Infrastructure Australia says road construction costs will peak at $7.6 billion next financial year.

The government agency has issued a new report to set expectations for Australia’s major pipeline projects

It says issues with labour security and rising material costs are threatening the delivery of public infrastructure.

Infrastructure Australia’s 2022 market capacity report warns that the public sector needs improvements to risk management, as well as proactive sequencing of its major projects pipeline.

It says that the government’s $237 billion five-year infrastructure investment plan will be affected by an ‘overheated’ construction market, escalating input costs and productivity challenges.

“A focus on productivity improvements in planning and delivery, and more ambitious reform to sustainably expand the market’s capacity through supply of labour and materials is increasingly critical for successful, timely and cost-effective delivery,” Infrastructure Australia CEO Adam Copp says. 

In Australia, transport projects account for about 63 per cent of the overall major infrastructure spend, with 84 per cent of that investment occurring in NSW, Victoria and Queensland.

But the demand for materials used in road construction projects is likely to jump to $7.6 billion in 2023-24, with delays of large-diameter concrete pipe alone hitting up to 45 weeks.

Mr Copp says that time and cost blow-outs for imported items will only worsen the challenges of delivering projects on time, especially when combined with the severe labour shortage in the construction industry. 

“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,” Mr Copp said.

The report also projects an increase in labour demand of 42,000 to a peak of 442,000 in 2023 - a demand more than double the projected available supply.

“Industry also reports that fast-rising costs and contracts that are increasingly allocating risk responsibilities to parties not best-placed to manage them, combined with sharp declines in tier 1 contractor’s profitability observed in our 2021 edition, has contributed to a sharp rise in construction sector insolvencies in 2022,” Mr Copp said.

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

The full report is accessible here.