The Evolving Landscape: The Private Sector & Infrastructure in Australia

a black and white photo of a building under construction

Against the backdrop of a transformative decade within Australia’s construction sector, the prevailing narrative was that of ‘never-ending of challenges amidst burgeoning opportunities’.

The engineering construction sector, driven by record investments in iron ore, coal, and oil & gas extraction, soared to unprecedented heights in FY2013. Queensland and Western Australia spearheaded this wave, with other states also experiencing a elevated number of resources-related projects. However, the subsequent six years witnessed a decline, particularly in resource-related construction, largely attributed to the completion of LNG-related activities.

However, over the last six years, the resource-related construction has been decreasing almost every year. The completion of projects related to liquefied natural gas (LNG) was a big reason for this. This whole boom and bust have not only affected how much “building” happens in engineering construction, but have also had a big impact on the construction industry.

Over the past three decades, the private sector has taken on an increasingly vital role in shaping Australia’s infrastructure. Data from the Australian Bureau of Statistics’ Engineering Construction Survey tells a compelling story. In FY2019, a whopping 83% of all work on transport and utilities infrastructure was carried out by private contractors. This marks a significant surge from 44% in FY1986, the first year the ABS started collecting such data. The total worth of transport and utilities work undertaken by the private sector in FY2019 was an impressive $49.4 billion, a leap from the $9.1 billion recorded in FY1986, when adjusted for constant prices in FY2018. This translates to more than a five-fold increase in real terms.

As illustrated below, this figure is anticipated to surpass $60 billion annually over the next fifteen years. However, recent trends in outsourcing the delivery of infrastructure projects to the private industry, might push this estimate even higher. This transformation underscores the growing influence of the private sector in steering the trajectory of Australia’s infrastructure development.

The year 2022 has witnessed the unfortunate liquidation of several major firms, alongside the entry into administration of residential builders. The implications of these collapses on the broader industry’s capacity are still unfolding.

In most instances, when businesses collapse, other firms step in to take over their contractual obligations, ensuring project completion, albeit often with delays and increased overall costs. However, the impact of more substantial project cancellations and business collapses can potentially reverberate across the industry. This is particularly true when the inability to meet financial obligations triggers a chain reaction of further business failures.

However, amidst these dynamics, 2022 brought forth challenges with the liquidation of major firms, along with residential builders. The aftermath of these collapses raises questions about potential capacity challenges. But history has shown that, in most cases, other firms step in, ensuring project completion. The key lies in recognising the silver lining within these challenges — an industry on the brink of renewal presents strategic investment opportunities. The voids left by such closures also create room for new players to enter, bringing innovation along with them and revitalising industry capacity. While these challenges exist, they represent opportunities for new entrants.

The combined infrastructure pipeline for the next five years, from 2021—22 to 2025—26, stands at an impressive $647 billion. Major public infrastructure projects, with a remarkable growth of $15 billion in the last 12 months, constitute $237 billion of this total. Notably, 63% of the major public infrastructure pipeline is attributed to transport projects, underlining the sustained demand in this critical sector.

The Australian construction industry stands to benefit from very favourable tailwinds. The evolving market dynamics, expansive project pipelines, and increased resource demands underscore the sector’s resilience and potential for growth.