16/02/2023

Overview

Skilled worker and labour shortages have been on the rise across numerous sectors Australia-wide in the wake of the COVID-19 pandemic.

This reduction in the workforce has been particularly prominent in the road and rail industry. A recent survey of members of the Australian Railway Association (ARA) found that 68 percent of rail infrastructure business was reliant on overseas workers and skilled labour to successfully deliver on large scale projects.

 
With international and domestic COVID restrictions and border closures cutting off the access to overseas talent pools, rail and road infrastructure providers are experiencing the significant impact this has caused; with many current projects relied upon to contribute to the post-COVID economic recovery. To address these ongoing shortages, many rail and road contractors have now begun to implement a long-term subcontractor strategy.

 
The outsourcing of labour to a third party, also known as subcontracting, is a common practice across all industry sectors and forms a vital piece of the construction economy; with some major companies outsourcing upwards of 80 percent of their work activities. As skilled labour shortages continue to affect all areas of the construction industry, the resulting demand for subcontractors has never been higher.

 
By enlisting the services of a subcontractor, productivity is optimised on a project and ensures it meets the agreed delivery times. However, in order to reap all the benefits that subcontracting can provide, it is vital that there is an effective management strategy in place.

What you will learn from this publication:

• The benefits of utilising subcontractors as an alternative to in-house skilled workers sourced from overseas.
• The common issues that can occur when subcontractors are hired without a management strategy in place.
• Key fundamentals that should be actioned to ensure an effective subcontractor strategy.
• 68% of rail infrastructure business is reliant on overseas workers and skilled labour to deliver large scale projects.
• Major companies outsource, or subcontract upwards of 80% of their work activity.

The key benefits of subcontracting

Subcontracting has many benefits for project management firms, allowing for a greater focus on core competencies which, in turn, minimises risks, optimises costs, and ensures the high quality of project delivery.

Across large-scale rail infrastructure projects, subcontracting helps to secure the supply of specialised equipment like hi-rail, as well as the provision of qualified and experienced operators. Project managers can also be assured that the workers provided by a subcontractor will be fully licensed to meet all necessary legal obligations.

 
Structuring a business to partner with subcontractors as opposed to solely relying on in-house labour and machinery also assists with safeguarding against any economic downturns and periods of uncertainty. When demand is at a minimum, a firm can avoid mass lay-offs and can source subcontractors as an additional means of labour far more efficiently than mass hiring. In relation to machinery, the need for ongoing maintenance, housing, insurance, and other expenses can be avoided during poor performing economic cycles.

For companies looking to scale up their business and incorporate projects with areas of scope that fall outside of their specialty, rather than incorporating a new division into the existing company structure, they can compensate with specialised subcontractors. This will allow a business to take on more potentially lucrative contracts and meet all necessary delivery requirements without incurring the financial risk of in-house expansions.

• Subcontracting provides companies with access to a specialised network of skilled workers.
• Companies that utilise subcontractors can scale their workforce in accordance with current economic cycles and industry demand.
  
  

Issues that can arise due to ineffective subcontractor management

Despite its wide-ranging benefits to primary contractors, the process of subcontracting is not a prevention oriented one and, as a result, is subject to common issues that arise across all types of rail and road infrastructure projects.

As such, it's therefore crucial for management firms to have an effective subcontractor management system in place.

 
The major management concerns that arise when working with subcontractors generally revolve around productivity and delivery timeframes. These “big picture” items of concern can eventuate as a result of any number of small instances during the project delivery process with a few of the more common being:

Knock-on effect:
Subcontracted projects operate in an inter-dependent manner, with the actions of one party directly impacting the other. For example, should one subcontractor be late in delivering one certain aspect of the project, this can create a knock-on effect for the parties whose work is set to follow, with each now being forced to mirror the initial subcontractor and work beyond their originally agreed completion times.

Communication:
As with most business operations, communication is vital to any level of success. It stands to reason that the larger the project, the more difficult communication becomes. With subcontractors, especially those being outsourced for the first time, they are not always going to conduct their work in the manner that your firm and long-term partners may be used to. As a result, a lack of effective communication and leaving subcontractors to their own devices could lead to unexpected project outcomes.

Tracking and payments:
Staying on top of elements such as project labour costs, overall work progress in relation to projections, and payment and invoice schedules can be a lot to juggle if a firm doesn’t have the correct reporting systems in place. Maintaining a log of up-to-date information across all aspects of a project is crucial in ensuring subcontractor output is able to be accurately tracked, and completed works can be clearly invoiced, confirmed, and paid.

 
Having identified and outlined some of the factors that can result in ongoing project issues working with an outsourced workforce, we will now look at some of the key considerations that can be incorporated into an effective management strategy.

• McKinsey analysis found that large projects take on average 20% longer to finish than scheduled.
• Research conducted by FMI found that miscommunication and poor project data results in 33% of working hours across the Australian and New Zealand construction industries being allocated to 'non-optimal' activities.
  
• Poor communication accounts for upwards of $8.4 billion in rework costs annually across Australia and New Zealand.
• The construction industry is one of the least digitised globally.

