Victoria counts the cost of rising insolvencies
Victoria has overtaken Queensland as the big state with the fastest-growing total of construction industry wrecks, highlighting the precariousness of a sector in which contractor Roberts Co shut its Victorian doors and John Holland swung to a $55.5 million loss from two infrastructure projects.
New figures this week from the Australian Securities and Investments Commission show the pace of construction insolvency growth in the southern state overtook Queensland in December. In the months since, it has kept up the fastest pace of growth of the three largest states.
Although the Northern Territory, ACT and Tasmania showed bigger percentage gains based on small numbers of companies, Victoria led the large states, clocking a 46 per cent year-on-year gain in new insolvency appointments to 693 between July and the start of March – nearly double the national growth rate.
Construction in every state and territory was struggling with cost blowouts, delays, shortages and higher interest rates that had pushed the final cost of projects well above their originally quoted prices, but these would not hit all states at the same time, AMP chief economist Shane Oliver said.
“Victoria was doing better 18 months ago, but lately it’s flipped to the bottom half,” Oliver said.
“Its deteriorating performance could be consistent with that. Conditions have got tougher in Victoria relative to the rest of the country and that’s made it harder for construction companies.”
Nationally, the figure of 2307 construction insolvency appointments – making no distinction between commercial and residential companies – is up 25 per cent year on year from 1839 over the same period a year earlier.
Queensland is up 39 per cent at 382 and NSW is up 10 per cent at 988.
Five days after subcontractors and suppliers rushed to remove cranes, earthmovers and other tools from Roberts Co’s Craigieburn giant site for developer ESR and client Amazon, ahead of administration and closure of the site later that day, the number of unsecured creditors remained unclear.
Subbies were left with unpaid debts on Friday – one said it would stand down staff as a result – but sources close to the administrators said Roberts Co was mostly up-to-date on payments.
The February claims, which would normally be paid at end-March, were outstanding and resolving those was crucial to restarting work, they said.
Reporting earnings for the year to December 31 this week, John Holland said higher material and labour costs and poor weather at its Melbourne Metro Tunnel rail and West Gate Tunnel motorway projects tipped the company into a loss from a profit of $94.8 million a year earlier.
Roberts Co’s dramatic and public collapse happened the same day the federal Labor government declined to commit to the recommendations of a seven-year-old review to protect the payments intended for subcontractors when a head contractor goes under.
The 2017 review by former Master Builders Australia head John Murray argued for trust-like restrictions over the payments head contractors received from clients – intended to pay subcontractors, but which head contractors use as general cashflow, and are lost if that contractor fails.
But the Albanese government rejected the recommendation last week.
“A key risk with deemed statutory trusts is they may limit the ability of contractors and subcontractors to fund new projects, and entities will need to find alternative sources of funding for working capital,” it said.
“This may have broader impacts on growth, cost of construction and solvencies in the construction sector.”
The Australian Constructors Association, with a membership that includes large contractors – including Roberts Co – praised the decision, but said clients should have to pay head contractors faster so money reached subcontractors faster. Master Builders Australia also welcomed the decision.
“If that’s the Commonwealth’s best response… then God help the tradies.”
Review author John Murray
But others, including Master Plumbers ANZ said stronger protections were needed for subcontractors who suffered from a power balance with the head contractors that hired them.
Murray criticised the decision.
“Why should subcontractors continue to be unwilling bankers of interest-free loans to contactors?” he said. “If that’s the Commonwealth’s best response… then God help the tradies.”
Independent senator David Pocock, who pushed for statutory trusts, said it was “tragically underwhelming”.
“Subcontractors missing out on money they are owed when big companies go bust is driving up the cost of housing and causing enormous financial and emotional distress,” he said.
