It’s no secret that the Australian construction industry has had an ongoing and acute skills shortage over the past few years. This was one of the factors that led to numerous state government infrastructure projects being shelved across Australia. So where will labour for big hydrogen projects come from in Australia? This problem is not going away in the short to medium term – there is an urgent need to recalibrate how labour risk is allocated on renewables projects.
The Problem
Nowhere is this unprecedented labour shortage more evident than in the renewables sector.
In August 2022, the Clean Energy Council issued its Skilling the Energy Transition report1 recognising the extraordinary growth of the renewables sector and the plans for ongoing expansion. We are aiming to accelerate towards being a predominantly clean energy power system and be seen as a world leader in the sector.
The Report provides detailed plans, including university education programs, vocational training and transitioning from traditional industry to renewables and migration – but each only provides a medium to long-term solution (which, whilst important, does not fix the present impasse). So great are these issues in the long term that they could ‘cripple’ our ability to meet emissions reduction targets2 – with particular trades and consultants, like electricians, engineers and construction managers, in already high demand across construction and infrastructure projects nationwide.
It has been estimated that as many as 15,000 new workers will be needed in the renewables industry within five years3. This is compounded by extraordinary wage increases given the shortages. This is further impacted by low levels of productivity – given interdependent trades are often not available and ongoing freight details and material shortages as a result of over-arching global issues are ongoing.
So on larger hydrogen projects, particularly on the cutting edge of technology and innovation, how is labour going to keep up with projected demand? Further, how will parties incentive rapid movement into the industry and what can government do to support this?
Way forward
Firstly, fast-tracking skilled migration Federally is a no-brainer. This issue is not new – but never has it been more acute a shortage.
Secondly, in circumstances where everyone knows there is a serious shortage of skilled labour, it is time to revisit simply having a principal put this risk solely on a head contractor. Looking at the recent write downs of several major head contractors and Clough’s recent entry into administration, it is clear overly simplistic pass throughs of labour risk will not create a sustainable or productive industry. What is needed is some form of genuine risk share. Depending on the project, this could include:
- sub-subcontractor availability and/or insolvency risk being shared between the Principal and Head Contractor in respect of key trades;
- rather than a lump sum, consideration of a target cost range for key sub-subcontractor works packages as a hedge for such labour risks; and
- a target range for labour costs – rather than a fixed schedule of rates – given current fluctuations.
Far from being altruistic, such mechanisms could improve productivity and ultimately give greater price certainty as part of encouraging scarce labour resources into clean energy projects over lucrative similar roles in resources and infrastructure. For government projects, this should be immediate – as the industry (and funders) will follow suit if they see project risk sharing succeed.
The call to arms from industry has been ‘disrupt or die’ – ‘there is a vital need to substantially change the way the industry operates’[4]. Risk allocation needs to be sustainable and supportive of a renewables industry seeking rapidly expand in Australia. This leadership starts with contract models and delivery structures which are sustainable and profitable down the contractual chain.
It’s far from an insurmountable challenge. Australia seeks to be a world leader in hydrogen projects – pragmatic risk allocation in respect of known risks such as labour shortages – will only serve to provide greater certainty for industry participants. Increased engagement and better project outcomes will follow sensible risk allocation – which fosters more collaborative and less adversarial cultures on Projects.
For more information, please contact Hamilton Locke Construction and Infrastructure partner Veno Panicker.
1https://assets.cleanenergycouncil.org.au/documents/CEC_Skilling-the-Energy-Transition-2022.pdf
2https://www.abc.net.au/news/2022-11-20/electricians-tradie-shortage-renewable-energy-boom/101670258?mkt_tok=NjM5LVpFUS05MzYAAAGINlmuumRDPTpw7cXJqwNvgFOR9Mgqckdn2zk0kM0d3byxTAPk-pPf49yUfXlDyhgK-TRMfZvGqPhS78pS6Fqq51tFXGxYX4zasr6oWOJV
3Chris Briggs, Research Director for the University of Sydney’s Institute for Sustainable Futures
4Jon Davies, CEO, Australian Constructors Association
