Contractors tell of post-boom cost pressures at AMMA conference

Boom-time investment has led to huge pressure to boost
productivity, contractors said at a conference last week.

The Australian Mines and Metals Association conference in
Perth hosted a number of keynote speakers including Transfield Services managing
director Graeme Hunt.

Hunt told conference-goers that massive capital expenditure
during the fatter years of the boom, combined with the present tightening of commodity
prices meant miners has to find ways to recoup those investments.

“Many of our clients in the sector all at the moment are trying to work
out how to sweat their assets harder,” Hunt said.

“As a service provider for that sector it’s all about how we can unlock
that capacity.”

Orica managing director Ian
Smith said that the boom created an economic environment that had nurtured inefficient
practices.

“All of that pushes up your
costs at a disproportionately high rate,” Smith said.

“You’ve got to transition back
to a point where your cost structure meets the price.

A McKinsey (global management consultancy firm) study from 2011 highlighted that multi-factor productivity was growing up until 2005; but it dropped 0.7% per year up to the year the study was undertaken. 

Smith said productivity ought to
be the central plank in workplace relations laws.

“It should be the basis of how
people go about pay increases in Australia,” he said.

Bechtel Australia managing director
Shaun Kenny told The West Australian that while margins were being squeezed, he
did not think sub-contractors on Bechtel projects were making unrealistically
low bids to win work.

“We’ll always look at what’s
been bid and ask ourselves, is it feasible,” Kenny said.

“I wouldn’t say people are
bidding a negative margin. That’s not really a sustainable business model.”

To keep up to date with Australian Mining, subscribe to our free email newsletters delivered straight to your inbox. Click here.