Australian Construction Industry

1. Australian Construction Industry Non-Residential Construction • Accounts for 60% of all building and construction activity. • Undertakes a wide range of construction activity including commercial buildings, hotels and resorts, factories, roads, bridges, railways, resource development infrastructure, pipelines, electricity plants and networks, telecommunications networks and water reticulation and sewerage systems. ss1

2. Australian Construction Industry Non-Residential Construction • Given the scale of purchased intermediate input worth in region of $14 to $15 billion and cyclical nature of the industry, fluctuations in industry activity has a significant effects on total demand • Large scale of input purchasing which included • electrical and electronic equipment (23.7%) • property services, including hire and leasing of machinery and equipment (8.11%) • structural and fabricated metals products, cement, lime and concrete slurry, plaster and other concrete products (22.19%) • Road transport (4.91%) • Mechanical repairs (3.77%) ss1

3. Australian Construction Industry Residential Construction • Includes residential land development, home building and production of kit and transportable homes. • 1996 – 1997, private expenditure on new dwellings was $15.6 billion. • It is also highly regionalised with less than ten firms in the detached housing market operating in three or more states. ss1

4. Australian Construction Industry Residential Construction • Closely related to the land development and building materials industries. • The housing value is able to provide market share for large numbers of small to medium sized firms. ss1

5. Australian Construction Industry Public Sector Construction • Involves construction of buildings for public benefits. • Hospitals, roads, universities and defence facilities under Federal Government Level. • At State Government level this would comprise housing, hospitals, schools, water supply facilities and at a local Government level would comprise leisure facilities (ie swimming pools) libraries, roads etc. ss1

6. Australian Construction Industry Public Sector Construction • Funding for public sector construction is derived from both Federal and State taxes and from payment of local rates. • Two Main Areas • Housing • Provides housing for low income groups • Strong demand for this type of housing • Supply of public housing fluctuates according to political influences by government • Socialist / labour governments are more in favour of providing this type of housing than the more conservative / liberal government. ss1

7. Australian Construction Industry Public Sector Construction • Two Main Areas (Con’t) • Non-Housing • Comprises schools, hospitals, roads, power stations, water, defence, etc. • Government often undertake such projects during downturns in the construction industry (periods of little growth) in order to take advantage of more competitive pricing (because builders will be offering very competitive prices for the little work that is available). • Also use these projects as a means of injecting funds into the industry to help during recessionary periods and to boost confidence in the market. ss1

8. Australian Construction Industry Public Sector Construction • In the past, many government departments employed their own labour forces to carry out construction work on behalf of the government. • These were called Direct Labour Organisations (DLO’s) – the labur being “directly” employed by the government. • WA, the State Department overseeing construction was called the Building Management Authority (now Contract and Management Services) and they had a workforce, comprising most of the building trades, employed to construct major government building projects in WA. ss1

9. Australian Construction Industry Public Sector Construction • Government accountability required the direct labour organisations to compete with the private sector for projects, which they found difficult to do. • Eventually disbanded most of their DLO’s in favour of using private contractors who were able to offer most competitive pricing of construction work. • The structure of the construction industry has evolved over the years, with larger contracting companies disbanding large numbers of directly employed tradesmen and relying on subcontractors to provide labour and expertise for each project they undertake. ss1

10. Australian Construction Industry Public Sector Construction • In WA, originally the Building Management Authority (BMA) undertook design and supervision of building works on behalf of all the other Government departments (ie education, health etc) and had their own architects, quantity surveyors and engineers to design and supervise the works. • Now shifting towards “outsourcing” these services to the private sector in the belief that the services can now be offered more competitively. ss1

11. Australian Construction Industry Public Sector Construction • Individual government departments now undertake their own building projects rather than using the services of the BMA. • This may appear to offer cost savings, it also means that services are being duplicated by several individual departments across government with a resultant lack of coordination and increase in costs. ss1

12. Australian Construction Industry Private Sector Construction • Predominantly motivated by profit. • Projects considered if they have an acceptable ratio of risk to returns. • Funded by private organisation or individual ss1

13. Australian Construction Industry Private Sector Construction • The two areas: • Housing • Activity in the private housing sector is strong. • Housing “starts” (or number of houses being built) are traditionally affected by interest rates (the higher, the less affordable the housing and therefore a drop in demand occurs), by increases in land values and by employment uncertainty. • Housing “starts” acts as a good indicator for the Federal Government as to the condition of the national economy. ss1

14. Australian Construction Industry Private Sector Construction • The two areas (Con’t): • Non-Housing • Office, hotel and industrial developments as well as engineering, etc. • Respond quickly to changes in demography, style and technology. • Government has sought private sector involvement in public sector projects, through arrangements such as BOOT (Build, Own, Operate and Transfer) in order to reduce the burden on taxpayers. • Private building companies have evolved to having fewer directly employed staff, preferring to employ specific professionals and tradesmen under limited term contracts for specific projects. • Therefore, they do not have to carry a large wages bill when there is little work available but makes finding good quality tradesmen or professionals at the right time more difficult. ss1

15. Australian Construction Industry Private Sector Construction • Characteristics of the Industry: • Diversity • The products of the construction process are diverse, varying greatly in size, shape and construction • Not possible to introduce to the construction industry the degree of standardisation or optimisation that has been possible in other manufacturing industries. • Large and diverse range of participants; developers, planners, designers, contractors, subcontractors, material etc which often leads to difficulties in coordination and control. ss1

16. Australian Construction Industry Private Sector Construction • Characteristics of the Industry: • Size • significant effect on national economies • Contributes between 7-10% of Gross National Product for a country • Employs between 8-10% of the working population • Its products form the factors of production for almost all the other industrial sectors • Shelter and living accomodation is considered one of the basic necessities of life. ss1

17. Australian Construction Industry Private Sector Construction • Characteristics of the Industry: • Government as a primary client • Usually a major client, therefore, the government is able to influence and introduce economic changes • Able to influence through implementation of publicly funded projects such as roads, hospitals, schools etc) to make changes in the local and national economy. • The cost of outputs is high • High cost in outputs compared to many other industries • Higher level of borrowing and means that the effective cost of a building is not its capital cost, but the cost of servicing the loan. ss1

18. Australian Construction Industry Private Sector Construction • Characteristics of the Industry: • Fluctuations is workload • Volume of workload tends to fluctuate more unexpectedly than that of other economic sectors • Dispersal • The products of construction are immobile and therefore require a contractor to be involved in a number of spatially distributed projects. • Dispersed nature of construction activity contrasts with factory based production processes. ss1

19. Australian Construction Industry Private Sector Construction • Summary of Characteristics of the industry (Smith (1998, p17) expressed in the 1993 annual report:- • Has several sectors, is highly fragmented, makes extensive use of subcontractors; • Difficult to establish objective benchmarks of performance; • Subject to cyclical fluctuations in volumes of work; • High degree of labour mobility; • Little investment is made in an employee’s skill or training; • Contractual relations are often adversarial, conflict-based and destructive; • Unrealistically low bid tendering stimulates competition on cost alone; and • Commercial behaviour is dominated by the need to maintain cashflow, which puts financial pressure on suppliers, subcontractors and clients. ss1