Record Growth In Construction But Tendering Remains Competitive


Private sector construction in Australia has continued to improve into the second half of 2014 to levels not seen since June 2010, despite the increased volume of projects progressing, competition is still fierce under tendering pressure.

Construction advisory firm WT Partnership’s 

Review of Australian Construction Market Conditions to July 2014 says that national average building construction tender price escalation through to the end of 2014 to trend in the order of 2.0 per cent rising to 3.0 per cent per annum for the next three years.

According to ABS, the total value of building work done (excluding infrastructure and mining work) rose 4.8 per cent in the March 2014 quarter, achieving a growth rate not seen since June 2010.

According to the review, Tier 1 contractors are under increasing pressure from increasingly capable Tier 2 contractors in the $50 million to $150 million market segment. This competitive market characteristic is placing pressure on subcontractors and is partly alleviating upward pressure on construction cost escalation.

Fierce competition in the subcontractor market continued through the first half of 2014 with the exception of select trades.

WT Partnership says they have recently seen a number of subcontractors collapse with further consolidation expected over the coming years.

Enterprise Bargaining Agreements will continue to contribute to construction cost escalation into 2014 and beyond.

However, it appears that industrial action within the construction industry has eased.

State by state, commentary in the Review has the following highlights: 


Major projects in Sydney including Barangaroo and The Sydney International Convention, Exhibition and Entertainment Precinct, are placing pressure on construction pricing and competitiveness in the city.

Building engineering services such as the electrical, plumbing and mechanical trades as well as structural trades are now beginning to show signs of price escalation as workers seek to secure positions on these significant and high profile projects. This will flow onto other trades increasing pressure on construction prices in Sydney over the next 12 to 36 months.

WT Partnership’s tender price escalation has been relatively conservative for the past few years and the firm foresees the remainder of this year to trend around 2.5 per cent per annum increasing to approximately 4.0 per cent per annum for the next 3 years.



Continuing off-shore investor interest in Melbourne’s commercial and residential sectors is driving the development of larger scale projects. This has concentrated demand on Tier 1 contractors and subcontractors with demonstrated ‘larger project’ experience.

This in turn has resulted in contractors operating on the Tier 1-2 ‘cusp’ to tender lesser value work than they have been in the last two to three years. This, combined with some Tier 3 contractors aspiring to tender larger projects has created new competition for sub $50 million construction projects.

WT Partnership foresees tender price escalation for the balance of 2014 at 2.5 per cent per annum, increasing to 3.0 per cent in 2015, 3.5 per cent in 2016 and 3.25 per cent in 2017.



Strong sales have renewed financier optimism in the residential sector in South East Queensland with many lenders easing access to credit for multi-unit developments in Brisbane and on the Gold Coast.

The development revival on the Gold Coast could see as many as 1,700 new apartments entering the market within the next six to 12 months.

WT Partnership forecasts tender price escalation trending in the order 2.2 per cent per annum for the remainder of 2014, rising in 2015 to 3.0 per cent and to 4.0 per cent in 2016 and 2017.



Competitive construction costs coupled with growing demand and all time low interest rates are assisting feasibilities and fuelling a steady increase in optimism in the Adelaide market.

The surge in confidence in the private sector is not reflected in the public sector with a ‘tough’ state budget handed down on 19 June. There are a number of projects planned to be tendered for design and ultimately construction in the next 12 months but not the usual quantity or size seen in previous years.

The competitive pricing levels of the past two years continue with the majority of contractors very keen to secure work in the latter half of 2014 and into 2015.

WT Partnership forecasts that the expanding private sector coupled with the contracting public sector will result in tender pricing escalation in the order of 1.25 per cent per annum for the remainder of 2014, 1.5 per cent and 2.0 per cent for 2015 and 2016 respectively and then rising to 2.5 per cent in 2017.



From a tendering perspective, WT Partnership expects the aggressive tendering and tight margins seen over the last 12 months in Western Australia to continue for the foreseeable future. Whilst Tier 1 contractors re-position themselves in the market, the Tier 2 and Tier 3 contractors’ space is becoming increasingly competitive.

One of the driving factors being the entry of a number of interstate based contractors into the market. The initial effect of this was minimal however, the firm is now beginning to see these contractors gain traction in the local market, especially in the $20 million to $50 million market sector.

Tender price escalation of 2.0 per cent per annum is forecast for the remainder of 2014, increasing to 2.8 per cent for 2015 and 3.0 per cent per annum for 2016 and 2107.



The ACT economy has slipped dramatically as cuts in the public service bite into business confidence. Even though the ACT has experienced growth in dwelling starts and employment opportunities, it remains weak compared to the rest of the nation in terms of business investment and construction work underway.

However there are several major construction and infrastructure projects in the planning phase which are expected to move to tender phase towards the end 2014 and into 2015 including the Capital Metro, the ACT Law Courts, Government office construction and fitouts and a proposed CBD residential project.

WT Partnership is forecasting marginal growth in construction activity in the ACT resulting in tender price escalation of 1.0% per annum for the balance of 2014, rising to 2.0 per cent in 2015, 2.5 per cent in 2016 and 3.0 per cent in 2017.



As general sentiment on the mainland improves and concerted efforts at both the Federal and State Government level to stimulate the economy continue, WT Partnership believes that the Tasmanian economy may be coming off its low point.

The Tasmanian Government is also introducing a number of initiatives to help curtail unemployment in the State.

Encouragingly, retail spending in Tasmania at April 2014 was almost 10 per cent higher than the same time in 2013.

Inevitably as the broader economy improves the uplift will flow through to the construction sector in Tasmania. Bank of America Merrill Lynch Chief Economist Saul Eslake recently said 'Tasmania appears to be staging a recovery’, and ANZ Chief Economist in Australia, Ivan Colhoun stating, ‘I think for the first time we have got a glass half full view of the Australian and Tasmanian economy’.

As the Tasmanian economy stages a ‘fight back’, the firm anticipates construction activity to remain around the current levels throughout 2014 with tender price escalation in the order of 1.0 per cent per annum followed by an increase to 1.5 per cent in 2015 and 2016 then increasing again to 2.0 per cent in 2017.

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