January 8, 2024
Due to supply chain issues and rising interest rates, the construction industry was hit hard in 2023 – it was the year of budget blowouts, late delivery and builder insolvencies.
Budget Blowouts
2023 saw an unsettling surge in budget blowouts within its construction projects, due to supply chain bottlenecks and escalating labour costs. To illustrate, a sample of 800 top infrastructure projects have had a total reported cost blowout of $33 billion.[1] In the same vein, Brisbane’s Cross River Rail will now cost $7.848 billion, due to a blow-out of $960 million.[2]
These blowouts call for adaptive strategies, rigorous risk assessment and proactive measures to mitigate budget overruns looking forward as the Queensland Government expects a tight labour market and significant supply chain disruptions to persist due to the large volume of capital projects in the pipeline. These turbulent conditions reinforce the importance of understanding your contract and what options are available to you.
Late delivery
In the midst of the perfect construction storm, delays mounted on projects (both big and small) across the country. Project delays due to labour and material shortages, bad weather and soaring construction costs placed pressure on developers struggling to align these increases with suitable rates of return, ultimately impacting project feasibility and delaying project commencement.
The list of troubled projects running months behind continued to grow as Brisbane’s Queen’s Wharf and Cross River Rail and Melbourne’s West Gate Tunnel project all felt the effects. In Sydney, the $147 million Sirius redevelopment was delayed by 9 months.[3]
In the residential sector, despite a boom in project commencements the year saw no lift in completions and the wave of building company collapses throughout the year resulted in the pile up of half-built homes across the nation.
Because of these delays, Australian builders are set to remain busy into 2024.
Insolvencies
There has been a dramatic spike in construction insolvency levels in the past year, with the number of effected businesses surging by 75%.[4] As project costs increase, so too does the pressure on the full supply chain and with the volume of projects under construction, a profitless boom occurred with more companies forced to close their doors.
2,117 external administrations were recorded in the 2022-2023 financial year, representing the highest level of insolvency in the past decade. However, while insolvency figures are high, the outlook for the industry remains positive. Following a 2.6% decline in 2023, Australian construction is forecast to grow at 5.48% annually until 2027.[5]
Legislative changes
The most significant legislative change in 2023 was the change to the Australian Consumer Law’s unfair contract terms (UCT) regime following the passing of the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) (Amending Act) (TLA), which took effect on 10 November 2023. The TLA amends the UCT provisions of the Competition and Consumer Act 2010 (Cth) and the Australian Securities and Investment Commission Act 2001 (Cth) (ASIC Act).
The reforms apply to all businesses that use standard-form contracts. The amendments include:
- The introduction of a civil penalty regime prohibiting the use of, and reliance on, unfair contract terms by businesses;
- Clarification of factors the courts must consider when determining whether a contract is a standard form contract;
- Clarification of court powers to determine an appropriate remedy for breaches of the UCT regime;
- New categories of contracts, which are excluded from the operation of the UCT regime; and
- Expansion of protections to parties to a small business contract.
What’s on the horizon in 2024
The Queensland Government has committed $16.4 billion to major capital projects in its 2023-24 budget, marking an increase of over 30 per cent from $12.6 billion in 2022-23 budget.[6]
Energy
As one of the main capital programs for the year ahead, the Queensland Energy and Jobs Plan outlines the pathway to transforming the energy system over the next 10-15 years to deliver clean, reliable and affordable power. The $62 billion plan includes $19 billion in capital investment over the next 4 years, with $1.3 billion allocated across the 2023-24 budget. This involves several key investments including CopperString 2032, Borumba Pumped Hydro Energy Storage and several wind farms.[7]
Road Upgrades
Several road upgrades are well underway and expected to be completed in 2024, including:
Rail
Logan and Gold Coast Faster Rail Project
Funding changes for a number of projects were announced in November including a $1.8 billion funding increase for the Logan and Gold Coats Faster Rail bringing the total cost to $5.75 billion. This project is still in the planning stages but is expected to deliver more frequent and reliable train services between Brisbane, Logan and the Gold Coast.[8]
Queensland Train Manufacturing Program
The Department of Transport and Main Roads signed a $4.6 billion contract with Downer Group in June 2023 for the construction of 65 passenger trains. An increased scope and escalations in the costs of external labour and supplies has resulted in a revised total budget of $9.5 million.
