Infrastructure construction contracts signed before the pandemic have become widely unworkable because of the surging cost of labor and materials, supply-chain blockages and difficulties in securing manpower, according to builder Webuild SpA.

Milan-based Webuild is wrestling with a 2019 agreement with the Australian government to construct the country’s largest hydroelectric power station for A$5.1 billion ($3.2 billion). It’s meant to be completed by 2026. The Snowy 2.0 project, in the Snowy mountains about six hours’ drive south of Sydney, has come to highlight the challenges of completing large-scale projects on terms that were struck before Covid-19, and before Russia invaded Ukraine.

Webuild’s Asia-Pacific director, Marco Assorati, said the value of the Snowy contract, as well as certain other parameters, need to be changed to reflect the current market. He declined to comment specifically on media reports that the consortium has asked the Australian government for an extra A$2.2 billion to complete the work and that the project is 18 months behind schedule. “It is challenging,” Assorati said.

“I think clients understand this conversation must happen and there must be a way to cope with unforeseen increases in cost,” Assorati said. “It’s not needed only on the Snowy project. It’s affecting projects everywhere globally.”

Webuild has a 65% stake in Snowy 2.0, while engineering and construction company Clough Ltd. owns 35%. 

Australia has become particularly costly for building companies because a vast pipeline of infrastructure is soaking up materials and critical workers, and bloating wages. Total investment in major public infrastructure is expected to exceed A$218 billion between 2021 and 2025, according to the government.

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