‘Hail Mary’ Will Not Save Construction Industry

TARYN PARIS WED 16 MAR 22 The Urban Developer

Under-capitalised construction firms could follow Condev’s lead and go cap in hand to developers for more money amid the escalating costs crisis.?

But Hutchinsons Builders chairman Scott Hutchinson says “it’s just a Hail Mary”.

Condev has called in the liquidators?after crisis meetings with developers failed to salvage up to $1 billion worth of projects around south-east Queensland.?

It comes off the back of the?high-profile collapse of Probuild, and more heads will roll over the next 12 to 18 months, according to Hutchinson. The odds are stacked against construction companies?locked in a profitless boom?with escalating prices and slim margins biting into bottom lines.?

“Everyone’s getting hammered [by escalating costs] but we’ve got long-term arrangements with subcontractors and suppliers,” he says.

“We’ve taken a bit of a hit, but it’s not going to do too much harm.”

But the margins are thin for construction firms. Hutchinson Builders will make about 1 per cent on the projects in their workbook this year. Hutchinson says there are big and medium-sized construction companies that could be in the firing line over the next 12 to 18 months, but says medium-sized firms are more at risk.

“There’s a lot more to go broke than this. The bigger players have got big institutional backers so you don’t know how they will play out. The smaller ones can scale down and salvage.?

“It is the medium [tier] that are most likely to go, the ones in the $50 to $500 million range … too many are over-trading.”

A source close to the construction industry told?The Urban Developer?they had not heard of contracts being handed back in, but knew of builders going to developers and asking to renegotiate terms in the face of?escalating costs and labour shortages.

Legally there would be significant costs to handing back a standard design and construct contract, but renegotiating costs is not off the table entirely.?

Developers could be hamstrung with few big players able to scoop up the remains of development projects and may be forced to scaffold the industry.

Hutchinson says he was not surprised at the demise of Condev and said developers’ risk appetite would change in the aftermath of this collapse in the construction industry.?

“What will happen is there will be more that go down, and there will be a flight to quality and long-standing companies,” Hutchinson says.?

“It was a Hail Mary (going to developers to bail out projects) … it was worth a try. All the developers are going to have different exposure.

“Whenever those collapses happen nothing happens quickly because of the legality. You can’t renegotiate the terms of a contract if you’ve already started the project. Everyone knows we’ve got the balance sheet to cop it because we’re overcapitalised.”

Hutchinson says they will pick up some of the Probuild and Condev projects and “do what comes in the door”.

“I think we’re looking at some Probuild stuff right now. Things are going pretty well at the moment, but we just need to be careful we don’t get sucked into too much work or the wrong type of work, which is my focus.”

Condev’s founder and executive chairman Steve Marais told?The Urban Developer?he was devastated after being forced to call in liquidators.

A crisis meeting on the Gold Coast this week proved futile in the construction firm’s bid to garner $25 million to keep 18 projects across south-east Queensland afloat.?

“We are absolutely devastated for the Condev family of employees, our tradespeople and our affiliates,” Marais said.

Developers will now be forced to find new builders for their projects—more than 10 on Queensland's Gold Coast - which will add time and money to project bottom lines.?

AUTHOR: Taryn?Paris