With 2023 likely to produce yet more market volatility, rising construction costs and disrupted supply chains, the Australian Institute of Quantity Surveyors recommends partnering with a Certified Quantity Surveyor to help mitigate risk.
The sharp rise in costs of construction has been a constant topic in 2022, with an unprecedent combination of factors including labour shortages due to COVID-19 restrictions and reduced immigration, surging local demand, increased government grants/funding and significant increases in logistics.
Internationally, the war in Ukraine has resulted in significant global supply chain impacts coupled with local material supply shortages, resulting in a perfect storm for commercial construction.
“As an example, we’ve seen a huge increase in reinforcement supply – in June 2020 reinforcement was $1,330 a tonne, in March 2021 it was $1,560 and in April 2022 it was $2,400 a tonne,” says AIQS Director and Junior Vice President, Simon Squire.
However, while pricing may be easing (and settling into a new high norm), the focus is now shifting to certainty of supply and delivery.
“Even if you’ve budgeted for higher prices, you can’t always guarantee product availability,” says Mr Squire. “Shipping rates may be easing but certainty in delivery is now the issue.”
Preplanning therefore is expected to be a 2023 industry buzzword.
“Preplanning and making early payments to lock-in shipping times to get products into the country will help in creating certainty. Facades, structural steel, and mechanical and electrical equipment are all mostly procured overseas. If there is another lockdown or delays globally, this will have flow on effects here in Australia.”
The other 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.”
So what does the forecast look like for 2023?
“Continued volatility and multiple fractured trajectories is the short-term outlook,” says Mr Squire.
“The market is then expected to ease to a new high norm. 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.”
So what can the commercial construction industry do?
“The most important thing is to get the budget right from day one, test it thoroughly and ensure that it’s dynamic and reflects the level of price certainty, and can be adjusted throughout the process if needed. AIQS 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.”
AIQS also recommends that construction contracts should be re-considered, with rise and fall clauses* (which have largely been overlooked for the past two decades) and two stage contracts both now 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.”
“Additionally, two stage contracts can be beneficial in the current environment, particularly within the sub-contract 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, utilising a CQS (Certified Quantity Surveyor), 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. It is vital to work in collaboration with the CQS and provide regular updates as the market continues to shift rapidly,” finishes Mr Squire.