Tough Times For Builders
With skyrocketing construction costs, credit availability diminishing and trade availability at its lowest levels
in recent times and showing signs of worsening, there have been an increasing number of distressed and
failing projects appearing across all Australian markets. These issues have not been limited to the smaller
builders and sites, with several high profile companies entering receivership over the past few months.
These recent trends have served to highlight the importance of effective cost control on any given project,
with many projects grinding to a halt after falling well short on available funds to complete construction.
In this two part series, BMT & ASSOC investigate some of the key indicators associated with projects
becoming distressed, and options and processes available to financiers and developers going forward.
Key Indicators
Understanding and identifying the common precursors and indicators associated with a sinking project
can mean the difference between success and failure. Identifying a problem before it escalates allows
measures to be put in place to ensure the project’s completion. On the other hand, if problems go
unsolved, sometimes the developer and/or financier will be left with a closed, partially completed site and
the associated burden and significant costs of selling or finishing the project from this stage. Some key
indicators include:
Is Progress Slowing Down?
One of the first key indicators that a project may be in trouble is when progress visibly slows down. When
cashflow becomes tight on a project, one of the first things to occur is subcontractor payments being held
off by the builder, resulting in disgruntled subcontractors delaying arrival on site and effecting critical path.
While this can be minor in the early stages, continuation of this cycle over consecutive months can equate
to significant delays as subcontractors refuse to return to site without full payment or payment upfront.
A contractor over-claiming is another strong indicator of distress. Often when cash starved, builders will
begin to ‘load’ their claims in advance to make up for growing shortfalls. While you will need to rely on a
Quantity Surveyor to ensure this does not occur, continued over-claiming should be considered an early
warning sign of developing issues.
A busy site is a healthy site! Sure indication of site issues become apparent when you visit a site to see only
limited trades working, particularly when a project is running behind program. Speak to subcontractors and
get a general feeling for the sentiment on site - most will be more than happy to discuss progress,
particularly when they are owed money.
The million dollar question! Experience has shown us that a project can be seemingly progressing well one
month and be in serious trouble the next. Simple influences such as material price increases, subcontractor
availability, and inclement weather can act quickly to erode project budget allowances and begin to
slowly suffocate those tasked with the completion of the project.
Delays Cost Money
With the above factors in play on a project, the choking effects of project delays quickly come into
effect. As mentioned in previous bmt qs news editions, delays on site quickly equate to additional costs
being incurred on a project that is already cash starved with obvious catastrophic effects. To view the
qs news edition on the cost of delays, please visit our website:
http://www.bmtqs.com.au/bmtqs/Articles/bmtqsnews_costs_of_construction_delay_pt2.html
How Can BMT & ASSOC Help?
Over many years of auditing projects on behalf of financial institutions, BMT & ASSOC have developed
internal auditing systems and procedures specifically designed to identify possible risk factors acting on a
project and bringing these to the attention of stakeholders.
While offering a range of reporting levels tailored to address specific projects and scenarios, BMT &
ASSOC provide financiers and developers with the best possible chance of identifying potential issues
early enough to intervene and ensure the successful completion of their investment. Please do not
hesitate to contact Brendan Farrugia, Tom Plenty or Bradley Beer at the office if you would like to discuss
a particular project.
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