Growth ahead for maintenance contractors: BIS Shrapnel

In its report, Maintenance in Australia 2008 to 2023, BIS Shrapnel said current and future capital works cuts should provide opportunities for contractors to reduce the current backlog of maintenance work. The report forecast maintenance activity to be sustained over the next two years, before a synchronisation of the underlying drivers of maintenance across most sectors lifts activity to a higher plane at the beginning of the next decade. Overall, the report said maintenance activity was expected to increase by about 15% during the next five years, with contract maintenance volumes rising more quickly as outsourcing increases.“High rates of capacity utilisation, as well as record levels of construction work over the past six years, have produced a strong increase in maintenance requirements,” said report author and BIS Shrapnel senior economist Adrian Hart.“Furthermore, in those sectors where new investment is still coming through, aged assets are still being used. “This means maintenance will continue to be high to ensure those assets can be used until a new round of investment in capital works starts. “Any pause in the investment pipeline will only add to the maintenance requirement, particularly in utility assets such as electricity and water, and other segments including railways and roads.” The report said the downside over the next one to two years would be the likelihood of falling profitability and incomes from the global financial crisis, which may limit the funding of maintenance work. But while maintenance activity overall is expected to be sustained over the next two years, BIS Shrapnel forecast relatively weak growth during this period for the roads, mining and defence segments. By contrast, relatively strong growth is forecast for railways, ports, water and electricity sectors.BIS Shrapnel said weaker state and local government revenues may also see public expenditure cut back, although the forecaster also noted that it is capital works, and not maintenance, which traditionally takes the bigger cut in periods of weaker economic growth. “Overall, there is now a large backlog of maintenance work across many sectors which needs to be addressed,” Hart said. “While funding is likely to be tighter, the likelihood of weaker economic conditions over the next one to two years is actually an opportunity to catch up as capacity utilisation eases and the growth in labour and materials costs slows from the recent red-hot pace.” He said the federal government’s plans to accelerate infrastructure spending to counter weaker economic growth should explicitly consider funding for much-needed maintenance. “While not as glamorous as funding large construction projects, maintenance expenditure can have a more immediate effect on economic activity,” Hart said. “Unlike large construction projects, maintenance projects can be put onstream relatively quickly and, in the case of assets such as roads, be targeted to specific regions.”

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