure WA has the workforce necessary to deliver upcoming road and rail upgrades: a key part of its 2017 Metronet election commitment.

In October last year, the government partnered with industry to launch the Infrastructure Ready TAFE program, a free four-week training course to create an ongoing pool of entry-level workers to meet the immediate needs of the construction industry.

The training program was touted as an opportunity to give job-ready participants and mature age jobseekers displaced by COVID-19 entry-level prospects with contractors in the civil construction industry.

While onboard with the state government’s WA jobs first focus, Mr Graham said the industry would still need urgent access to overseas workers to meet demands.

“We are employing as many new local workers as we can, but there are only so many places on projects for unskilled or semi-skilled workers,” he said.

“A lot of locals simply aren’t interested in the early starts and long days that our industry demands.

“So, we do need urgent access to skilled workers from overseas and we want to see the state and federal governments getting serious about putting measures in place that will allow the borders to be opened as soon as possible.”

Business News is a registered creditor of Pindan in relation to a small advertising contract.

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