An estimated 114 building and construction-related companies have gone to the wall in Canberra since the start of last year, leaving behind more than $80 million in debts, Australian Securities and Investments Commission data has revealed.
With the downturn in the building, home improvement and renovation sector expected to worsen as public servants remain uncertain about their futures, ACT insolvency specialists say the snowballing "tsunami" of economic pain documented in wind-up notices on the ASIC website won’t end soon.
“All things being equal we would generally expect an increase in insolvency appointments during such a period (as this),” Tony Lane, the senior manager for insolvency and reconstruction with accountants Vincents, told Fairfax.
He warns "larger and larger entities" are likely to fail as the impact of liquidations and unpaid debt cascades through the sector.
The collapse of one company leaving unpaid debts often will push others over the brink.
“(Businesses) most exposed are those with poor and outdated systems, poor or non-existent cost controls, out-of-date service delivery mechanisms, inefficient work practices and poor cash flow,” Mr Lane said.
Michael Slaven, of the insolvency firm Kazar Slaven, said he did not expect the rate of company collapses to increase but he wasn’t expecting it to slow either.
Kazar Slaven has handled almost 30 per cent of the building and construction-related insolvencies in the ACT over the past 18 months.
Other major players include Deloitte Touche Tohmatsu (about 10 per cent), the Government Solicitor (about 15 per cent) and RSM Bird Cameron (also about 15 per cent).
Almost 25 per cent have gone to interstate firms, usually based in Sydney.
Mr Slaven said cash flow shortages were among the most common reasons for a company failing.
“One of the big issues (in the building sector) is the amount of time it takes to get paid,” he said. “Often a company just can’t absorb a bad debt.”
Mr Slaven said it was wrong to blame contractors for continuing to work on projects after payments had slowed to a trickle.
“Once you [a contractor] have started on a project if you don’t complete it [your part of the work] you won’t get anything,” he said.
This means that in reality large companies, which sub-contract smaller "mum and pop" operations for electrical, plumbing, tiling, rendering and other services can use them as a source of unofficial credit.
“It is a case of 'in for a penny, in for a pound',” Mr Slaven said.
His partner, Henry Kazar, says there is a "real power imbalance” between small operators and big contractors on major projects such as apartment developments.
“I know of a bricklayer who was on a `drip-feed’ for a $61,000 debt,” Mr Kazar said. “I asked him why he didn’t take a tougher line. He said, `If I do they [the large builders] will all close ranks [against him].”
Small operators have to play by the "big boys' rules" if they are to get the work they need to survive.
Mr Kazar said the downturn in the building and construction industry had tightened margins, making things better for the customer but even tougher for the builders.
“We have been going through an office refurbishment ourselves,” he said. “Prices are off by about 20 per per cent on where they were a couple of years ago.”
Mr Kazar, who described the recent budget as “a disappointment”, said that, because Canberra was so reliant on the public service, the federal government had an obligation to provide assistance when it was cutting back.
He would have liked to have seen backing for the convention centre concept as it “would have worked on numerous levels”.
Vincents' Tony Lane doesn’t believe the convention centre would have been the answer on its own.
“I’m not convinced of the ability of Canberra to compete in the international convention market, particularly without [the] integration of other major infrastructure projects [such as the very fast train or the upgrade of the Canberra Airport to international status],” Mr Lane said.
“I’m not sure stimulus is the right way to go either (in any case). The impediments to increasing demand need to be addressed. This means an urgent review of regulation in relation to a range of industries, not just building and construction [is required]. The current regulatory impact on small business is huge.”