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ACROSS THE TRADES Winter 2022
AUSTRALIA’S
CONSTRUCTION SECTOR:
A TICKING TIME BOMB?
DEMAND FOR BUILDING WORKS IN AUSTRALIA REMAINS STRONG – BUT THERE ARE MANY CHALLENGES, AND
CONSTRUCTION COMPANIES AND SUBCONTRACTORS SHOULD RECOGNISE ANY WARNING SIGNS AND TAKE EARLY ACTION
IF THEY ARE IN FINANCIAL DISTRESS, URGES NATIONAL BUSINESS RESCUE/INSOLVENCY FIRM
JIRSCH SUTHERLAND
.
“T
he construction sector has
traditionally accounted for
a disproportionately high
level of insolvency appointments – and
it’s one that is of growing concern,” Jirch
Sutherland partner Andrew Spring says.
“Our fear is that these potentially
terminal businesses may ‘infect’ their
directors, owners, employees and
stakeholders if action is not taken to
address the financial imbalance. While
the pandemic has been a big contributor
to the issues the sector is facing, they
were apparent even before COVID-19.”
Spring adds that the pandemic
introduced circumstances which
many construction contracts did
not anticipate, including issues
relating to supply of materials, delay
on construction sites as a result of
site closures and reduced capacity
of workers as a result of legislative
changes.
It’s a view echoed by Eakin McCaffrey
Cox special counsel Nelson Arias-Alvarez
says that the COVID-19 pandemic caught
out contractors and subcontractors who
had accepted poorly negotiated contracts:
“Unable to meet contractual obligations,
contractors and subcontractors have had
to wear the costs of COVID-19 in terms of
cost and time.
“To make matters worse, in the
aftermath of recent shutdowns,
there has been an over-reaction
to risk allocation with many post-
COVID-19 contracts. Contractors and
subcontractors are asked to take
on unrealistic risk and the financial
pressures in the aftermath of COVID-19
means these requests are being adhered
to.”
Infrastructure Australia has found
that there has been a decline of 26% of
contractors meeting their contractual
obligations. Additionally, mandatory
vaccinations for construction workers
significantly contributed to delays,
which has impacted construction
programs and the potential liquidated
damages being payable.
ATO debt
Andrew says the issues are evidenced
by the sector’s share of the Australian
Tax Office’s debt attributed to SMEs,
which was $21.4 billion as at FY20. One-
third of the reported SME ATO tax debt
at FY20 was housed in the construction
industry.
COVER STORY