Megaprojects have come into an era of prominence in Australia. It is no longer true that only a couple of large-scale infrastructure projects are being built at the same time across the country. The number of concurrent megaprojects in progress increased from only one in 2009 – Brisbane’s M7 Airport Link and Northern Busway – to ten in 2021 (Terril, 2021). Much of the construction work is being completed on ‘megaprojects’ – or projects that cost at least $1 billion (Terril, 2021). However, these projects are currently being delayed – if not stopped entirely – at a concerning rate.
Delays in NSW and Victoria
The NSW Government shelved the multi-billion-dollar Beaches Link midway through 2022, recently put the Western Highway upgrades on ice and following a $23 billion cost blowout, has pushed back the completion of the Sydney metro project to 2030 (Woodburne, 2022; Slade, 2023). Citing labour shortages, surging construction costs and supply chain limitations, NSW Regional Roads and Transport Minister Sam Farraway announced earlier this year that the project “will have to come to some sort of halt (Woodburne, 2022).” This is in addition to the Inland Rail megaproject, which has doubled in cost to $31.4 billion and now has no reliable completion date (Schott, 2023). Further south, the Victorian government outlined their intentions to delay the construction of the airport rail link. The Andrews government asked the federal government to delay the construction of Melbourne Airport Rail by four years, and according to insiders, has put the long-promised high-speed rail plans between Geelong and Melbourne on hold (Eddie, 2023). Three primary factors are driving these delays and budget blowouts.
Delaying Factors
1. Complexity
“The complexity of modern megaprojects makes them particularly challenging,” Ms Van Ristell stated. Complexity, in this sense, speaks directly to the availability of resources and the environment in which the project is being undertaken. Megaprojects are structurally complex – they involve numerous stakeholders and workstreams that focus on separate parts of the project’s delivery. Furthermore, project managers must navigate emergent complexity. Namely, political, global and economic phenomena that alter delivery strategies, technology, labour and input availability, supply chain resilience and resource prioritisation. This is in addition to the politics and interests involved in the delivery of large-scale infrastructure projects. The intricate nature of governance systems and the multitude of perspectives held by various stakeholders contribute to a fascinating environment where megaprojects unfold. The wide array of interests and perspectives often leads to diverse agendas, adding an extra layer of complexity to the decision-making process. The challenge lies in fostering transparency and collaboration among those involved in governing and implementing these projects, thus ensuring a cohesive and effective approach.
2. Australian Labour Shortages
The pandemic-induced economic contraction prompted record public investment in infrastructure Australia-wide, which overstretched an already critically low-skilled labourers industry. Public infrastructure projects faced a shortage of 214,000 skilled workers in October 2022, and this discrepancy will only grow; labour demand is projected to increase a further 10% this year alone. The CEO of Infrastructure Australia requested that governments match their ambitions with what the sector is capable of (Hatch and O’Sullivan, 2022).
3. Input Cost Inflation
Compounding these difficulties is the symbiotic relationship between soaring material prices and unreliable supply chains, which work together to push project costs well beyond initial estimates (Francis, 2022). Over the past year, construction materials and labour prices have increased by 17% and 24% respectively (Hatch and O’Sullivan, 2022). Vulnerable supply chains disrupted by the pandemic in conjunction with exploding global demand have increased the price of inputs like steel, timber and concrete by more than 25% (National Housing Finance and Investment Corporation, 2022). Moreover, global oil uncertainty has sent fuel prices and delivery costs skyrocketing. The combination of circumstances has pushed record numbers of construction companies into insolvency and further limited the supply, which has placed further upward pressure on prices.
Implications for Queensland
Only last year, a report by the state’s auditor general cited a $127 million cost increase to the state’s major infrastructure projects. Contract variations to major infrastructure projects and the associated costs to manage them reached well into the millions of dollars. Cost increases are compounded by the aforementioned labour shortages and input cost inflation plaguing the industry, which ministers within the Queensland Department of Energy and Public Works acknowledged have said could affect the rollout of the new 2032 infrastructure projects (Gray, 2023). Members of the infrastructure ecosystem in Queensland would be justified in feeling concerned about the trends down south creeping further north.
The Queensland government has taken important steps to prevent delays to its major infrastructure plans. These plans currently contain the construction of six new sporting venues, including the new 15,000-capacity Brisbane Arena, upgrades to the Gabba and seven other venues, and the congestion-easing Cross River Rail project, which is expected to be operational by early 2026.
The state is also pioneering new price escalation clauses in construction contracts receiving federal funding (Wiggins and Durkin, 2022). These clauses, which allow increasing costs to be passed onto the state, protect contractors from inflation-driven insolvency and protect supply. Though by allowing price increases, the government is highly vulnerable to further input cost inflation. The only saving grace is that construction inflation seems to have peaked in mid-2022 and is forecasted to stabilise throughout the rest of the year (Bleby, 2023). Accordingly, budget blowouts should reduce in size and frequency as the year goes on.
As for labour supply, the head of Hutchinson’s Builders, Scott Hutchinson, forwarded his fear that like down south, national labour shortages will put the 2032 plans in jeopardy (Gray, 2023). Over a third of Australian construction companies reported vacancies in 2022, and apprenticeship completion rates were only slightly higher than 50 per cent (Whelan, 2023). There needs to be a significant boost in the number of young adults entering the construction industry and women and other diverse working cohorts that remain underrepresented in the industry. The return of skilled migration will also alleviate some of the labour shortages. However, until the number of skilled labourers in the industry reaches a level to match the ambitions of the government’s infrastructure plans, their demands remain in line with what is possible on the supply side. Too much demand could send these prices skyrocketing once again (Terril, 2022 and Wiggins and Durkin, 2022).
It is also crucial to consider the broader context of uncertainty surrounding infrastructure development. This is particularly relevant in light of the infrastructure review outlined in the recent Commonwealth budget, which introduces a sense of unpredictability in the market. While the Commonwealth government’s measures may temporarily alleviate some of the pressures and take the ‘heat out of the market,’ ensuring a clear and predictable pipeline of projects remains of utmost importance. Queensland needs certainty and stability in our infrastructure pipeline as we look to minimise the challenges we have witnessed across the country as we approach 2032. Pipeline confidence will be required not only for industry, but the wider infrastructure ecosystem along with strong governance, collaboration between all levels of government and transparent risk allocation.
