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Beware! Broken project ahead

By July 13, 2018 No Comments

Sam O'Rourke - Builder Solutions

We now have more developers asking us for builder recommendations to replace their builder who has collapsed while building their job. As sales slow, projects are taking longer to get to construction. This is then putting construction companies under pressure as the bills still need to be paid and turnover is reducing.

Nothing new here right. Well why do we not try to change this? Or is this a pipe dream, trying to control something with so many dynamic elements involved and the human element? I won’t pretend to know the answer. What I do know is that the result is relative hardship for tradies, builders, consultants, developers and individuals baring the brunt of financial pressure.

This is happening now in Sydney, Melbourne and Queensland and our clients are experiencing it directly. Unfortunately, the coming year will likely see an increasing number of builders go into administration or liquidation. As always there are still areas performing well, for example Newcastle and the Sunshine Coast. When it gets tough we only recommend builders who have solid financial standing so a project improves its risk profile. A builder having a good reputation with lenders is important and we know which are looked upon favourably. However, even though you may have met all requirements, months of financial lending delays can inflict damage.

What can you do?

Now is the time to be very careful about the builders you work with. There are many things you can do to ensure you get a reliable builder, here are just three things to check:

  1. Are their trades getting paid on time?
  2. What are the risk profiles of the projects and clients they are currently building?
  3. Will my lender/bank approve them to be the builder?

Everyone needs to make a dollar

One thing that compounds the problem for builders and trades as we get further down the curve of the cycle is construction cost pressure. Developers will then have the upper hand. With fewer projects in the market, construction companies can be pushed on prices. Who then in turn pressure prices from their trades. The resulting reduced margins endangers not just that project but everyone who is dealing with that builder. I know most will be saying “construction costs have been skyrocketing” and you are right, the market needs some cost stabilisation or reductions. Just remember when you have the upper hand in the negotiation, if you push builders’ margins too low the risk of builder collapse increases.

Too late, it’s happening

If it happens, or is happening to you we can help. We have a network of builders who are on the panels of insurers, experienced in these situations. Whether it be a job covered under Home Owners Warranty Insurance or a larger commercial high density project we have builders who can assess what work has been done and what the cost will be to complete. They are experienced at doing this. Contact Builder Solutions and we can help.

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