Builders apply rigorous lens to projects

BGC Australia is in the unique position where it can shift its emphasis away from building during a volatile period for the construction market.

As the company’s chief executive Daniel Cooper explained, BGC is working through its pipeline of work but not taking on any new projects for the time being.

The Len Buckeridge-founded group can do this because a significant chunk of its operations are in manufacturing, with the company producing a large portion of the nation’s bricks, cement, concrete, stone masonry, windows and asphalt.

“We are not actively tendering,” Mr Cooper told Business News.

“The main part of our business is building materials.

Construction for us is a smaller part of our business and it’s something we can step in and step out of as conditions dictate.”

But this does not mean the market is quiet, as is reflected in the high demand for BGC’s materials.

“All of the materials have really strong pipelines of work … because construction markets are busy,” Mr Cooper said.

“Even though there have been challenges, they are still busy: infrastructure, residential, there’s still a lot of work out there.”

 Labour shortages and global supply chain issues have led to a backlog of construction work nationwide, leading many builders to focus on getting through existing contracts rather than taking on new jobs.

BGC stopped taking on new residential sales earlier this year while it focused on building out the projects on the ground.

The same applies to its commercial work. BGC is currently engaged with Celsius Property Group’s $60 million Elysian apartment project in Subiaco, Iris Residential’s Montario Quarter apartments in Shenton Park, and the St Ives Retirement Village apartments in Carine.

Managing risk

CoreLogic’s latest Cordell Construction Cost Index shows construction prices in Western Australia increased by 8.8 per cent in the 12 months to March 2023 and 10.4 per cent in the 12 months to December 2022.

Build costs remained relatively stable in the years leading up to 2021, when they spiked.

This caught many builders out, particularly those who signed fixed-price contracts ahead of the cost escalations.

Recent Australian Securities and Investments Commission data showed that, in the nine months to the end of this May, building company failures reached their highest level in seven years.

Nationally, there were 1,997 insolvencies in the building sector during that time.

Despite the high number of building company collapses, there are signs the market is stabilising.

WA is leading the nation in population growth, showing a 2.3 per cent lift in 2022, up from 1.8 per cent in the nine months to the September quarter, Australian Bureau of Statistics data showed.

This compared to the national figure of 1.9 per cent, which was the highest recorded since 2008.

Mr Cooper said population growth, the easing of construction cost spikes and supply chain issues pointed to a strong future for the state’s building industry.

The news is also positive from a supply stance, with the Baltic Exchange’s latest Freightos Baltic Index showing the price for a 40-foot shipping container has fallen substantially, from $11,109 in September 2021 to $1,578 in April this year.

Mr Cooper said the confluence of these factors pointed to a more optimistic near future.

“We’ve got to start talking more positively about the great pipeline of work that is here [and] the great opportunities,” he said.

“We’ve got this huge revolution around environmental construction practices [and] low-carbon construction.

“It’s a really exciting time to be in construction, now we are getting through the challenges we’ve had over the last few years.”

Mr Cooper said BGC would recommence actively pursuing new work when it reached historical levels of jobs on the ground and trade availability improved.

Chris Palandri says every project needs more workers. Photo: David Henry

Labour pressures

Bis Oxford Economics’ latest macroeconomic outlook said WA’s population growth was expected to continue to remain above the national average in the long run.

However, the report found the state’s population growth had softened materially since the peak of the mining boom in 2012, when it was above 3 per cent.

Multiplex regional managing director Chris Palandri told Business News the lack of workers was evident across all industries in WA.

“Labour is still the biggest issue,” he said. “There are not enough people coming into the market from elsewhere.”

He said while the population was increasing, there were still not enough workers on the ground to catch up to the volume of construction and infrastructure work across the state.

“There is such a backlog of work out there; whether it’s in commercial, industrial, housing, renovations, rail or roads, any project that gets finished off just gets sucked into that pool of people whose work is behind.

“Yes, there are people coming in, but there are not enough people coming in to suck up that backlog of work sitting in WA, not [just] the Multiplex backlog.

