Construction Cost Crisis — 8-Step Response System
Fuel, materials, labour, and finance costs are rising simultaneously across Australia. Most fixed-price construction contracts provide no automatic protection. This guide works through the eight steps — from calculating your real cost position to protecting the business going forward.
Rising construction costs in Australia are running at 4 to 6 per cent nationally in 2026, with Brisbane forecast at 5 per cent and regional Queensland up to 6 per cent. For construction businesses on fixed-price contracts, the real exposure is not the headline figure. The combined impact of six simultaneous cost inputs is compressing project margins by 7 to 7.5 percentage points on work priced in 2024 and earlier. This page works through the 8-step system for recovering cost increases and protecting your business.
Australian construction businesses are facing a cost environment unlike anything in recent memory. Fuel costs have risen approximately 67 per cent from 2022 baseline levels. PVC and HDPE pipes face increases of up to 36 per cent following the latest supply disruptions. Labour costs are moving with skills shortages and enterprise agreement increases. Debt servicing has more than doubled for businesses that borrowed during the low-rate period.
Each of these would be manageable in isolation. Arriving simultaneously, across an industry built on fixed-price contracts, they are breaking businesses that were commercially sound at the time of tender.
This page works through the 8-step system for construction businesses dealing with cost increases on live projects. It starts with understanding your real cost position and your contract rights, and moves through to protecting your business going forward. The supporting articles in this silo cover each dimension in depth. The system below tells you what to do and in what order.
If you want to understand your specific position with advice from Rachelle Hare and Shannon Drew directly, visit the services page.
The headline cost forecasts measure movements from a current baseline. For a contractor delivering a project priced in 2023 or 2024, the relevant number is the cumulative movement from then to now, across all inputs. Most contractors calculate their direct diesel cost and stop there. When Shannon Drew runs the full analysis across all six inputs, the combined number is consistently two to three times higher than the diesel figure the business came in with.
The six simultaneous cost inputs — 2026
A business pricing at 15 per cent gross margin at the end of 2025 is likely earning 7 to 8 per cent on projects being delivered today. On a 10 per cent margin contract, that business may be working at a loss. The aggregate additional uncontracted cost on a $15 million project with $6 million of remaining scope is typically $280,000 to $390,000. Full financial modelling: Financial Impact on Project Margin
Construction has been the largest sector for corporate insolvencies in Australia since 2022. The pattern is consistent: a business wins work at a competitive margin, costs rise during delivery, the margin compresses, cash flow tightens, and a variation rejection or payment dispute breaks the position. The businesses that survive identify their cost position early enough to act.
If your business is carrying losses on active projects and you are concerned about the business position, read.
The steps below are in order. If you are somewhere in the middle of this sequence, go to the step that matches where you are and work forward from there.
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Three fixed-fee services covering your legal position, financial position, and business situation. Rachelle Hare and Shannon Drew directly.
Shannon Drew’s financial analysis
How the fuel crisis is hitting Australian construction
Rise and fall clauses in construction contracts
Force majeure and rising construction costs
Contractual notice obligations for cost claims
Fixed-price contract with no cost protection
Government construction contracts and cost recovery
What your principal is thinking
Why construction businesses are going broke
State of the Australian Construction Industry Report 2026
In most cases, no. Force majeure clauses address situations where performance is physically prevented, not simply more expensive. Courts consistently distinguish between impossibility of performance and increased cost of performance. Read the full analysis
Sometimes. The realistic paths are a commercial variation negotiated with the principal, a variation claim where a Superintendent-directed change increased your costs, or legal arguments on the specific facts. Read the full options
A rise and fall clause adjusts the contract price when specified input costs change after the tender date. It is not implied. Search the full contract including all schedules and special conditions for: rise and fall, price adjustment, cost adjustment, escalation, fluctuation, CPI adjustment. Read more
Yes. Construction has consistently been the largest sector for corporate insolvencies since 2022, accounting for approximately 26 per cent of all corporate insolvencies nationally. Read more
The requirement varies by contract type. Under AS 4000, written notice within 28 days is the general window. Under NEC4, the compensation event notification period is 8 weeks from awareness. Many subcontracts have shorter periods than the head contract. Full breakdown
Rachelle Hare and Shannon Drew work together on the legal and financial dimensions of the cost crisis. Three fixed-fee services, starting at $750.
