construction’s bridge to recovery

We build Australia. Together.www.acif.com.au

Australian Construction Industry Forum

Submission to Government Regarding Construction Industry Recovery from the COVID-19 Pandemic Situation

CONSTRUCTION’S BRIDGE TO RECOVERY

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© June 2020 Australian Construction Industry Forum (ACIF)

Cover and article images: By Gilberto Olimpio from Pexels (pexels.com/@golimpio)

Publication code: GS202006

You may use any of the material in the publication for your personal use or the role for which you are employed, provided: you do not on-sell the contents of the publication, that you make appropriate acknowledgment, and the material is not altered or subjected to derogatory treatment. You may make electronic copy or hard copies of parts of the publication for personal, non-commercial use. Any other use, including reproduction, modification, transmission, republication, display of the content is strictly prohibited.

Requests and enquiries regarding further authorisation should be directed to:The Executive DirectorAustralian Construction Industry Forum GPO Box 1691 Canberra ACT 2601Phone +61 1300 854 543Email [email protected] www.acif.com.au

Executive Director: James CameronMarketing and Media Officer: Chris Harper

1Construction’s Bridge to Recovery June 2020

Executive Summary

Stimulus

Procurement Processes That Support Australian Businesses

JobKeeper, Apprenticeships & Training

Regulatory Reform and Requirements

Payments

ACIF recommends that stimulus spending be spread across residential (with an emphasis on quality social housing), non-residential and infrastructure construction, with much of the spending to go to small and medium-sized enterprises (SMEs), and a focus on Australian-made products in construction. Also, a pull forward of ‘inspect, test, repair and maintenance’ work on government buildings, across all relevant trades.

ACIF calls for changes to government procurement processes to assist with the economic recovery and support Australian businesses, and endorses the recent announcement by the Minister for Industry, Science and Technology in this regard.

While the JobKeeper scheme has proved successful, and has been welcomed by the construction industry, there are some issues that need to be addressed. The 20 person limit in a business to receive the apprentice subsidy needs to be expanded. Vocational and apprentice courses to be further supported, with incentives for apprentices to be retained and more hired. Incentives for employers to take on new or out of work apprentices, and bring candidates from outside the industry into entry level roles.

ACIF calls for regulatory reform and regulatory requirements such as licensing/registration and inspections to continue as normal. The recommendations of the Building Confidence Report should continue to be implemented, and we welcome the Building Ministers’ Forum communique stating that this would occur. The issue of professional indemnity insurance is a hurdle facing COVID-19 stimulus projects which needs to be addressed. Other states to consider waiving construction licence fees as has NSW.

ACIF advocates that there be negotiated settlements to liquidated damages claims due to COVID-19, and fast government payments on projects of 1 to 5 days.

2 © 2020 Australian Construction Industry Forum www.acif.com.au

ACIF Members

The Australian Building and Construction IndustryThe building and construction sector represents almost 10% of the Australian economy. The industry employs 1.2 million Australians, in over 390,000 businesses. Total Australian building and construction work in 2018-19 amounted to $233 billion. In addition, the sector creates a strong supply chain and generates considerable associated economic activity.

The Australian Construction Industry Forum (ACIF) is the meeting place for leaders of the construction industry in Australia. ACIF facilitates and supports an active dialogue between the key players in residential and non-residential building, engineering construction, other industry groups, and government agencies. Our members are among the most significant associations in the industry, spanning the entire asset creation process from feasibility study through design, cost planning, construction, building and management.

ACIF member organisations include:

• Air-conditioning and Mechanical Contractors Association

• Association of Consulting Architects

• Australian Elevator Association

• Australian Institute of Architects

• Australian Institute of Building

• Australian Institute of Quantity Surveyors

• Consulting Surveyors National

• Fire Protection Association

• Insulated Panel Council Australasia

• Master Electricians Australia

• National Association of Women in Construction

• National Fire Industry Association

• National Precast Concrete Association Australia

• PrefabAUS

• Society of Construction Law Australia


Regulatory Reform and Requirements 7

Payments 9

Procurement Processes That Support Australian Businesses 10

Jobkeeper, Apprenticeships & Training 11

Stimulus 4

Contents


The current COVID-19 pandemic has seen a dramatic economic contraction. Governments have a critical role to play in cushioning our economy from the worst effects of global recession. We have seen this work before. The Federal Government introduced fiscal measures to combat the economic effects of the Global Financial Crisis (GFC). It announced a $10.4 billion stimulus package to flow to pensioners and low-income families, housing construction, and created new training places. The Government then announced a second stimulus package worth $42 billion titled the Nation Building and Jobs Plan. The stimulus package relating to infrastructure spending provided substantial support to the economy.

