While there are big plans for future infrastructure investments, right now many contractors are feeling the squeeze. There’s strong demand for work in areas like roads, rail, water, and energy, but the number of new projects being approved has slowed down, and competition for available jobs is fiercer than ever. Rising costs, worker shortages, and tighter budgets are making it harder for contractors to win work and keep cash flowing. In this guide, we’ll break down what’s happening, why work is slowing, and-most importantly-how contractors can stand out and win bids when there’s less to go around.
Understanding the Current Construction Landscape
Across the globe, the construction industry is grappling with a mix of rising costs, labour shortages, supply chain disruptions, and shifting government policies. In many regions, including North America and Europe, the sector faces higher prices for materials, a shortage of skilled workers, and increased scrutiny on project costs and timelines¹. While some markets have shown resilience, others are seeing a slowdown in new projects and heightened competition for available work² ³.
Victoria, Australia, is a clear example of these global trends playing out locally. In 2025, Victoria’s construction market remains subdued, with activity softening and competition intensifying across civil, commercial, and infrastructure projects⁴. Contractors are dealing with persistent high material costs, ongoing labour shortages, and fewer new projects entering the pipeline, making it tougher to win work and maintain healthy cash flow. Understanding these worldwide challenges-and how they’re impacting local markets is crucial for contractors looking to adapt and succeed in today’s volatile construction landscape.
Keep up with the current infrastructure pipeline by using dynamic charts from The Australia and New Zealand Infrastructure Pipeline (ANZIP). You can filter by location, sector, status and procurement approach to explore the data behind the pipeline.
Root Causes of the Construction Downturn
Economic Factors
Economic uncertainty plays a significant role in the current construction slowdown. High interest rates have dramatically impacted financing costs and reduced demand across construction sectors⁵. The construction industry’s downturn mirrors patterns seen in previous recessions, where elevated financing costs limit both developer and consumer appetite for new projects⁵.
Additionally, construction costs remain approximately 40% higher than pre-pandemic levels⁶, creating further barriers to new project initiations. This cost pressure directly impacts contractors’ ability to bid competitively while maintaining necessary profit margins.
Government and Regulatory Factors
Around the world, construction companies are navigating a wave of new government policies, regulatory changes, and shifting tax environments. In many countries, evolving rules on permits, environmental standards, and property taxes are making it harder for contractors to plan projects and control costs. For example, in the United States, recent changes in federal regulations and tariffs are adding volatility to material prices and project approvals, while in Europe and Asia, stricter building codes and tax reforms are reshaping the industry landscape.⁷ ⁸ ⁹
Victoria, Australia, is feeling these pressures acutely. Government taxes and charges now make up a significant portion of project costs-about 32% of the price of a new apartment in Melbourne, a figure that’s risen by $47,000 since 2019 ¹⁰. New taxes like the Windfall Gains Tax and increased absentee owner surcharges, along with ongoing updates to the National Construction Code, have added layers of complexity and expense for builders and developers¹¹. These mounting costs and regulatory hurdles have dampened market confidence, slowed project approvals, and made it much tougher for contractors to get new work off the ground. As a result, Victoria’s construction sector is facing delays and uncertainty, with recovery expected to be slow until these issues are addressed.
Industry-Specific Challenges
The construction industry faces a significant labour shortage, with about 70% of construction companies struggling to find enough workers. This shortage has worsened since 2020, with increased job openings in other sectors drawing workers away from construction trades³.
Weather conditions in Victoria also present unique challenges. The region’s unpredictable climate-ranging from scorching summers to sudden downpours-can significantly impact project timelines and costs⁴. These weather variations require contractors to build additional contingencies into their schedules and pricing.
The Cash Flow Crisis
Cash flow problems continue to plague contractors, particularly subcontractors. According to a recent industry survey, 40% of subcontractors retain half to all of their profits in the business just to fund operations, limiting their ability to reinvest in growth. Payment delays exacerbate these challenges, with subcontractors waiting an average of 56 days for payment despite general contractors believing payments occur within 30 days. This disconnect creates serious liquidity problems throughout the industry. The “funding gap” represents another critical issue-43% of subcontractors report not having enough working capital to cover unexpected expenses or project delays⁸. This lack of financial cushion puts many contractors in precarious positions when bidding on new projects.
The Infrastructure Spending Paradox
While government infrastructure investment remains substantial-with the Australian Government committing $19.2 billion to Victoria over the next ten years 7-this spending hasn’t necessarily translated to prosperity for all contractors. Inflationary construction costs have eroded the impact of these investments. In the United States, for example, the Congressional Budget Office estimates that the purchasing power of federal infrastructure investment will decline by 16.5% by fiscal 2026 and 24.3% by fiscal 2031 ¹¹. Similar patterns are likely affecting Victorian infrastructure projects.
This erosion of purchasing power means that despite significant headline figures, the actual volume of work generated by these investments may be substantially less than initially anticipated.
Union Considerations in a Competitive Environment
The construction industry’s relationship with unions presents both challenges and opportunities during downturns. Australia’s construction unions play an important role in standardizing labour practices and ensuring fair treatment of workers. They also impact project costs and flexibility, potentially affecting contractors’ competitiveness¹².
In regions with stronger union presence, contractors may face higher labour costs but benefit from more standardized working conditions and potentially higher-quality workmanship. Conversely, areas with less union influence may offer more flexibility in pricing but potentially face greater challenges in securing skilled labour.
While these challenges can feel daunting, they also create opportunities for contractors who are ready to adapt and innovate. By sharpening your approach and focusing on what you can control, you can not only survive-but thrive-even when the market is tough. Here are seven actionable strategies to help you win more bids in a highly competitive environment:
7 Actionable Strategies for Winning Tenders in a Competitive Market
Positioning for Recovery
While the current downturn presents significant challenges, it also offers an opportunity for strategic repositioning. Contractors who use this period to strengthen operations, build relationships, attract and retain workforce talent, and develop distinctive capabilities will be best positioned when the market recovers.
The most successful contractors will be those who view this challenging period not simply as a threat to weather, but as an opportunity to strengthen their businesses and position themselves for future growth. By focusing on differentiation, operational excellence, financial resilience, and relationship building, contractors can continue to win bids even in the most challenging market conditions.
