Why small builders need government financial support in the face of consistent price hikes

It is shattering to hear the statistics on builder insolvencies on a daily basis throughout Australia at the moment. The Australian Financial Review stated that insolvencies in the construction industry jumped 40% in the December quarter compared to the September quarter alone and I can understand why.

As a builder, we are not provided with any financial government backing or support as we face price hike after price hike, and trades that increase costs due to the increase in building activity (demand), as well as their large material increases. 

We are then faced with the inflexibility in our fixed price contracts with our clients, which will not allow us to pass on any of these absolutely unforeseen costs. The increase in costs is to be born solely on the builder alone, which is costing the industry billions, if not trillions.

I am lucky that my team at TCON have worked hard to ensure all projects are organised in the very early days to secure contractor pricing. We have worked hard on implementing systems to manage the project financials, supplier contracts, project schedules and ensured a collaborative approach to building our homes, which allows us to always be on top of individual project financials and schedules day-to-day with live reporting.

The business has grown from strength to strength through these times, and we have worn our fair share of financial increases that I know we will never be able to recoup, but I am deeply concerned when Tier 1 builders collapse, including Probuild, and now another builder that has $500 million of live projects in Queensland, Condev Construction.

I understand that a law has been put in place, and is overseen by Consumer Affairs, that prevents builders from placing illegal ‘Rise and Fall’ clauses in contracts in order to protect consumers. But has COVID-19 not allowed a short term amendment?

I typically agree with this clause exclusion, as we can price our projects accurately, taking the required time to analyse the documents package provided to us and provide our clients a price that is accurate. The problem I have is that price hikes appear every day and when you’re building a project that could take 12 months, most of the price increases have not been allowed for as the suppliers themselves don’t even know about them. 

It’s not my business I am worried about; it’s the smaller builders who don’t have the systems and the resources to cope. It seems members of the government sit on their hands and claim they understand, but do they do anything to help financially?

It’s time to stop the insolvencies and allow businesses to flourish in this construction boom.

This is an edited version of a post that first appeared on LinkedIn.