During the GFC the Government approved an unprecedented stimulus spend, which was successful in boosting the economy. This spend positioned our economy for the period of growth it experienced coming out of the GFC. The building and construction sector will require significant stimulus coming out of the COVID-19 situation. We request a GFC-sized construction stimulus spend now to counter the current slow down in the construction industry.

As one source noted:

The Australian Performance of Construction Index (PCI) has dropped by 16.3 points to 21.6 in April, the weakest overall performance of the construction industry since the survey began in September 2005. Readings below 50 indicate a contraction in activity, with the distance from 50 indicating the strength of the decrease. Slow activity on building sites due to projects that have either been cancelled or put on hold has led to a sharp fall in activity, new orders and employment.¹

Analysis and economic modelling by FTI Consulting for ACIF has identified several areas where stimulus activity could be best utilised including:

• Residential building - development of a significant nation-wide program of building social and affordablehousing options.

• Non-commercial non-residential building - increases in health and aged care to address increased demandsin the post-COVID-19 world.

• Engineering construction - bringing forward key infrastructure delivery projects and programs intelecommunications, electricity, water and sewerage. Expansion of investment plans picking up major road and rail projects that have been reviewed and approved by independent bodies such as Infrastructure Australia.

Taken together these measures could raise building and construction activity by $66 billion over the next five years. This would be a significant strengthening of the bridge to recovery that the Governor of the Reserve Bank of Australia has called for.

Please see the accompanying ACIF May Update Report, which contains a full analysis of where funds could be best spent in various sectors of the construction industry.

Stimulus

¹ https://www.insideconstruction.com.au/news/latest-news/construction-index-sees-sharpest-ever-fall/


ACIF recommends that stimulus spending be spread across residential (with an emphasis on quality social housing), non-residential and infrastructure construction, with much of the spending to go to small and medium-sized enterprises (SMEs), and a focus on Australian-made products in construction.

Any Government stimulus work should be spread across sector and by size of project, as a few large infrastructure projects will not reach the majority of the industry. The lessons learnt from Building Education Revolution (BER) in 2008-9 need to be remembered, and smaller contractors to be able to benefit from stimulus measures. ACIF notes and commends that the Federal Government has recently called on our states and territories and the 537 local governments to enquire which infrastructure projects can be brought forward.

ACIF advocates that a panel be implemented to fast-track planning for infrastructure investment. Otherwise it may not commence until 2021, and for the construction industry, that may be too late. There is a question of whether many companies will be able to survive until the economic recovery and stimulus measures take effect. Some other stimulus measures that ACIF calls for include:

• Cladding remediation – cladding is an issue that has undermined public confidence in the built environmentand is a significant public health hazard. The Grenfell Tower fire in London shows that this is a worthwhile area where stimulus spending could have a lasting and positive effect.

• Bring projects forward - Maintenance projects are a good example of projects that can be brought forward,as these are less reliant on substantial material supply and provide a pipeline of work that benefits across the building and construction sector.

Work Done by Category ($ billion, CVM) various scenarios

Source: ABS and ACIF


ACIF calls for the stimulus measures to include a pull forward of ‘inspect, test, repair and maintenance’ work on government buildings, across all relevant trades. This element of private sector work has dried up due to the crisis, which can quickly be addressed by governments bringing forward their work schedule by around two months. This work is budgeted and will mean quick stimulus. Governments should work with contractors to ensure identified repair work occurs urgently. Private work should come back online at the end of the year and this will replace the ‘gap’ in government work created by the pull forward.

Before reopening after a period of shutdown, building heating and cooling systems should be thoroughly inspected and serviced to avoid health and safety risks such as legionella, airborne mould and poor air quality, as well as damage to building plant and equipment. Any period of shutdown can negatively impact the performance of heating, ventilation and cooling systems (HVAC).

Economic stimulus measures need to include local products and service providers in regional areas in particular. We are advocating that local councils relax their procurement policies to allow fair competition for projects. This is especially important in bushfire affected communities where they have the opportunity to build improved facilities than existed before. Bushfire recovery construction is a definite means by which regional areas could benefit from stimulus measures.

ACIF believes that there are many opportunities to provide stimulus that will create a better outcome for homeowners (current and future) if they can improve the energy efficiency and thermal comfort of their homes and to boost the local supply chain. Improving energy efficiency in the built environment is an essential element in facing the challenges of a changing climate. While this has been recognised by governments through agreed changes to the National Construction Code (Section J), there are other methods that could be introduced in tandem with this to provide economic stimulus and energy efficient outcomes, particularly in the residential housing sector. The best energy efficient outcomes are provided by good design.


ACIF calls for regulatory reform and regulatory requirements such as licensing/registration and inspections to continue as normal.

The recommendations of the Building Confidence Report should continue to be implemented, and we welcome the Building Ministers’ Forum communiqué stating that this would occur.

