Hurdling the barriers: An industry snapshot
It is widely accepted in the sector that innovation frequently comes from the young (or not-so-young) and hungry companies prepared to try new methods and technologies if it gives them an edge in a competitive marketplace.
If there is a blueprint of how to go about making the transition to the big time, it seems that South Australian specialist contractor ADCIV has got its hands on a copy.
ADCIV has set the goal of stepping out from its regional focus to become a national, and possibly an international, construction company.
The principals place that ambition in a 5-10 year timeframe, and in the shorter term they aim to double turnover to the $100 million range in the next five years by focusing on their SA backyard and complementing their current subdivision/civil works portfolio with jobs in the state's growing resource sector.
In the construction sector, ADCIV intends to build on its recognition for large-scale remediation and bulk earthworks projects and particularly seeking work for long-term clients in state and local government.
The company's interest in moving into the resource sector may be a case of "if you can't beat them, join them”. Like many others in SA, and more so in Queensland and Western Australia, the company is being impacted by the growth in pay packets and the struggle to retain quality staff, the result of the resources boom.
Further west, WA company CIVMEC Construction & Engineering, now a wholly-owned subsidiary of the rapidly growing VDM Group, complains that the shortage of trained and experienced tradespeople is forcing companies to pay high wage rates for people who are less experienced and even lazy.
It's a problem that goes right through the project: higher risk of overruns, more people needed on sites and consequently higher costs of flights, accommodation, supervision and tools, plant and vehicles.
J&C Reid Earthmoving's solution to the skills shortage will strike a chord with many older hands in the industry – a return to "good old commonsense values" and more emphasis on training at all levels of the education system.
"Many of our youth seem to leave school early and lose their way," the company said. "With our industry screaming for new blood that is willing to learn, we need to excite these young people, and recruit and train them – most boys love big toys."
And JCR is a company that likes to excite. From its original base at Bright in Victoria, the company targets a wide range of projects across the country, with a particular focus on those requiring environmental sensitivity.
It is aiming for growth of up to 25 per cent a year over the next decade as it adds the water infrastructure sector to its already diversified skills portfolio.
Victorian road and civil works contractor Sure Constructions suggests an answer to the skills shortage may be to offer tax breaks for businesses that invest in skills and training.
Another major issue for contractors seeking to move up to larger contracts is the need to provide financial guarantees on projects. JCR says bank guarantees tie up cash flow and constrain business, which is one of the reasons the company is open to alliance projects where guarantees are not required.
SA regional specialist Cowell Electric Supply is another company with high ambitions. Cowell builds power lines and its current major projects include the provision of electricity transmission infrastructure to the Honeymoon mine and to Santos's Cooper Basin projects.
The company is aiming for a 50 per cent jump in annual revenue if only it can overcome the skills shortage across all trades areas.
One of Cowell's responses is to make itself an employer of choice to help the company hang on to existing skilled employees, do some overseas recruiting and increase its apprentice intake.
But as a company that operates frequently across state borders, Cowell also identifies the need to have national recognition of licences and training for workers and contractors rather than the current mish-mash of state requirements.
A perennial complaint for small to medium contractors is the tendency by principals – particularly in government – to offer high value contract packages. While they may see advantages in dealing with one contractor, the practice drastically reduces the number of contractors able to compete for the work. If they want to get in on the project, the contractors are forced to bid for subcontracts.
Some, such as the nationally recognised Abergeldie group, are reluctant to subcontract for the majors.
The limited opportunities to work directly with infrastructure providers is a frustration and barrier for a company that prides itself on providing "clever solutions to complex problems" and is able to undertake the full range of contract models – construct only, design and construct, early contractor involvement, alliance and joint venture.
The problem is a national one, although the SA Government gets a serve from ADCIV for its reluctance to release work packages suitable for state-based contracting companies.
Another company on a strong growth track is Queensland-based Civil Mining & Construction. CMC has developed ambitious plans under managing director Peter Kendall and construction director David Ahern to lift it out of the second tier into the $500 million a year class, working major civil, mining and development projects.
However, one of the hurdles CMC sees in its path – and that of many state colleagues – is the Queensland Main Roads Department. CMC argues that too many of the department's contract packages are in the $100 million-plus range, leaving not enough around the $50 million level that would open them up to many more contenders.
The department's long-standing practice of awarding projects to its Road Tek commercial business unit and to local councils also raises the ire of CMC. The company argues that government agencies should have the power, presently blocked by the state purchasing policy, to award sole-invitee contracts in appropriate cases.
Victorian-based road construction, subdivisions and civil works contractor Excell Gray Bruni says the civil market's narrow focus on awarding contracts to the lowest cost provider is a substantial hurdle to growth, because it fails to recognise a value-for-money procurement approach.
The call for tender evaluations to focus more on quality of work than just the lowest price is echoed by Maw Civil as it works on geographical expansion strategies to achieve its aim of 20 per cent annual growth.
Southern NSW-based McIntosh Fencing is also on an expansion program. McIntosh offers its specialised crash barrier, guardrail and wire rope supply and installation services throughout its home state, Victoria and Tasmania and is planning further expansion.
However, it faces a particular problem with competition from cut-price Chinese imports. McIntosh claims material that does not meet Australian Standards specifications has found its way into the country, raising road safety issues and making competitive quoting difficult.
A similar issue for many companies is inflexibility when setting contract start and completion dates. Ballarat-based Midwest Civil says inflexible start dates imposed by the client are a hurdle, while Queenslander Strano Enterprises focuses specifically on the failure of professional consultants such as engineers to finalise project details before work commences.
Sewerage technology innovator Pressure Sewer Services Australia highlights the unrealistic completion target dates sometimes set by government agencies for no reason other than to keep their budgets intact.
A constant theme of survey respondents was the dead hand of bureaucracy. For most, the delays and frustrations of red tape equal skills shortages as their biggest problem.
Adelaide-based Guidera O'Connor, from its background of major water infrastructure projects across SA, WA and Victoria, says giving government employees the power to "make decisions" would be one way to reduce the red tape burden.
The Adelaide-based company is looking to get more involved in alliance-style contracting as it pursues its policy of controlled growth.
NSW-based Earthtec Construction must have met plenty of red tape in its rock fall protection, soil retention and erosion works across Australasia, the Asia Pacific and southern Africa, and says the compliance time and effort it demands is a serious barrier to growth.
Earthtec also calls for the setting up of national systems for all business-related compliance issues – and it is among the many contractors who would love to see the end of payroll tax.
This article first appeared in the April edition of Contractor magazine, a sister publication of www.ConstructionIndustryNews.net, and is based on the results of Contractor's annual Rising Stars survey
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