Inflation and the construction industry: how do we tackle it?

Australia’s construction industry contributes billions of dollars to our GDP, and it’s currently in crisis. The sharp rise of inflation and the impact of COVID-19-related supply chain issues have presented significant challenges to businesses across the country: profitability & cashflow, attracting & then retaining staff, brand & reputational damage and pressure on business owners who find themselves operating in a higher interest rate environment — just to name a few!

What’s the impact?

We know that underlying inflation and the pandemic are the main cause of these issues — but why? What’s actually going on? Let’s look: 

1. Supply chain pressure

Everyone knows the pandemic halted business routines across the globe, and the construction industry was no exception. Even with things opening up, the current state of the economy “post-COVID”, plus inflation, means the materials are still harder to get and much more expensive, leading to project costs and time-frames blowing out, leading to corner-cutting just to break even (which is a whole other problem — see point 4).

2. Labour expenses and shortages

The fact of the matter is that expert tradies are more expensive than ever and increasingly harder to find. Why? Many smaller businesses have had to close due to increased supply costs on fixed-price contracts. These businesses found themselves in an unprecedented situation, and they simply couldn’t weather the storm. At the same time, Australia shut its borders, essentially turning off the tap to a global, skilled migrant workforce. Even though the borders have now been opened, skilled migrants are simply not rushing back in, as the pandemic showed Australia’s isolation as well as its appetite for stronger border policy in the face of COVID-19 global outbreaks.

3. Speaking of the cost of living…

Let’s talk fuel prices. While the war in Ukraine continues, so does the global energy crisis, with oil prices directly impacted. While this impacts businesses and people across a range of industries and in everyday life, it particularly affects trades workers — they often travel long distances for work, they need to transport a lot of material between sites (adding to more travel time), and many vehicles and machinery required to get jobs done need petrol to operate.

4. Wage increases

Normally you would read “wage increases” and think, yippee! But in an inflationary environment, it’s the opposite. It’s a vicious cycle where increased inflation = wage increases = pressure on businesses who can’t keep up financially unless they raise the prices of their goods and services to meet the increased cost of supplies and employee wages. Another major problem is that many organisations might try to keep costs down by cutting corners — using poor quality materials and increasing workloads without enough employees to make up for it, leading to seriously stressful business conditions for both employer and employee. 

5. Winning work is harder

Increasing costs make it harder to win contracts. Why? Because no one wants to be charged fluctuating, exorbitant prices. Consumers and clients aren’t as comfortable with time and materials pricing as they can’t easily budget for the varying costs. Companies may be forced to opt for cheaper, less-skilled labour, putting their projects at risk of poor execution, increased safety issues, coming in over budget, and completion behind schedule — leading to irreparable reputational damage.

Ultimately, we have unhappy, stressed workforces, delayed projects, cashflow issues and employment loss — resulting in devastating damages to the industry and employee wellbeing. It can seem incredibly grim when there’s no simple way around inflation (paired with the current post-pandemic era), but there are many things you can do to help mitigate these problems.

How we can address it 

1. Be Realistic

• Review your budgets, adjust them where you can, and be realistic. Work out what is non-negotiable spending and what can be moved around.
  

• Supply chain issues aren’t going anywhere anytime soon, so be prepared for it. Restructure your timelines for project completion realistically to include any possible delays or price increases across the project.
  

•  Shift your contract commercials from fixed price to a time and materials basis.

2. Get candid

As they say, honesty is the best policy, and dealing with price increases and landing work is no exception. Seek opportunities with businesses who really get what’s going on and are willing to be flexible as you both tackle the uncertainty of this economic climate. Develop a genuine partnership with these clients and gain mutual trust and respect so that when things go wrong (as they can and will do), you can both work together to solve it because you’ve already been openly candid and discussed your concerns.

3. WHS is still priority number one

This is one of those ‘non-negotiables’ we discussed earlier. Just because everything is getting more expensive does not mean you get to start shirking your work health and safety obligations. Workforce safety is your number one priority, and it’s important to assess your financials to ensure that you’re insured correctly and meeting legislative requirements before anything else.

How Conserve can help 

Reviewing budgets, shifting workloads and priorities, restructuring timelines — and more! — all while trying to remain WHS compliant sounds like a daunting task, but we can help. With our managed service solution, contractor management platform and site access app (the trifecta to compliance success!), we can help you keep on top of your compliance management, saving the precious time and resources being impacted by inflation while offsetting any risk. 

Get in touch with our friendly team to see how we can support your business in the current economic climate — and beyond!

Want to learn more about how Conserve can help streamline your business? Subscribe to our newsletter for regular updates and insights!