The site establishment works are underway at both the manufacturing and rail facility sites. The first train is expected to be manufactured and begin testing by late 2026, with all trains expected to be in service by 2032.[9]
Gold Coast Light Rail
Stage 3 of the Gold Cost Light Rail is currently underway, with Stage 4 in its early planning stages. The Project provides a 6.7-kilometre extension south of the existing tram network to link Broadbeach South and Burleigh Heads. It will include 8 additional stations, 5 new light rail vehicles, upgrades to the existing Southport depot and stabling facilities, and new light rail connections at Burleigh Heads and Miami.[10]
Cross River Rail
Despite construction for the Cross River Rail beginning in 2020, supply chain issues causing time and cost blowouts have resulted in the extension of major construction from 2024 to 2025, with completion of the 10.2 kilometre rail line under the Brisbane River now delayed until 2026.[11]
2023 Olympics Preparation
Gabba Stadium
The Queensland Government has announced a $7.1 billion venue infrastructure budget for the Gabba. Procurement processes for the Gabba Stadium rebuild are commencing with industry briefings in December and the design process will commence in 2024. De-construction will commence in 2025, with the new stadium expected to be ready for use in 2030 in time for the 2032 Brisbane Olympic and Paralympic Games.[12]
Wild Weather
In light of current climate drivers, the forecast and recent climatic conditions, severe weather is predicted to continue into 2024. Heatwaves, bushfires, tropical cyclones and severe thunderstorms are all a significant likelihood expecting to give rise to unpredicted disruptions and material impacts to projects.
You must be mindful of the effects weather can have on a construction project including:
- Delays caused by effects on excavation works, foundation pouring or concrete curing;
- Safety concerns and risks due to slippery surfaces, high winds or extreme temperatures;
- Quality of work, for example, extreme heat can cause concrete to dry too quickly causing cracking;
- Increase in project costs;
- Impact on availability and conditions of construction materials and equipment; and/or
- Environmental impacts caused by erosion and sediment runoff.
Industry participants are encouraged to plan, monitor and proactively assess weather forecasts to effectively prepare and manage the effects of weather in the year ahead. Adjusting work schedules, using weather-resistant materials and having contingency plans in place may all form part of the strategies implemented to minimise delays, ensure safety and maintain the quality of work this weather season.
Lamont Project & Construction Lawyers
With the high volume of projects in the pipeline and the expectation that supply chain issues, budget blowouts and late delivery will continue on into 2024, litigation in construction and major projects is expected to spike.
Principals and Contractors alike can navigate these expected challenges by investing in the front end set up of their projects and fastidious administration of those in the delivery phase.
If you have any questions about any matters raised in the above article or, more generally, about major project and construction law as it relates to your specific circumstances, please contact Lamont Project and Construction Lawyers.
The content of this article is for information purposes only; it does not discuss every important topic or matter of law, and it is not to be relied upon as legal advice. Specialist advice should be sought regarding your specific circumstances.
Contact: Peter Lamont
Email: [email protected]
Phone: (07) 3248 8500
Address: Suite 1, Level 1, 349 Coronation Drive, Milton Qld 4064
Postal Address: PO Box 1133, Milton Qld 4064
[1] Ronald Mizen, ‘No new road, rail projects for ‘next 10 years’ without major cuts’ (2023), Financial Review. https://www.afr.com/politics/federal/no-new-road-rail-projects-for-next-10-years-without-major-cuts-20230917-p5e592
[2] Queensland Audit Office, ‘Major Projects 2023’ (2023), Reports to Parliament – Report 7: 2023-24. https://www.qao.qld.gov.au/reports-resources/reports-parliament/major-projects-2023
[3] Michael Bleby, ‘Point of no return’: Builders alarmed over $220b delays’ (2023), Financial Review. https://www.afr.com/property/commercial/point-of-no-return-builders-alarmed-over-220b-delays-20230719-p5dpoq
[4] Stephen Roebuck, ‘The Cracks in Construction: Insolvency at a 10-year High’ (2023), https://employsure.com.au/blog/whats-causing-the-high-levels-of-construction-insolvency/
[5] Ibid.
[6] Queensland Audit Office (n 2).
[7] Ibid.
[8] Queensland Audit Office (n 2).
[9] Ibid.
[10] Queensland Audit Office (n 2).
[11] Ibid.
[12] Queensland Audit Office (n 2).