The Australian Institute of Quantity Surveyors (AIQS) has handed down a number of recommendations to assist construction companies mitigate risks associated with cost and supply.

Labour shortages created from covid restrictions and surging local demand as well as increased government funding and logistics have all created headaches for the construction industry. The ongoing Ukraine conflict has also heavily affected supply shortages worldwide.

“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.

While pricing is settling at a higher rate, supply and delivery still remains an issue.

“Even if you’ve budgeted for higher prices, you can’t always guarantee product availability. Shipping rates may be easing but certainty in delivery is now the issue,” Squire says.

“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.”

Squire says short term pain will eventually make way for a steadier future.

“Continued volatility and multiple fractured trajectories is the short-term outlook. 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.”

Squire believes construction companies should look to ensure budgets are watertight to avoid any cost issues down the track.

“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,” he says.

“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 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.”

Squire says utilising a Certified Quantity Surveyor will help 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,” Squire concludes.

Jarrod Reedie

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