Navigating the Perfect Storm: Why A+ Contract Administration Remains Critical

Key Takeaway

Amid a volatile economic environment, rising insolvencies, and renewed cost escalation in the construction industry, contractors and consultants must prioritise rigorous contract administration to navigate the storm ahead.

The Storm Intensifies

As we enter 2025, the construction sector remains at the centre of a multifaceted crisis. The ‘perfect storm’—a term that first described the convergence of post-COVID supply chain disruption, labour shortages, and fixed-price contract pressures—continues to evolve.

Recent ASIC figures show over 3,217 construction-related businesses entered administration in 2024, up from 2,546 the year prior. CoreLogic reports residential construction costs rose 3.4% in the 12 months to December 2024, the highest since late 2023. Meanwhile, structural steel and rebar prices have dipped, but concrete costs continue to climb.

Fixed-price contracts, long considered the industry’s default position, remain an Achilles’ heel. Despite subdued inflation in some material categories, the compound impact of labour shortages, weather delays, and misallocated risk is proving too much for already thin margins.

Contractual Pressures & Government Shifts

Amendments to standard form contracts are compounding risk exposure. Despite the NSW Government’s 2018 Action Plan advocating for minimal contract variation, we continue to see excessive special conditions—such as 16-page departures to GC21—being issued on public sector projects.

Contractors must also grapple with the expanded Unfair Contract Terms (UCT) regime, which now applies to businesses with fewer than 100 employees or under $10 million turnover. Courts can now void, vary, or prohibit the enforcement of unfair terms—an essential reminder to reassess standard form contracts and subcontractor agreements alike.

The Escalation Dilemma

While some material costs have softened, labour shortages remain the defining challenge of the decade. The NSW infrastructure pipeline continues to drive demand for skilled and white-collar professionals, forcing private sector firms to recruit internationally.

With a major housing push by the Federal Government, demand for trades will only increase, worsening wage pressures. In turn, many builders are facing a profit squeeze: increased wages + fixed contract pricing = shrinking viability.

On top of this, extreme weather events—such as Sydney’s record-breaking rainfall in 2022—continue to trigger project delays. While extensions of time may be granted, cost recovery is rare, pushing projects into loss-making territory.

Current Trends at a Glance

3,217 construction firms entered administration in 2024 (ASIC).
Residential construction costs rose 3.4% to December 2024 (CoreLogic).
Material price divergence: steel falling, concrete rising (Altus Group).
$42.1 billion in projected market growth by 2029 (Technavio).
Improved financial health ratings, but insolvency risk remains elevated (Equifax).

What Can Contractors and Developers Do?

The first step is recognising that risk can’t be eliminated—but it can be managed. A+ contract administration is no longer a back-of-house function—it’s a strategic imperative.

Contractors:

Scrutinise and challenge unfair contract terms.
Stay informed on cost escalation and competitor health.
Implement Early Contractor Involvement (ECI) where feasible.
Prioritise financial planning, forecasting, and subcontractor payment schedules.

Developers & Clients:

Honour the intent of standard contracts like GC21.
Avoid shifting disproportionate risk to delivery partners.
Foster collaboration over combative procurement.

Suppliers:

Diversify sourcing channels to manage cost volatility.
Implement hedging and fixed-price strategies with caution.

Looking Ahead

The perfect storm has not passed. Instead, it has evolved—driven by economic lag effects, geopolitical instability, and ambitious housing policy. But contractors who double down on commercial discipline, contractual risk management, and early planning will remain afloat.

Whether you’re a subcontractor, builder, or client—contract administration is not an afterthought. It is your life vest.

For more information, contact the Calibrate Consulting team at info@calibrateconsulting.com.au or call +61 9188 7444.

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