So, everyone is fully aware that the prices of construction materials, services and labour have been soaring faster than a rocket. It begs the question: Are construction companies passing on these hikes to their clients, or are they bearing the burden themselves, and is this becoming the new norm? Let's find out!

According to a recent report by the Construction Cost Index (CCI), materials like steel, timber, and concrete have seen price increases of up to 20% in the past year (Reference: CCI, "Construction Material Price Trends Report," 2023). That's enough to make even the toughest builder shed a tear.

Now, you might wonder why construction companies would absorb these material hikes instead of passing them on to clients. It's a balancing act, really. On one hand, passing on the costs might mean higher prices for clients, potentially putting a strain on their budgets. They may lose potential clients to competitors, and we know, we're working in a highly competitive industry with low margins. On the other hand, absorbing the hikes can eat into the profit margins of construction companies faster than a swarm of hungry seagulls at a picnic.

But fear not! Some builders are getting creative to navigate these price spikes, in addition to honing their negotiation skills with suppliers and clients. It's all about finding that sweet spot between time, quality, cost, and client satisfaction. It's like wrangling a stubborn challenge—requiring patience, perseverance, and a touch of humour!

What to do about materials and services price hikes?

Around the twists and turns of the industry I've been navigating lately, here are seven things I've heard are being implemented to lessen the pressure of the price hikes of materials and services:-

1.      Value Engineering:
Builders are applying value engineering techniques to optimise designs and construction methods. This involves identifying cost-saving opportunities without compromising on quality or functionality. Value engineering helps eliminate unnecessary expenses and find efficient alternatives.

2.      Contractual Agreements:
Builders are now ensuring they are incorporating clauses in their contracts to address material price fluctuations. These clauses may allow for adjustments in contract prices based on changes in material costs. By outlining clear provisions, builders and clients can navigate potential disputes and share the impact of material price rises more fairly. These provisions may outline mechanisms for adjusting the contract price based on market variations or implementing cost-sharing arrangements between the parties involved. By incorporating clauses regarding material price rises within the construction contract, homeowners and contractors can establish transparency, manage expectations, and mitigate potential disputes arising from unpredictable material costs.

3.      Material Substitution:
Builders are exploring alternative materials that offer similar functionality but come at a lower cost. They may source locally available substitutes or opt for sustainable and recycled materials, thereby reducing dependence on expensive or scarce resources.

4.      Supply Chain Management:
Builders are proactively managing their supply chains by establishing strong relationships with suppliers. They maintain open communication, monitor market trends, and negotiate favourable prices and delivery terms. By fostering partnerships, builders can secure better deals and ensure a reliable supply of materials.

5.      Early Procurement:
Builders are adopting early procurement strategies to lock in material prices before a potential future price hike and secure a more stable cost base for their projects.

6.      Collaboration and Innovation:
Builders are collaborating with industry partners, including suppliers, subcontractors, and designers, to find innovative solutions that optimise material usage and minimise waste. Through shared expertise and creative problem-solving, builders can identify cost-effective alternatives and construction techniques.

7.      Risk Management:
Builders are actively assessing and managing the risks associated with material price rises. They conduct thorough risk analyses, implement contingency plans, and monitor market conditions to anticipate and respond effectively to price fluctuations. By staying proactive, builders can minimise the potential impact on project timelines and budgets.

What to do about the labour component?

Of course, labour is a major cost that needs careful consideration. Outsourcing to a labour-hire and recruitment company like SiteForce Recruitment can provide cost-saving benefits for building companies in several ways.       

We have listed below seven things you can implement to lessen the pressure of the price hikes of labour:-

1.      Reduced Overhead Costs:
By outsourcing labour, building companies can eliminate or significantly reduce various overhead costs associated with hiring and managing employees. These costs include recruitment expenses, payroll administration, training, employee benefits, and insurance. Labour hire companies handle these aspects, allowing the building company to focus on core operations and allocate resources more efficiently.

2.      Flexibility in Workforce Management:
Labour-hire companies offer flexibility in managing the workforce. Building companies can access skilled workers as per project demands without the long-term commitment and associated costs of hiring permanent employees. They can scale up or down their workforce based on project requirements, thereby avoiding excess labour costs during periods of low demand.

3.      Elimination of Recruitment Expenses:
Outsourcing to a labour-hire company saves building companies the time and costs involved in recruiting and onboarding new employees. Labour hire companies have established networks and databases of qualified workers, streamlining the hiring process. This eliminates expenses related to advertising job vacancies, conducting interviews, and conducting background checks.

4.      Training and Skill Development:
Labour hire companies often invest in training and upskilling their employees to meet industry standards and client needs. By outsourcing to such companies, building companies can benefit from access to a skilled and trained workforce without incurring the costs and effort of providing extensive training themselves.

5.      Risk Mitigation:
Labour-hire companies typically assume a portion of the legal and compliance responsibilities associated with employment, such as workers' compensation, payroll tax, and superannuation. This helps mitigate potential risks and legal liabilities for building companies.

6.      Focus on Core Competencies:
Outsourcing labour allows building companies to concentrate on their core competencies and strategic priorities. By delegating non-core tasks to a labour-hire company, they can enhance operational efficiency, optimise resource allocation, and achieve better productivity.

7.      Reduced Administrative Burden:
Building companies can offload administrative tasks such as payroll management, leave management, and employee record-keeping to the labour-hire company. This reduces administrative burden, freeing up time and resources for more critical business functions.

It's important to note that while outsourcing to a labour-hire company can offer cost-saving advantages, building companies should carefully select reputable and a reliable labour-hire provider (yes, that's us) to ensure they maintain quality standards, safety protocols, and legal compliance. Thorough due diligence and ongoing communication are crucial to establishing a successful outsourcing partnership.

These strategies may vary among builders based on their project requirements, scale, and market conditions. However, the collective goal remains the same: navigating rising material costs while delivering quality projects within budgetary constraints.

As we brace ourselves for this rollercoaster ride, let's keep our spirits high, our focus on making a brighter future for each other, and our determination unwavering. After all, challenges are meant to be faced head-on, and the Australian construction industry is no exception.

Cheers to navigating the twists and turns of the Australian construction industry!

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Chantal Penny is the Director with Superpowers of SiteForce Recruitment. A thought leader in the industry, Chantal, based on her expertise and industry perspective offers unique guidance, inspiration, and influence in the industry.

At SiteForce Recruitment we specialise in labour-hire and permanent recruitment in the construction industry. We are committed to valuing people, safety and well-being, collaboration, trust and of course – results!

CONNECT with us via our contact page or bookings links on our website if you are looking to recruit for, get your dream job, or join our amazing labour force team.

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