During turbulent economic times like these, the importance of Engineering and Construction to Australia’s ongoing prosperity becomes truly apparent. Apart from producing around 9% of Australia’s Gross Domestic Product, in 2019 the Construction industry employed over 1.15 million workers.
SO consider the chart above, which illustrates the share of major Infrastructure project work awarded to top tier Engineering & Construction contractors since 2005, grouped by ultimate Corporate ownership.
Note that the column labels have been deliberately left out. Based on its shape alone, what do you think this chart shows?
One key takeaway for me is the extent of consolidation that has occurred in the local Infrastructure industry over the last 15 years The dominance of one major player is illustrated on the left-hand side of the chart.
Consider the shape of this chart in light of what is considered to be a typical mature industry structure. If we assume open competition, a mature industry is typically dominated by 4 major participants (think for example the “Big 4” Accounting firms in Australia). The 4 major players, adopting one of four primary market Positions (Product, Price, Market and Service) typically share 80% of the market.
Now consider what’s going on towards the right-hand side of the chart above – the remaining 20% of the market left to everyone else.
For this I’ll draw on some information published by Australian Owned Contractors (AOC), a group of 12 local mid-tier construction companies.
According to AOC:
- 97% of Australia’s largest public infrastructure projects are delivered by Tier One (Major) Contractors; and
- Nearly 80% of this work is delivered by foreign owned multinationals.
A healthy local industry is one in which investments are being made in knowledge, skills, expertise and capability.
SO what issues do you think are likely to show up in our industry?
Hi Peter ,
This is a very big topic in the industry at the moment and the statistics don’t lie .
Its welcome to see the Australian Owned Contractors AOC group of 12 mid tier contractors bring attention to this issue but one would have to question its self interest or the interest of the 12 companies .
The AOC claims its motive is to represent Australian owned companies which it does , but why limit this to companies that have a turnover of $250 mil or MORE .what about the companies of $100 mil or more and everyone in between .
it contradicts the cause it sets out by its restrictions which leaves one to wonder is its interest Genuine or an attempt to challenge a barrier to self growth ?
Obviously an unsustainable situation that will only change when major clients change the way that they put major projects to market. Will require:
– Clients developing in-house skills and confidence to manage inter-package interfaces to reduce package size and to take on more of the planning/safety/environmental (red and green tape) functions(will need better definition of projects), and
– Better planning and a more controlled pipeline of work to build and retain key skills and resource levels – avoid politically driven boom and bust cycles
I would make the following observations:
_ Procurement for these works is largely State based
– Only some States have Local Content requirements BUT no source of Origen stipulated
– the obsession with “market” led and globalisation has effectively neutered local Construction. manufacturing eve services delivery (KDR, MTM etc)
– State Authority or contracted service deliverer procurement teams follow Treasury procurement guidelines and procure under the “Value for Money” mantra- surprise surprise but that means China, India and other low cost countries. This ignores the standards and requirements on local suppliers to be accredited E.g. AVETTA, ISO 9001 as a minimum, Worksafe covered, Insurances in place; none of which is required by foreign Supply Chains, paying Award or better rates.
– Use it or lose it- well we lost it
I hope this is not too negative, but now the Defence Industry- crying out for Sovereign Capability is not following through and access to the $150BN + SEA, LAND AND AIR re-equipment projects is going down the same branch, with most work if any being sub contracted through large global companies. There is no real push or commitment to build and retain expertise and there is certainly no level playing field, is it no wonder we are where we are.