When I work through the numbers with a construction business for the first time, the first figure I ask for is their direct diesel cost on their current project portfolio. Most businesses have calculated this.
Then I ask for the petroleum-derived materials figure. The freight surcharge impact. The labour cost movement since tender. The cost of servicing project-related debt. The overhead cost base movement since their last pricing cycle. And I look at their overhead recovery rate and whether their pricing still reflects where their costs actually sit.
Almost nobody has calculated all of these. When we run the full analysis, the combined number is consistently two to three times higher than the diesel figure they came in with. That gap between what businesses think they are absorbing and what they are actually absorbing is the core problem.
Diesel has risen approximately 67 per cent from 2022 baseline levels. A 200-litre-per-day plant deployment budgeted at $0.85 per litre is now running at approximately $1.42 per litre. That is $114 per day per machine in unbudgeted cost. On a project with ten machines operating over a 52-week delivery schedule, the unrecovered fuel cost is approximately $416,000 against tender pricing assumptions. Before calculating anything else.
PVC, polyethylene, bitumen, insulation, sealants, and membrane products are all petroleum derivatives. Price movements range from 27 to 36 per cent depending on the specific product. Most businesses calculate this at purchase order level when the problem becomes visible. By then the cost has already been incurred and the variation window may have closed. The better approach is to calculate this exposure before tender on new projects, and immediately for current projects.
Freight surcharges have remained elevated since 2021. A material that has risen 30 per cent in manufactured cost and is subject to a 15 per cent freight surcharge has risen 45 per cent in landed cost. Calculating these separately understates the true impact.
The superannuation guarantee rate increased from 10% to 10.5% in July 2022, to 11% in July 2023, and to 11.5% in July 2024. For a workforce with a total wages bill of $3 million, the superannuation movement alone represents $45,000 in additional annual cost relative to 2021 baseline rates.
The RBA cash rate increased from 0.1% in early 2022 to 4.35% by late 2023. A $2 million equipment facility at 2% interest cost $40,000 per year. At 6.5%, the same facility costs $130,000 per year. That $90,000 difference needs to come from project margins.
Business rents, insurance premiums, professional services, and general administration have all moved with inflation. The ABS CPI for the December 2025 quarter was 3.2% annually. But the more significant issue for many businesses is whether their overhead is being recovered correctly in their project pricing. If your overhead recovery rate has not been reviewed since 2022, it is almost certainly wrong.
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Mitchell Harris Constructions is a fictional business constructed for illustrative purposes. The cost percentages and methodology are based on real analysis conducted across multiple client engagements.
Mitchell Harris: mid-size Queensland head contractor, annual revenue approximately $28 million, two largest current projects with combined remaining scope of $15.2 million.
Direct diesel impact above tender pricing: $187,000
Petroleum materials impact above tender pricing: $143,000
Freight surcharge impact above tender pricing: $67,000
Labour and superannuation movement above tender pricing: $94,000
Debt servicing cost increase above tender pricing: $52,000
Overhead cost base movement above tender pricing: $38,000
Total uncontracted cost on remaining scope: $581,000
As a percentage of remaining contract value: 3.8%
Combined project margin before analysis: 8.2%
Combined project margin after analysis: 4.4%
Mitchell Harris came in having calculated their diesel number at $187,000. The full analysis tripled that figure.
On a 4.4 per cent margin, Mitchell Harris is technically profitable. But that margin is below the business’s overhead recovery rate, which means the business is funding operations from the capital it needs to sustain the next project cycle. This is the point where director obligations under the Corporations Act begin to be relevant. Full analysis
Understanding your actual cost position is the starting point. Without an accurate number across all six inputs, every subsequent step in the recovery process is conducted without the foundation it needs.
If you need a formal financial analysis for use in a cost recovery claim, a negotiation with your principal’s quantity surveyor, or to inform a restructuring decision, I provide a documented project analysis covering all six inputs including overhead recovery and pricing exposure, in a form suitable for those purposes.
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