WA’s peak civil construction industry body has urged local government authorities to support contractors hit hard by recent diesel-related cost escalation.
Civil Contractors Federation WA Chief Executive Officer Andy Graham said most contractors delivering local government road projects and other civil works were now losing money on those projects, and businesses and jobs were under threat.
Mr Graham said the civil sector was reeling from unprecedented cost escalation of diesel fuel and materials – including sand, aggregates, bitumen, pipe, and concrete. A new report by leading economist Saul Eslake (click here to view) underlines the civil construction sector’s dependence on diesel and its unusually high exposure to related price shocks.
“Costs on civil infrastructure projects have jumped by up to 15%, which is enough to wipe out margins,” Mr Graham said.
“Most local government infrastructure projects are delivered under fixed price contracts with no rise and fall mechanism designed to share escalation impacts.
“This means that contractors have to wear cost increases. Usually, this is manageable, but these recent increases are unprecedented. Businesses and jobs are at risk, and civil contractors will need help to pull through.”
Mr Graham said CCF WA members were reporting that many local governments were responding positively and willing to consider ways to provide support, such as approving variations to existing contracts.
“However, we have also heard that some LGAs are sticking to the letter of contracts and refusing to discuss temporary relief for contractors and their supply chains,” he said.
“CCF WA urges all LGAs to work with their civil contractors and suppliers and support them through this crisis.”
“We are happy to advise local governments on effective measures to achieve this.”
The Eslake report notes that the civil construction sector’s vulnerability to collisions between rapid, unforeseen cost increases and fixed-price contracts is evident in the sharp increase in the number of contractors entering administration following the dramatic rise in input costs driven by post-Covid supply chain disruptions. Cost escalation over the past month has been even more dramatic and potentially more damaging.
