Construction firm collapse possible
Christchurch might have a construction company collapse like Mainzeal, an insolvency firm says.
In a newsletter released today, McDonald Vague highlighted issues facing construction companies in the Christchurch rebuild.
It said that when comparing the most common causes of construction company failures with the problems facing firms in Christchurch, there appeared to be "a high chance of another significant construction company collapse".
The warning follows City Care revealing in the past week a dramatic drop in profit because of growing rapidly in expectation of work that is slower in arriving than the big city council-owned maintenance and construction firm anticipated.
City Care has hired 706 staff; 393 people had left in the past year.
McDonald Vague said the common causes of construction firm failures included tight margins, insufficient capital, lack of skills and experience, leaky buildings and non-compliant construction, inability to manage growth, competition, inaccurate estimates and tendering, and poor pricing decisions.
Construction companies waiting for the Christchurch rebuild to kick in faced issues such as the lack of progress in the rebuild of the central business district, increased competition, including from large overseas companies, rising costs, high compliance costs and cashflow constraints while waiting for the rebuild to gain momentum.
"They have huge overheads to absorb while they wait for the profitable work to start," McDonald Vague said.
"Initially it had looked like the rebuild would peak in 2015-16 but now it looked more likely to be 2016-17.
"The flow-on effect is that construction firms may have to accept a lower margin for another 12 months to keep their employees busy."
Private developers were waiting for the anchor projects to get started before they began their buildings because of concerns of not being able to attract tenants to a building surrounded by empty sites.
Several large overseas companies had indicated they would tender for some of Christchurch's anchor projects, which contributed to increased competition in the sector.
McDonald Vague advised construction companies to familiarise themselves with the remedies under the Construction Contracts Act, keep good records, suspend work if not paid and credit check developers or head contractors before signing a contract.
- © Fairfax NZ News