The issue of professional indemnity insurance is a hurdle facing COVID-19 stimulus projects which needs to be addressed. As reported recently in the Australian Financial Review:

The insurance crisis that has stopped building certifiers signing off on certain jobs is spreading to other professions and threatening the infrastructure and commercial construction projects governments are rolling out to stimulate COVID-19-hit economies. Soaring premiums and limited appetite for risk that have increasingly stopped insurers from offering cover to building certifiers and surveyors are now affecting other professions, such as engineers – and extra work coming from stimulus spending will leave them even more exposed.²

The Australian Institute of Architects is investigating insurance regarding cladding. Architects are designing around cladding, and insurers are advising that undertaking work involving cladding will not be covered, as cladding is involved in the building process. Potentially there will be no insurance coverage.

The quantity surveying industry has seen a jump in professional indemnity insurance costs, and quantity surveyors will suffer the consequences from this. There will be ongoing issues for some years, and quantity surveying policies are now featuring a number of exclusions.

Land surveyors are currently renewing their professional indemnity insurance, and are being assessed in the same category as building surveyors. This means in most cases their insurance costs have tripled.

ACIF also calls on other states to consider waiving construction licence fees as has NSW, as part of the State Government’s first economic stimulus package. Up to 200,000 licence holders will benefit from this fee relief package over the next 12 months in NSW.³

Another issue to be addressed is industry trade credit insurance. Insurer QBE reduced trade credit insurance to half of what it had been, and this has had a significant effect on the industry.⁴ Builders need to have trade credit insurance to be bidding for tenders.

Further, witnessing of signatures has proved an issue with many staff working from home, as some businesses will not accept electronic signatures. Some government directives and/or guidance on this matter would be beneficial.

Regulatory Reform and Requirements

² https://www.afr.com/property/commercial/the-hurdles-facing-covid-19-stimulus-projects-20200310-p548pv³ https://www.insideconstruction.com.au/section/industry-news/nsw-waives-construction-licence-fees/⁴ https://www.insurancenews.com.au/corporate/qbe-eases-trade-credit-cover-cutback


⁵ https://www.amca.com.au/Public/News/News_Items/202005/Industrialised-Construction-the-way-to-rebound-from-COVID-19.aspx

The recently released paper Industrialised Construction: The Rebound from COVID-19⁵ encourages leaders from both government and industry to shift towards an industrialised model of construction to help lead the sector through the COVID-19 recovery, simultaneously delivering higher-performing and more sustainable built assets. Drawing upon ideas from a global panel of industry and academic leaders, the paper presents 21 recommendations for how to transform the building and construction process. Amongst other things, this paper calls for more use of off-site manufacturing products in construction to maximise productivity.

The recommendations of the paper are framed around four areas:

1. the reorganisation of the status-quo operating model;

2. use economic stimulus measures to invest in and catalyse innovation;

3. look for ways to unearth cutting-edge supply chains; and

4. prioritise high-performance, low carbon buildings.


ACIF advocates that there be negotiated settlements to liquidated damages claims due to COVID-19, and fast government payments on projects of 1 to 5 days.

Liquidated damages provisions within construction contracts are a recompense for delays by parties within the contractual chain. These are clauses that every party from developer to subcontractor are held accountable for. Over the years “Force Majeure” clauses have disappeared from many contracts, and as such, the COVID-19 situation places all parties at risk.

ACIF requests consideration that for the duration of the COVID-19 crisis that liquidated damages do not include COVID-19 related delays. Failure to amend these provisions would have negative consequences across the construction industry. This includes projects still under operation, but have suffered productivity drops due to measures such onsite distancing and supply chain disruption. While government may say they should not intervene in private contracts, ACIF notes that the Prime Minister has stated that leases between landlords and tenants should be negotiated during the coronavirus period.

ACIF seeks government support so that government clients and tier one contractors do not start to enforce contract terms for delays caused by material supply delays, or delays due to availability of key personnel due to the coronavirus. This is an unforeseen risk that is out of control of consultants and contractors alike, but could cause significant damage to our industry if clients seek recompense from them due to delays caused by the COVID-19 pandemic. While this is an important message for State and Territory Governments, it would be good to see leadership from the Commonwealth Government.

ACIF requests that the Commonwealth Government lead by example via:

• Shortening their payment timeframes;

• Communicating to the marketplace regarding the need for shortened payment timeframes (as firms areslowing down payment for work performed);

• Ensure that invoices received are paid within 1-5 working days to ensure cash flow throughout the contractualchain (noting that the Department of Defence announced on 25th March 2020 its intention to pay within 1 day); and

• Direct procurement officers to grant relief for timeframes for payment claims/schedules/ notices undersecurity of payment legislation, where financial distress is evident.

Further, any improved payment timeframes from Government to head contractors must be reflected down the supply chain to subcontractors and sub-subcontractors.

