Builders are trying to avoid having to absorb costs by using tighter contracts, but are still paying more. 

Australian builders are concerned about the increasing risk of cost overruns and project delays as inflation surges and clients become less willing to share the risks. 

According to a survey by the Australian Constructors Association (ACA), builders are increasingly negotiating contracts that include clauses for sharing unforeseen material cost increases or extra costs arising from delays. 

However, despite these efforts, builders are still paying more. 

The survey also found that 53 per cent of respondents had absorbed up to 10 per cent more in costs, and 47 per cent had absorbed up to 25 percent more. 

The construction industry is already facing insolvency rates at a nine-year high, and the higher costs are likely to lead to further erosion of margins and business failures. 

Reports say builders are trying to shift the risks back onto clients by negotiating more collaborative contracts, in which clients and head contractors jointly work out how to resolve the risks. 

However, public sector clients, who are responsible for large infrastructure projects, are becoming less inclined to share the risks. 

The ACA's chief executive, Jon Davies, called this development “particularly concerning”, saying that state treasury departments, which drive infrastructure work, generally believe the best value for the public comes from laying all the risk of a project on contractors. 

The survey found that every contractor had to absorb material price escalation in 2022 that could not be recovered or offset in any way. 

Collaborative contracts are the most productive ones at a time of increasing costs, according to Mr Davies. 

He says that those more collaborative projects focus on the best project outcomes rather than the best-for-stakeholder outcomes. 

Meanwhile, subcontractors, who perform up to 90 per cent of the work on building sites, are getting impatient that the Albanese Labor government has not implemented so-called security of payment reforms recommended by a federal government report in 2017. 

Subcontractors want builders to put money paid for completed work into trust accounts, similar to those used by lawyers and real estate agents, rather than allowing builders to use payments made by clients as part of their general cash flow. 

Builders oppose the reforms, saying they would tie up much-needed cash flow. 

John Goddard, a spokesman for advocacy group Subbies United, says: “Subcontractors fund the building industry. It's a credit they extend to builders.”