A global credit rating agency warns that if Australia's infrastructure spend is not well managed it could result in cost overruns, skilled labour shortages and project delays.
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In a new report on the Australian engineering and construction industry - "Not much margin for error" - Standard & Poor's says a construction boom is on the way for Australia.
"If not managed well, record activity could ripple through the engineering and construction industry in the form of cost overruns, skilled labour shortages, and project delays," S&P Global Ratings credit analyst Richard Timbs says.
Standard & Poor's has raised the alarm as the federal government embarks on a massive $100 billion infrastructure program across the country under its "congestion busting" slogan.
The Reserve Bank has also urged the government for fiscal support to help lift a sluggish economy alongside its own recent interest rate cuts.
"The call for 'shovel ready' projects that can be rolled out relatively quickly and easily requires a realistic assessment of the capacity to deliver this new build," Mr Timbs says in the report released on Wednesday.
He notes large-scale transport projects will be under way for the next five years in NSW, Victoria and Queensland.
Transport projects alone are estimated to hit a record $22 billion annual spend in 2022, more than double the previous peak of $10 billion in 2013.
At the same time, there are electricity generation and transmission projects like 'Snowy Hydro 2.0'.
"The bigger risk is that any failure from one contractor, or even significant problems on one transaction, could ripple through to multiple projects, creating bigger problems," Mr Timbs warns.
This could negatively affect the engineering and construction sector, government infrastructure programs and related equity and credit markets.
He says stresses are already apparent, like the cost overruns for the Sydney light railway.
"The construction chain is likely to become stretched toward breaking point. Delays, cost blowouts or major problems in any individual project have the potential to create flow-on effects to other projects," Mr Timbs says.
Even so, Business Council of Australia CEO Jennifer Westacott does not believe the federal government should increase the nation's infrastructure spend any further, as some economic commentators suggest, at the expense of a budget surplus.
"Australia has the lowest interest rates in history, we're awash with new capital ... let's give a broad-based investment allowance to encourage companies to bring forward their investments," Ms Westacott told Sky News.
"I don't think the government should give up on a surplus."
Australian Associated Press
