Capacity constraints in the construction industry and its reluctance to take on defence contracts are threatening the building up of northern and western defence bases, a key element of the 2024 National Defence Strategy (NDS). Defence is facing a risk of overshooting project budgets.
One problem is the shortage, or high cost, of labour. The other is the industry’s perception that defence work is more troublesome and less profitable than contracting for other sectors.
In the short term, Defence should tackle these issues by facilitating temporary fly-in fly-out labour to regional and remote locations and by reducing entry barriers for projects with lower security risk. In the longer term, it should consider adopting a strategic partnership model with the construction industry so it can be more sure of what projects are coming up and when.
The NDS calls for spending $15.8 billion on infrastructure, mainly in the north and west, from 2023–24 to 2027–28. This is necessary for reinforcing the Australian Defence Force’s capacity for force protection. That capability requires a logically networked and resilient set of bases, particularly the airfields from Learmonth, Western Australia, to Townsville, Queensland. As outlined in ASPI’s 2024 Cost of Defence report, the capacity of the national construction industry and supply chains to deliver these extensive works, especially in remote locations, within the specified time frames remains uncertain.
People are Defence’s most important asset. Similarly, in the construction industry, the intellectual capital and experience of people with a physical boots-on-the-ground presence are the most valuable asset of any firm. Like Defence, the construction industry is facing a generational workforce shortage across the country, particularly in Northern and Western Australia, which is unlikely to be resolved in the next decade.
The construction industry often has a transient workforce, with people frequently moving between project locations. This is manageable within capital cities and large regional centres on the east coast and southern Australia, where travel can be accommodated without needing to relocate families. It’s much harder to handle in the north and west.
Servicing major infrastructure projects in those areas, the focus of the NDS infrastructure budget, is a significant challenge for the construction workforce. This is compounded by enormous concurrent demands driven by government policy (federal and state) alongside other forms of infrastructure investment. Unless changes are made, this will once again result in Defence missing estate expenditure targets by a large margin or incurring significant premiums to already costly programs.
According to Infrastructure Australia, there is a considerable pipeline of infrastructure investment across nearly all states and territories (about $230 billion over the five years from 2022-23 to 2026-27). And there is an anticipated shortage of approximately 229,000 full-time infrastructure workers, with tradespeople and labourers in particularly tight supply.
Defence infrastructure investment represents around 7 percent of this pipeline. This means Defence is competing for construction resources with other agencies and sectors such as housing supply, hospitals, roads, rail, renewable energy initiatives and, in southeast Queensland, the Olympics.
Concurrently, Defence is facing a reputational crisis, with infrastructure projects no longer deemed by the construction industry to be the golden goose of opportunity. Complex tendering processes, real or perceived barriers to entry, extensive contract conditions and challenging locations have led many firms to conclude that Defence contracts are no longer the most commercially attractive options in the sector.
More broadly, this affects industry appetite to see Defence as a sector that they wish to build for.
These problems are exacerbated in the north and west, where Defence infrastructure projects are competing for resources in a smaller labour pool against other more commercially attractive sectors. For example, renewable energy infrastructure draws resources to remote and regional areas, and mega infrastructure projects draw resources to major cities such as the Olympics in Brisbane.
Defence can implement several initiatives to provide short-term relief for construction workforce challenges. These include accepting a significant cost premium by paying for contractors whose employees live elsewhere but are flown in for one or two weeks’ intensive work then flown home for a similar period of rest—the fly-in, fly-out arrangement. Another initiative would be to reduce the hurdles for projects with lower security risk so contractors can recruit more widely.
Construction sector leaders regularly advocate for, and collaborate on, both the forward planning and the delivery of critical projects for Defence. This commitment is illustrated by Lendlease’s defence and government business leader, Matthew Theoharous, who tells us: ‘The key to preparation is early and open engagement between Defence, contractors and subcontractors. Open and early engagement is the catalyst for contractors to work hard to find and attract a local workforce. This includes establishing the contractual conditions that promote local industry involvement.’
Defence took a step in the right direction with its 2024 announcement that it was seeking to establish a construction services panel with constructors to support projects greater than $200 million. Subject to how this panel is established, it allows Defence and industry to work together to streamline procurement and provide greater transparency of future opportunities.
As an extension to the forecast panel arrangement, Defence could also consider establishing a strategic partnership model and adopting a programmatic approach to delivering works in the north and west. This would streamline multiple procurement processes, saving the department time and money, reducing tendering costs for the construction industry, and providing certainty of work to better coordinate resources. This partnership model would encourage the construction industry to make significant investments in these locations, simplifying investment decisions for shareholders and improving economic outcomes for local communities.
The long-term, more sustainable solution would be for Defence to meaningfully collaborate with the industry to provide certainty of the construction pipeline and timeframes. The construction industry and associated industry groups can leverage this to focus on the bigger challenge of growing the next generation workforce. This approach would also help the states, territories and local governments plan and deliver the necessary social infrastructure to support population growth for both ADF and industry in a sustainable way.