“We are not delivering a project at the moment that couldn’t do with more labour.

All of them want more people on their building sites, and if they had more people on their building sites we could deliver the projects quicker.”

Multiplex, which Data & Insights ranks as the state’s number one commercial construction company, is facing a 40 per cent drop in revenue this year.

Mr Palandri said this was partly because Multiplex had finished a lot of projects in the past 12 months, including Murdoch University’s Boola Katitjin education centre, Brookfield’s One The Esplanade, and the federal government’s Centre for National Resilience in Bullsbrook.

In addition, Multiplex is coming off a record year, with $1.3 billion in revenue recorded in the year to December 2022.

Edith Cowan University’s $853 million city campus, Hesperia’s $450 million Murdoch Square, Joondalup Health Campus, Curtin Airbase in Derby and Brookfield’s Nine The Esplanade are among the major projects Multiplex is currently building in WA.

Mr Palandri said the company was actively tendering on several health and education projects.

“The jobs that we are looking forward to in terms of main focuses would be Geraldton Hospital, Bunbury Hospital, St John of God at Subiaco, Curtin University SuperLabs and the Department of Primary Industries laboratory building at Murdoch University,” he said.

Mr Palandri said the business was focused on the government and education sectors in the current climate because those jobs were the most likely to proceed.

“The reality is that … if you take the spectrum of the projects that are most likely to go ahead, I would say it would be the government projects and probably the university projects,” he said.

“The ones that are the most vulnerable, in my view, would be the residential apartment buildings, which is a big problem of course because we need the residential apartment buildings to work so we can help with the housing issue.”

When it came to taking on work, Mr Palandri said Multiplex had become increasingly rigorous in its approach.

“What we are being careful about is trying to understand what we think will come to the market and proceed, and spending time on those projects,” he said.

“What’s happened in the last two to three years is the [cost] escalation has gone up significantly in labour and materials [that] now there are a lot of projects that may not be viable.”

Mr Palandri told Business News the group took a similar approach to selecting subcontractors.

“We are always looking at how they’re going financially,” he said.

“If they are in very poor shape, we don’t want to be using them because it just pushes the risk onto us.”

Contract approach

Multiplex has transitioned to an early contractor involvement (or managing contractor) model over the past 12 years.

The approach, which the Master Builders Association of WA is lobbying the government to consider as part of its reform package, involves engaging a builder early in the design process.

The aim of this model is to provide all parties involved enough time to coordinate, and to procure materials early, in an effort to avoid surprise cost blowouts.

Outgoing MBAWA executive director John Gelavis told Business News the industry group proposed its reform package in response to the volatility of the construction industry.

“We remain concerned about the fragility of the commercial building sector overall, which is why progress on the building industry reform package is essential,” Mr Gelavis said.

“So the building industry can feel confident engaging in future contracts knowing risk is shared more equitably and fairness is applied.”

Multiplex is building Edith Cowan University’s Perth city campus. Photo: Multiplex

For Georgiou Group, which has moved up to second on Data & Insights construction companies list, weighing up risk is crucial in the current market.

“There is record spending in construction and infrastructure, however, it’s important to understand your capability and capacity and not stretch what is possible,” Georgiou Group chief executive Gary Georgiou said.

“Labour and material shortages need to be understood and well considered in order to manage these risks when tendering and delivering a project.”

He said Georgiou Group, which is delivering the Tonkin Gap and Mitchell Freeway extension projects among several large-scale road and rail projects for the state government, focused on taking on work that aligned with its risk profile.

Mr Georgiou said the company typically did not take on fixed-price contracts unless it could fully appreciate and manage the risk effectively.

He echoed others in the industry when he said his company’s biggest challenge was finding workers.

Mr Gelavis said the $29.3 billion building and construction sector was the backbone of the state, employing about 143,000 people.

He added that WA needed an additional 55,000 workers by 2026, mostly in trades, and MBAWA therefore welcomed the state government’s recent $47.6 million allocation to boost WA’s building and construction workforce.