Key points to achieving an effective subcontractor strategy

When taking on a subcontracted workforce for any manner of construction, including road and rail infrastructure, it’s important that the firm clearly plans and outlines a strategy for how they will manage their additional resources.

Improvising or implementing new processes for every project can lead to inconsistencies in relation to communication, safety, and overall productivity.

 
A uniform subcontractor strategy should aim to encompass standardised processes and procedures that can be applied across all projects. By adopting a blanket strategy, firms will encourage consistent subcontractor behaviours which, in turn, will minimise the occurrence of unexpected variables, unknowns, and reduce overall project risks. Bearing this in mind, we have identified two recommended actions that should be incorporated when planning for a successful subcontractor strategy.

Consider a collaborative/partnership model:
When drawing up agreements and outlining the relationship between the main contractor and the subcontractor, you can either view them as a servant adversary, or as a project partner with identical delivery based outcomes. Outcome-based contracts backed by an on-site culture that encourages the right behaviours and recognises and rewards good performance can not only ensure a successful project delivery, but also lay the groundwork for building sustainable long-term subcontractor relations.

Utilise the correct construction and mobile software:
Mobile and cloud-based technology has made it increasingly easier to maintain consistent communication and manage documents on a project site. Software platforms now exist that have been purpose-built for the construction industry and can provide live, up-to-date data reporting and manage daily aspects like timesheets, dockets, maintenance logs, and workflows. In direct relation to subcontractor output, there are platforms that assist in compiling thorough assessments of completed work, compensating for aspects like safety performance, quality of work, and overall productivity.

• Delivery partner models have been used internationally for public infrastructure projects including the Olympic Games in London.
• Locally, delivery partnerships are being highlighted as an effective model for government infrastructure projects and was implemented on the Woolgoolga to Ballina Pacific Highway Upgrade (W2B).
• In 2019, digital construction solutions, such as software, were highlighted as having the potential to increase total industry revenue by $25 billion across a two-year period.

When taking on a subcontracted workforce for any manner of construction, including road and rail infrastructure, it’s important that the firm clearly plans and outlines a strategy for how they will manage their additional resources.

Improvising or implementing new processes for every project can lead to inconsistencies in relation to communication, safety, and overall productivity.

 
A uniform subcontractor strategy should aim to encompass standardised processes and procedures that can be applied across all projects. By adopting a blanket strategy, firms will encourage consistent subcontractor behaviours which, in turn, will minimise the occurrence of unexpected variables, unknowns, and reduce overall project risks. Bearing this in mind, we have identified two recommended actions that should be incorporated when planning for a successful subcontractor strategy.

Consider a collaborative/partnership model:
When drawing up agreements and outlining the relationship between the main contractor and the subcontractor, you can either view them as a servant adversary, or as a project partner with identical delivery based outcomes. Outcome-based contracts backed by an on-site culture that encourages the right behaviours and recognises and rewards good performance can not only ensure a successful project delivery, but also lay the groundwork for building sustainable long-term subcontractor relations.

Utilise the correct construction and mobile software:
Mobile and cloud-based technology has made it increasingly easier to maintain consistent communication and manage documents on a project site. Software platforms now exist that have been purpose-built for the construction industry and can provide live, up-to-date data reporting and manage daily aspects like timesheets, dockets, maintenance logs, and workflows. In direct relation to subcontractor output, there are platforms that assist in compiling thorough assessments of completed work, compensating for aspects like safety performance, quality of work, and overall productivity.

• Delivery partner models have been used internationally for public infrastructure projects including the Olympic Games in London.
• Locally, delivery partnerships are being highlighted as an effective model for government infrastructure projects and was implemented on the Woolgoolga to Ballina Pacific Highway Upgrade (W2B).
• In 2019, digital construction solutions, such as software, were highlighted as having the potential to increase total industry revenue by $25 billion across a two-year period.

Summary

When it comes to the timely completion of road and rail infrastructure, there is no doubt that operational efficiency is key.

Labour shortages are a growing trend within the industry and as projects become more complex, working with subcontractors is becoming increasingly more common. With this dramatic shift in operational practices, it is vitally important for project management firms and primary contractors to have an effective subcontractor strategy in place.

Subcontracting can afford firms the flexibility to scale up their operations as demand dictates and broaden their fields of specialty, whilst safeguarding themselves against unnecessary financial outgoings during periods of economic downturn. While it is well documented that the use of subcontractors can at times be problematic, these factors can be drastically reduced with appropriate management strategies.

By adopting a partnership approach to your subcontracted workforce and reinforcing a clear set of processes and procedures, as well as a means of reporting and communication, whether that be via a piece of technology or not, road and rail infrastructure firms can continue to deliver projects and keep up with industry demand. By establishing long-term, mutually beneficial business relationships with subcontractors, it can firmly cement in-place a viable alternative to in-house labour and greatly reduce the reliance on sourcing skilled workers from overseas.

• Hi-Range Crane Forks have spent more than 30 years partnering in a subcontracting capacity with Tier 1 companies and Government bodies to deliver road and rail infrastructure.
• By implementing effective management strategies, Hi-Range Crane Forks have established sustainable, long-term partnerships with subcontractors whom they continue to collaborate with on road and rail projects.