A number of construction companies are in danger of collapsing due to working slim margins, as has been reported about a number of builders who have already gone under, according to a leading specialist law firm.
Litigator Ben Twomey of Twomey Dispute Lawyers says the recent insolvency administrations of ProBuild, Condev and Impact Homes have shed light on the vulnerability the industry faces when it comes to market fluctuations.
“Over the past decade some building companies have continued to reduce their anticipated margin from the recommended 15 to 20 per cent to as low as three per cent,” says Mr Twomey.
“While ensuring they had the lowest tender, this ‘race to the bottom’ opened construction companies to increased risk should material or labour costs increase, particularly where fixed price contracts are governing the project.
“This manoeuvre, which has become known as the ‘profitless boom’, has seen a number of builders removed from the market, pushed out by the larger companies’ risk taking in reducing costs.”
The Gold Coast-based firm says an insolvency event can create a ripple effect that negatively impacts various stakeholders, including a contractor’s on-site property and materials being seized.
“When a building company collapses, other businesses such as the concreters or electricians for example, are rarely immune to the aftereffects of that insolvency,” says Mr Twomey.
“If you’re a contractor who has supplies or temporary equipment on site to do the job, once the liquidator locks the gate and is in possession of that site, you are unable to retrieve those items.
“When a company goes into liquidation, there are a number of things that could then belong to that company, meaning it becomes the liquidator’s unless protections are put in place.”
Mr Twomey says varying levels of protection are available to all parties, including developers, principals, and contractors entering into a construction contract.
“There are ways stakeholders can secure themselves against the tribulations of insolvency such as ensuring they’ve taken appropriate measures, one being the Personal Property Securities Register (PPSR),” says Mr Twomey.
“This assists parties within a construction contract by providing security over materials or equipment used on site.
“However, it is important to remember the PPSR operates in a priority fashion, so it’s essential that you ensure your security is filed not only correctly, but also as early as possible.”
