Defence construction surge a risk to other building projects

But the new defence workbook, worth an extra $3 billion a year, would be held up by the construction sector’s ability to only take on up to an extra $1.5 billion in such work, and it could only do more by delaying projects, said Australian Construction Industry Forum consulting economist Kerry Barwise.

“In the construction [industry] employment and capacity only changes by less than a couple of per cent a year,” he told The Australian Financial Review.

“When a big change comes along, you pick up the growth in the sector pretty quickly and have to reallocate jobs from somewhere else. The rest is accommodated by displacing other activities from the building pipeline.”

Increased defence spending and a boom in data centres are two bright spots in an otherwise lacklustre non-residential commercial construction sector that is likely to fall 1.2 per cent to $58.9 billion in total work this year from $59.6 billion last year, ACIF’s latest six-monthly forecasts show.

The value of total housing construction will rise 2.8 per cent to $141.2 billion – slower than the 3.3 per cent increase last year – while growth in non-mining infrastructure will also slow, from 4.2 per cent last year to 2.2 per cent this year, for a total of $109.4 billion.

The value of mining-related investment will fall 0.2 per cent to $35.2 billion.

“The soft landing in the economy engineered by the RBA has squeezed out inflation, but it has also put a squeeze in growth in building and construction work,” the report says.

“Growth is expected to pick up next year. This will be supported by a belated recovery in business investment in building projects, especially in building of large data centres, and sustained growth in demand including from still robust population growth.”

The predictions are tentative – the data only reflects government tenders in the market and doesn’t guarantee the cost or delivery of projects – but the prediction that defence work will add lift the category that includes justice and other government spending from $4.4 billion in 2024-25 to $6.1 billion by 2027-28 has the industry cautious.

“With multiple agencies responsible for planning and delivering defence infrastructure, the sector faces added challenges as these agencies are effectively competing with themselves for the skills they need,” said Jon Davies, chief executive of Australian Constructors Association, an industry body for the largest building and infrastructure contractors.

“There’s an assumption the construction sector will simply ‘show up’ but, with national infrastructure demand already stretched, that’s a risky approach. A co-ordinated approach and genuine engagement with industry are essential to deliver the infrastructure needed to support national security.”

A likely result of a surge in spending could be that key national security projects fall behind schedule, Barwise said.

“This $8 billion to $10 billion worth of approvals will take as many years to be built when we make allowance for delays,” he said.

Much of the current spending boost aims to prepare Australia’s naval facilities for the AUKUS defence pact.

Separate government documents show planned spending on HMAS Stirling – the country’s largest naval base, which is due to start receiving visits from US and UK nuclear submarines in two years – has jumped by $3.3 billion in the past six months.

The jump to $13.2 billion in approved and unapproved spending over the next decade on the Garden Island base off the Perth coast from $9.9 billion just six months ago is revealed in a Defence Department presentation to industry last week.

“The most significant opportunity in defence is AUKUS pillar one – it’s all to do with submarines,” said Colin Mitchell, contractor BMD Group’s national general manager of strategy and a representative of the Australian Owned Contractors on ACIF’s forecasting council.

The same presentation also revealed a near-$750 million boost in planned spending from just six months earlier at RAAF Base Darwin and a $600 million-plus increase for RAAF Base Townsville.

“The increased defence spending offers immense opportunity to the Australian contracting market,” Mitchell said.

“Some is quite complex, a lot of it is in regions or remote areas. Part of that defence strategy is to strengthen our northern bases. There is a lot of work coming across the north of Australia, which is an area we’re already operating in.”

In September, Prime Minister Anthony Albanese said a planned $25 billion investment in the Henderson shipyards outside Perth – which will maintain the nuclear sub fleet and also build the navy’s next-generation landing craft – was evidence of Australia’s commitment to boost defence spending.

That spending is increasing. Tender processes are also underway for a so-called capability partner head contractor and construction contractors to make the Osborne shipyard outside Adelaide capable of building nuclear-powered submarines.

They are far bigger boats to build. At about 140 metres long, Virginia class submarines are longer than the 77-metre-long Collins class submarines and displace 10,364 tonnes compared with the Collins’ 3407 tonnes.