Construction industry nightmare: NSW Government launches inquiry into company collapses

The New South Wales Government has announced an inquiry will take place into the rising number of collapses occurring in the state’s construction industry.

The announcement comes after the collapse of key companies in the market. Reed Constructions entered administration in June, while Kell and Rigby announced its own downfall in February. Hundreds of staff have been left without work, along with subcontractors and associated SMEs.

Both companies were conducting several key projects in the state.

Although the sector is concerned by the number of businesses entering administration or receivership, some in the industry say the factors leading to the collapses are complex and any inquiry must take them into account.

“Construction companies are like any other business, trying to hold on to staff as best they can, and so on,” says Housing Industry Association head of policy Graham Wolfe.

“Margins can be sharpened, and the factors can be as much surrounding the company itself as the industry. I think we will need to see the terms of reference of the inquiry before we can make a clear comment.”

In a statement today, NSW Finance Minister Greg Pearce said the government is concerned about the “fragility of the construction industry”.

“Between 2009 and 2011, hundreds of companies in NSW collapsed owing billions of dollars, slamming the brakes on vital projects and investment.”

“Up to 24,000 unsecured creditors, including suppliers and subcontractors, have been left out-of-pocket, some by millions of dollars.”

Bruce Collins QC will chair the inquiry, although no terms of reference have been released yet. Pearce said Collins will look at the extent and causes of insolvency in New South Wales, and what reforms, if any, are needed.

Pearce also said the terms of reference would likely include how initiatives such as insurance schemes and trust arrangements could help subcontractors.

The construction industry isn’t only ailing in New South Wales, however. The industry has taken a beating nationwide.

In March, it was revealed 80 companies had collapsed in that month alone. Regular insolvency statistics show construction companies make up a large portion of business collapses.

Wolfe says many factors are involved in the large number of collapses. A downturn in construction is only one.

“Quite often these causes relate to client or consumer payments, and that affects cashflow. Many times the organisations paying these companies are governments.”

“When looking at these collapses we need to take a very broad look at the capital equities, cashflow, and working capital in these types of situations.”