Australian builders going bust – what can you do if you’re working for one?

Builders are going bust by the day in Australia – which makes working for them a challenge. So, if you’re a contractor who works with construction companies, what can you do to protect yourself?

• More than two builders per day go bust.
• Be on the lookout for warning signs.
• Watertight agreements are key.
• Act if invoices are paid late.

If it seems like Australian builders are going under almost every day at the moment, that’s because they are. Quite literally. Reports have shown that since mid-2021, more than 2000 construction outfits have gone to the wall – more than two per day.

Inflation, supply chains and the rising costs of goods are to blame, with builders of course often caught in the middle, and it’s bad news for the trades, who get a good amount of work through construction clients.

So, what happens if you turn up to the site one day only to find it locked and bolted, with thousands of dollars owing and your equipment still in there?

As far as equipment goes, you should be OK as long as you’ve got paperwork, says Adam Wright, CEO of Building Principals.

“The administrators would take control of the site, and then it’s a case of, for example, this isn’t your air conditioning unit or switchboard to sell.

“As long as you’ve reserved your rights to the equipment or tools on site, and you can clarify that it’s not something the builder owns, you’re allowed to go and retrieve them from the site.”

Having good paperwork, therefore, is essential. However, when it comes to monies owed, that’s more difficult.

“If it gets to that point, the administrator will always prioritise paying the staff of the company, so you might end up getting 20 cents on the dollar for what’s owed, but administration isn’t a quick process and will have a serious impact on cash flow,” says Wright.

Avoiding the impact of a builder going bust

The key to avoiding any major financial strife in the event of the builder you’re working for going bust is to have your radar up at all times, says Wright – and be on the lookout for things that seem amiss.

“You can generally get a feel for a job within the first five or 10 minutes of walking onto a site,” he says. “You can tell whether it’s running well, or if there are problems.”

In addition to intuition, you need to be incredibly tight on payment terms, advises Wright.

“In the commercial market, for example, 30-45 days is pretty average, but if payments are pushing out to 60 days or over, you need to look at what the recourse is.”

Wright says it’s important that invoices are paid in full and on time, because if the builder’s disputing invoices and you’re receiving half-paid claims or short-paid claims, that can drag things out significantly – causing you cash flow problems as well as increasing the risk of never seeing the money again.

How to get overdue invoices paid

So, you’ve issued invoices, but they’re over their due date. What can you do?

Well, quite a lot, as it turns out. And a preemptive strike before anyone goes under is certainly a smart move to make.

“The Security of Payment Act means that if you’ve submitted a valid claim and that claim hasn’t been responded to within the time set out by the act, you can go to an adjudication panel and get that payment legally awarded,” says Wright.

All of which, of course, depends on having the initial deal you strike really tight contractually.