, Environment Reporter
Construction insiders say the risk contractors are taking in building projects are behind the collapse of a number of
firms - and government departments have a hand in it.
Photo: RNZ / Alexander Robertson
Ebert Construction Ltd has been put into receivership this week
and Christchurch company Maven Interior went into liquidation yesterday.
Initial indications suggest Ebert could owe as much as $40 million.
Accounting firm BDO partner James MacQueen said increasingly jobs were "design and build", meaning specifications were
given and a construction company worked out how it would design and build it at a fixed price.
These projects carried a higher risk and the government was one of the main culprits, he said.
"It's all about the transfer of risk, and particularly some of the government departments, they're trying to get the
risk off their books."
Mr MacQueen said the Ministry of Education was an example.
Independent dispute resolution consultant Peter Degerholm said he was asked to look at a contract from the Ministry of
Education in June which had tied a contractor into carrying the cost of the ministry's project for almost three months.
"In an industry that is known to be cash strapped I was horrified that that's the sorts of contracts that the government
is putting out."
Mr Degerholm said the government was providing a bad example.
He said contracts went out with scant design detail but with a fixed cost. "In many cases the real cost of construction
is not known until the final detail is available".
Independent economist Cameron Bagrie said those allegations are unfair and that the companies should have built margins
into their tenders to cover any unforeseen costs.
"Within the construction sector it's pretty obvious there's some issues. To be fair, you can't just point the finger at
the government in regard to this stuff," he said.
"If you're tendering on a project, build in a bit of margin for the unforseen. These companies have gotta stand up and
take it on the chin."
"There's a whole lot of things that are broken across the construction sector. The two biggest things they're going to
face in the next 12 months is going to be cost and access to credit.
"The weaker the sector is, particularly in regard to profitability, the more the banking sector is going to have a good
look at them in regard to whether they're going to provide the credit to do the projects."
Mr Bagrie said the sector has a pipeline of work that's "bigger than Ben Hur" but there were concerns over the capacity
and ability to get the job done.
Construction lawyer Marcus Beveridge said the situation reflected the thin margin
building companies worked on, which may have caught out Ebert.
"It's different building factories for Fonterra in the regions than dealing with the pretty slick and fast rules of
construction in downtown Auckland."
Mr MacQueen said head contractor on many projects was more of a project manager, and virtually all the work was done by
subcontractors such as electricians, plumbers, roofers, tilers and painters.
One of the most worrying things when a contractor went under was how it affected subcontractors, he said.
"It means a lot of subcontractors are not going to get paid and it results in a bit of a domino effect where those
subcontractors end up going into liquidation or receivership."
Mr MacQueen said the folding of Ebert was likely to take out a few subcontractors, which would in turn have a flow
through to other companies.