[+] Builders Hit ‘Most Dangerous Phase’ in Downturn

Uncertainty in the construction sector is here to stay and tier 2 and 3 builders face the greatest exposure, according to Australia’s top construction firm, Hutchinson Builders . Speaking at The Urban Developer’s member-only webinar, Huchinson Builders’ new business manager Paul David said cost escalation had impacted construction over the past two years, but it was builder solvency that would punctuate the next 12 months. Hutchies was recently named the top builder in Australia in BCI’s Construction League , which David says is reflective of the volume of jobs they tender for across tiers 1, 2 and 3. David says some of the “unprecedented” volatility is easing, but pricing up jobs is a tricky business. “We feel we’re entering into the most dangerous phase in the cycle as projects are deferred or shelved for various reasons and headwinds that the property industry is going through, cashflows will start to dry up and current losses that are residing within the books of builders and subcontractors across the country will start to be realised,” he says. “I think we’re starting to see that now with the collapse of the housebuilders. Last week we saw Porter Davis and Lloyd Group fail and historically the commercial builders are about six to 12 months behind that.” Hutchies has scooped up some of the projects from failed builders including Probuild and Condev. But David warns it’s messy work. “We probably get involved in more rescue projects than we’d like, to be honest. It’s never pretty taking over from another builder. There’s a host of legacy issues that undoubtedly reside in that,” he says. “We’ve been very cautious how we do that work. Just yesterday we had a national company come in and ask us to participate as their third builder on one project. The first builder went under, then the second builder went under a couple of weeks ago and now they’re talking to us.” ▲ Hutchinson Builders are currently building 360 Queen Street and 205 North Quay, and completed the Calile Hotel. But Paul David says they are being “cautious” in which jobs they take on. David says the volume of work that Hutchies bids for has created a laser focus on price volatility. “We bid about 1200-1400 projects per annum. And we need to do that to win about 300 projects a year that we build,” he says. “That’s five bids a day that comes out of a Hutchies office. Some builders who didn’t have that volume of tender work didn’t necessarily see the volatility of the market as quickly as what we did. It was moving every week, at a great rate of knots. “The most vulnerable sector was that Tier 2 and Tier 3 contracting sector, and sadly that’s where we’re starting to see the insolvency issues.” David says he anticipates further home builders and Tier 2 and 3 builders to go down in the coming months, in the wake of Porter Davis and PBS Building. Simonds Group “rightsizing” for future It comes following news that the decimation of ASX-listed Simonds Group has continued with the homebuilder posting news it was “rightsizing” its business amid reports it is retrenching 10 per cent of its 700-strong workforce. In a statement to the ASX, Simonds Group chief executive Rhett Simonds said while there was significant demand for new housing, interest rate pressures were creating “challenging” conditions in the near term. “In response, the board has identified a range of options to enable Simonds to further strengthen its balance sheet and continue the work announced last August. This action includes diversifying our operations into wholesale and projects and reducing our cost base to provide further agility,” Simonds said. “These are tough but necessary decisions that will put us in a stronger position to weather the current difficult trading conditions, diversify our business focus and return to strong and profitable growth.” ▲ In Queensland, sites belonging to Marquee Developments and Keylin Developments were impacted by PBS Building’s administration. PBS Building creditors owed more than $60m Meanwhile, PBS Building administrators RSM Australia have been granted an extension by the federal court to conclude their investigation into the firm’s construction companies. The builder sensationally walked off sites across the country last month, leaving multi-million-dollar contracts across 82 projects hanging in the balance. RSM Australia partner Johnathon Colbran said the final creditors report was now due at the end of June and a second creditors meeting would be held before July 8. More than 450 claims have been lodged across the ACT, NSW and Queensland according to Colbran. “The additional claims, combined with further investigations by the Administrators, have lifted the current estimated value of creditor claims to more than $60 million across all five PBS companies,” he said. Hutchies is maintaining a strong focus on subcontractor risk downstream, which David says is part of getting the full picture on due diligence for projects in the current landscape. “We think it’s a very cautious time to go into new projects and you’ve got to make sure you’ve undertaken your due diligence, you’ve got to understand the risk of insolvency of subcontract partners that you take forward on to new projects, and that’s where our business is particularly focused on at the moment. “Diversification is key to subcontracting and contracting survival at the moment. More and more we’re starting to see builders align themselves with quality clients and be a little bit more selective.” Altus Group’s Niall McSweeney is also forecasting further builder collapses in 2023, but he says price volatility should ease as the year continues. To access more exclusive content and events join our growing TUD Plus membership. Click here to learn more.

[+] Builders Hit ‘Most Dangerous Phase’ in Downturn

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