Governments should also consider implementing cascading statutory trusts (CSTs). A CST is a trust imposed by law that cascades down through a string of deemed trusts. The money that is payable to a business down the line is held for the benefit of that business by the business above. If designed properly, CSTs protect payments for all levels in the contractual supply chain, from principals to subcontractors.⁶

Payments

⁶ https://www.architectureanddesign.com.au/news/building-industry-survival-of-covid


ACIF calls for changes to government procurement processes to assist with the economic recovery and support Australian businesses. ACIF supports the recent announcement by the Minister for Industry, Science and Technology in this regard.

We see this period as a business opportunity for Australian service providers and manufacturers to re-establish themselves. We would encourage tax breaks and incentives for Australian service providers and manufacturers, as there will undoubtedly be future crises which will affect Australia’s ability to procure goods and services from overseas.

We would urge that there be a strong ‘Australian Made’ approach as a result of the impact of COVID-19. As we look to recovery, it will be critical that Australia does not have an over-reliance on any one country and/or overseas supply chain. Australia should focus on high-quality locally produced goods and services and further develop on-shore resources and capabilities with stimulus packages to boost development. Risk management strategies need to take into account being dependent on one or two sources of supply.

To support this ‘Australian Made’ approach we recommend that specifiers and procurers favour products and materials derived from industry associations with certification schemes and authorities that comply with ISO/IEC 17065:2013. Only products and materials that meet Australian Standards, ISO standards, WELS, WERS and other regulatory requirements should be specified and installed on projects. Stringent measures should be introduced to verify the testing and product compliance documentation of all imported building materials and products into Australia. As part of those stringency measures, we would expect a requirement for suppliers and installation contractors (including suppliers that market products as ‘own brand’) to have an independently audited Quality Assurance system in place that is recognised in Australia.

Procurement Processes That SupportAustralian Businesses


While the JobKeeper scheme has proved successful, and has been welcomed by the construction industry, there are some issues that need to be addressed. The JobKeeper scheme has been reported by some in the industry as overly complicated. The changing government rules and the often conflicting information disseminated have been challenging. The confusing application processes, timing issues of payment and the way that many construction professionals and tradespeople invoice for their work have all proved problematic.

ACIF notes that more than $100 million has been paid out to almost 13,000 employers assisting 22,035 apprentices and trainees remain on the job since the Morrison Government launched the Supporting Apprentices and Trainees measure on 2 April 2020, and commends the Government for this. According to the media release by Senator Michaelia Cash, Minister For Employment, Skills, Small And Family Business and Steve Irons MP, Assistant Minister For Vocational Education, Training And Apprenticeships on 8 April 2020:

The support is through a wage subsidy which covers 50 per cent of wages paid to apprentices and trainees. Subsidies will cover wages paid from 1 January 2020 to 30 September 2020 and businesses will be reimbursed up to $7,000 per quarter, up to a maximum of $21,000, per eligible employee. The support package is part of the Morrison Government’s Economic Response to COVID19. The wage subsidy is available to small businesses that employ fewer than 20 full-time employees and retain their Australian apprentice or trainee. In addition, employers of any size and Group Training Organisations that re-engage an eligible out of trade apprentice or trainee are also eligible.

However, ACIF advocates that the 20 person limit in a business to receive the apprentice subsidy be expanded. Vocational and apprentice courses should also be further supported, with incentives for apprentices to be retained and more hired. Apprentice stimulus for group training apprentices does not pay the host employer. As a result the apprentices will be handed back, because most group training does not qualify, as they have more than 20 employees. Stimulus thus needs to be received by the small host employers. This will be a significant issue in years to come when there may be a skills shortage and a severe lack of trained apprentices. According to one source, building and construction apprentice placements have dropped by 63 per cent in Australia.⁷

JobKeeper, Apprenticeships & Training

⁷ https://www.smh.com.au/national/nsw/apprenticeships-drop-by-two-thirds-amid-looming-skills-shortage-20200401-p54g0g.html


An out of training contract program to get those displaced apprentices some on and off the job training while they are stood down would be valuable. This would ensure that apprentices who find themselves out of work due to COVID-19 are still acquiring skills and this initiative would assist in keeping these individuals as attractive employment prospects. It would also be possible to enlist the help of friendly employers to conduct workplace assessments at no cost.

Further, incentives for employers to take on new or out of work apprentices and candidates from outside the industry into entry level roles would be very helpful. The construction industry has made great progress with diversifying our talent pool and attracting talented new candidates. Therefore, it would be disappointing to see these gains lost during a downturn.

Please do not hesitate to contact us if you require any further explanation of the above feedback provided by the Australian Construction Industry Forum.

Yours sincerely,

James CameronExecutive DirectorAustralian Construction Industry Forum

Norman FaiferChairAustralian Construction Industry Forum

We build Australia. Together.www.acif.com.au

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