Outdated construction contracts, poorly allocated commercial risks and increasing compliance requirements are contributing to challenges in delivering major projects across Western Australia.
Speaking at a Business News and HopgoodGanim Lawyers event in Perth on October 27, HopgoodGanim Lawyers partner Andrew Vinciullo called for greater collaboration between developers and contractors to improve project delivery.
Mr Vinciullo told the Built to Boom: Can WA Deliver Its Major Project Pipeline? panel that Australia's construction industry continued to rely on traditional contracting models that encouraged parties to transfer risk rather than manage it collectively.
He said the approach could discourage experienced contractors from tendering for projects and increase the likelihood of disputes.
"Contract negotiations are still very much an adversarial process, with both sides trying to push the risk onto each other," he said.
Mr Vinciullo said fixed-price contracts remained common across the industry, with project owners seeking certainty over costs and delivery timeframes.
While acknowledging legitimate reasons for these arrangements, including government budget requirements and private-sector financing conditions, he said they could create unintended consequences.
Risks relating to design, site access and project scheduling were frequently transferred between parties without sufficient consideration of which organisation was best placed to manage them.
"It tends to promote a race to the bottom on price with contractors," he said.
"If risks are not allocated fairly, if there's not thought put into that allocation, then particularly on the client side, when it comes to the tendering, what you'll end up seeing is either the tendering parties will price in that risk, which will increase prices," he said.
Alternatively, experienced contractors could decline to tender, leaving less experienced operators to take on risks they did not fully understand and have not adequately priced.
Mr Vinciullo said capacity constraints were also becoming apparent through claims for project delays, extensions of time and contract variations.
"We start to see of the impacts manifest through an increase in delay and extension of time claims or variation claims," he said.
On the project owner side, an increase in payment disputes and disputing payment claims could indicate emerging financial pressures.
Mr Vinciullo said formal disputes often emerged well after the initial pressures on a project, pointing to the delayed legal consequences of workforce and supply chain disruptions during COVID-19.
"It wasn't really until two or three years later that we started to see the disputes flow into the courts," he said.
He said recent volatility in fuel prices could similarly contribute to future contractual disputes.
Commercial risks
BMD Constructions WA General Manager Leon Fogliani said contractors were particularly exposed when project scopes were unclear, approvals were incomplete or commercial risks were poorly defined.
"That means when the scope is unclear, approvals aren't in place, or there's issues around the risk that are hard to define."
Mr Fogliani said contracting arrangements needed to reflect the complexity and uncertainty of individual projects.
Traditional fixed-price contracts could be appropriate where project requirements were clearly established, but more collaborative arrangements were needed when significant uncertainty remained.
He said early contractor involvement allowed parties to better understand project requirements and risks before committing to a final price.
"When everyone is working together, as Andrew said, if it's the ECI environment or the development phase, everyone's understanding each other's risk," he said.
"It's either everyone wins together or everyone loses together."
Mr Fogliani said the resources sector and even some government agencies are increasingly adopting early contractor involvement models following lessons from previous investment booms.
Mr Vinciullo said these models were already recognised in Australia but remained underutilised.
"Getting in the contractor to work with the client as early as possible to develop the project before you're actually signing up to the project is the best way to minimise that risk," he said.
Red tape
Tellus chief executive Anna Dartnell said regulatory uncertainty was another significant challenge facing project developers.
She said lengthy approval processes could be managed, but uncertainty about regulatory requirements could influence investment decisions.
"Capital follows certainty," she said. "I think people can work around "slow", but uncertainty often forces different decisions."
Ms Dartnell said the issue was particularly relevant for businesses developing new technologies or facilities that did not fit neatly within existing regulatory frameworks.
Mr Fogliani also raised concerns about growing administrative and compliance requirements, which he said were increasing the workforce and overheads needed to deliver comparable infrastructure projects.
He recalled delivering a road interchange approximately 15 years ago, compared with today, with nearly double the number of resources.
He said additional requirements around verification, certification, auditing and sustainability were contributing to inefficiencies, despite many serving important purposes.
"We're all fishing in the same pool here," he said. "We need to be doing more with what we've got."
