Report: Construction sector 'resilient', but will struggle with longer lockdown

Source: 1News

The construction sector will remain “pretty resilient” in 2021, so long as the Alert Level 4 lockdown doesn’t continue for too long, according to a business advisory firm. 

BDO on Thursday released its 2021 report into the state of the construction industry , which was experiencing a strong rebound from the disruptions of 2020 and the Covid-19 pandemic. 

However, the report highlighted businesses’ greatest challenges included product shortages, staff shortages, and significant inflation in material and wage costs.

It also highlighted that current Alert Level 4 restrictions, should they be extended significantly, could prove a “pivotal crossroad” for businesses. 

The findings of the report include:

  • 56 per cent of respondents reported project delays
  • 53 per cent reported they were actively looking for more on-site staff
  • 32 per cent faced delays longer than two months
  • 62 per cent of subcontractors had a drop in gross margins 
  • 60 per cent said they faced issues with availability and pricing of materials 
  • 21 per cent raised concerns related to Government legislation, including current policies and future policy changes. These were in the areas of immigration, “shovel ready projects” not actually being ready, and health and safety regulation.
  • BDO construction sector advisory partner James MacQueen told Breakfast the sector was “very lucky” to be in a “pretty strong position” for most of 2021, partly due to the acceleration of house building. 

    But, the lack of supply and disruptions to the supply chain was driving inflation, and increased costs for businesses ultimately ended up being passed on to consumers. 

    “Many of the cost increases are now in double digits. As most contracts are at fixed prices and the level of inflation has exceeded expectations, gross margins will be significantly eroded, and some companies are already making losses on projects where profits were previously envisaged,” the report said.

    Survey respondents reported this was largely the case for plywood, timber, steel and appliances. The report also noted the shortages meant some businesses were ordering in advance and stockpiling materials. 

    “It’s got progressively worse and I think it’s continuing to get worse. It’s adding delays, at least up to two months to projects,” MacQueen said of supply chain issues. 

    Businesses also reported issues with both attracting and retaining skilled labour, MacQueen said. 

    He said some businesses “simply just can’t get the staff” either locally or overseas. 

    To respond to the challenge, the report notes employers have offered “significant increases” in salary and wages, and introduced other initiatives in an attempt to retain staff. 

    MacQueen said low unemployment rates - currently at about four per cent - meant workers could shop around. 

    “Part of the problem is making sure that the workers we’ve got overseas in the country at the moment, their visas don’t expire and they’re not forced to leave the country again. With closed borders at the moment, we still need more people.”

    However, figures released to 1 NEWS in July showed the Construction Sector Accord had not used any of its Government-allocated MIQ spots for June and July. The Accord has been allocated 60 rooms a month from June to October 2021 for critical workers. 

    The spare spots were put back into the wider MIQ system.