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Contractors were locked out of construction sites after Ebert Construction went into receivership at the end of July

Editorial – August / September’18

The news of Ebert Construction being placed into receivership at the end of July has set alarm bells ringing throughout the industry, and calls that our construction boom is turning into a construction crisis.

Look up ‘crisis’ in the dictionary and it’s defined as ‘a time of intense difficulty or danger’. It’s a turning point when an important change takes place, indicating either recovery or death. The collapse of Ebert might just be that turning point.

The collapse of Mainzeal Property & Construction in February 2013 was similarly unannounced. It caught out a number of subcontractors, most of whom were left out of pocket through unpaid work and the loss of their retentions money. Since then, the Construction Contracts Act has been amended and requires that all retention money held by the principal or head contractor is held on trust in the form of cash or other liquid assets.

Unfortunately, as in most things, the devil is in the detail, and BDO’s Construction Survey Report released in June, which we covered in the last edition of NZCN, included some rather alarming news: 28% of those that deduct retentions and should be holding them in trust were unable to confirm they were doing so.

The bad news didn’t end there: over a quarter of survey respondents find juggling cashflow a challenge; two-thirds are currently trying to find more staff; 41% have clients that pay them late; commercial construction margins are typically less than 5% (and that’s for projects that go well), and residential margins are not much better.

When there’s no end in sight to the sustained growth in building and construction nationally, as forecast by the National Construction Pipeline Report 2018, something’s gotta give.

Following a meeting with business leaders in early August, Cabinet ministers are currently discussing a different approach to the construction industry, including whether the government needs to review its procurement policies and take on more of the risk in complex, long-term contracts.

As I write this, the third annual ‘all of sector’ Constructive forum is about to take place in Wellington. Led by Registered Master Builders, the forum will bring together industry members with the government to discuss how to deal with the major challenges facing the sector, including more equitable risk allocation in contracts – the issue Registered Master Builders chief executive David Kelly says is the most critical for industry transformation.

The forum will also discuss what needs to change to avoid further high-profile construction project failures, and ways of addressing the current skills shortage.

Is the industry in crisis? Possibly yes – it’s not a situation that is sustainable, and you can read several viewpoints in this edition of NZCN. On the other hand, as BDO pointed out, there are a ‘good number’ of construction companies with sufficient financial strength to build the commercial buildings and houses we need, with 40% having more than 12 months of contracted work.

Until next time …
Lynne Richardson, editor

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