Collapsing building firms suggest construction industry has a risk issue


It has been a grim 48 hours in the New Zealand building industry with two smaller firms collapsing a day apart. The demise of Ebert Construction in Auckland and Maven Interiors in Christchurch, aside from potentially leaving 150 workers with no jobs follows on the heels of turbulence at Fletcher Construction in June.

The recent decisions to put these two firms into liquidation strongly suggests to me that the building industry in New Zealand has issues with its understanding of risk. When a building firm places bids for work, it needs to be able to have enough work to grow and employ staff. It also needs to be able to maintain the bottom line – that is to say, cover costs, such as wages, equipment, maintenance and so forth. And that is where a lot of builders seem to be falling flat on their faces.

Such issues are not new in New Zealand. In February 2013 Mainzeal construction collapsed. It was owing creditors $151 million when it folded. Little of the monies owed – if any at all – has been recovered. The costs might be greater when one considers that thousands of dollars a day would have been lost from construction sites being locked up.

To what extent cases like this are genuine risk that might not have been foreseen, as opposed to being caused by reckless behaviour, will vary from one case to the next. However the consequences are the same: half completed building jobs; contractors and sub contractors left out of pocket; expensive equipment that could be getting used to complete other projects being locked in building sites that cannot progress.

The risk has been no more graphically demonstrated than by the huge losses accrued by Fletcher Construction. Once a mighty building company running the largest building projects in New Zealand, Fletcher was a corporate high flyer. But a combination of the Christchurch earthquakes, inept handling of the airport short stay hotel for those only in town for a few hours in between flights along with a number of Auckland building projects striking trouble saw Fletcher announce a projected $660 million in losses in February 2018. When added to $322 million in losses between 01 July 2017 and 31 December 2017, the overall losses for Fletcher are nearly N.Z.$1 billion.

If the laws were not amended after the Mainzeal collapse, then what needs to change is several things:

  1. Amending the law to ensure that the little man who might have sunk much of his life savings into a project is able to recover costs and continue to work
  2. Require a company to have bonds that can be seized if it goes under
  3. Exposure of Board members, top level executives to accountability for their part in any large scale collapses

 

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