2022 has seen a sharp rise in construction costs due to an unprecedented combination of factors, including labour shortages due to COVID-19 restrictions, surging local demand, increased government funds and funding, and significant increases in logistics.
But while pricing may be easing for now – and settling into a new high norm – product availability and delivery can’t be guaranteed, which is why preplanning will likely be a 2023 industry buzzword, according to the Australian Institute of Quantity Surveyors (AIQS).
“Preplanning and making early payments to lock in shipping times to get products into the country will help in creating certainty,” said Simon Squire, AIQS executive board member. “Facades, structural steel, and mechanical and electrical equipment are all mostly procured overseas. If there is another lockdown or delays globally, this will have a flow-on effect here in Australia.”
Another cost pressure is labour.
“While there has long been a labour shortage in the construction industry, the recent volatility has added even more stress and costs,” Squire said.
So, what will the commercial construction industry be like in 2023?
“Continued volatility and multiple fractured trajectories is the short-term outlook,” Squire said. “The market is then expected to ease. However, in saying that, there are several big caveats; that the conflict in Ukraine eases, rising inflation globally subdues, and China gets back to pre-pandemic production levels – all these issues could have further surprising impacts that we just can’t forecast currently.”
To operate in this kind of environment, AIQS said it was most important to get the budget right from the start, test it thoroughly, ensure that it’s dynamic and reflects the level of price certainty, and that it can be adjusted throughout the process if needed.
“AIQS also recommends that clients engage with the contracting community to ensure base assumptions are correct, and if not, adjust the design or parameters early to make sure the project can work. This could mean changing a product, accelerating the project, or delaying it,” Squire said.
AIQS also recommended reconsidering contracts with rise and fall clauses and two-stage contracts – both practical options for new agreements.
“A rise and fall clause would be an advantage to make sure there is protection for both the client and contractor, including the use of potential dead bands which clarify price movement responsibility between the client and contractor,” Squire said. “Additionally, two-stage contracts can be beneficial in the current environment, particularly within the subcontract market. This can provide greater cost certainty as contractors are able to price a project with an informed understanding of it. This can also potentially lead to cost savings for the client and reduce risk of delays.”
Finally, engaging a certified quantity surveyor (CQS) throughout the process will really assist in bringing increased cost clarity and understanding to projects.
“My recommendation is to bring on a CQS at project inception rather than utilising their services only at key milestones,” Squire said. “It is vital to work in collaboration with the CQS and provide regular updates as the market continues to shift rapidly.”
