Construction bust in boom times needs rethink

This morning's Herald has an article by me highlighting the causes of the crisis in the construction industry.

While opinions on the  cures of what ails the industry proliferate in the media, few properly address the causes.  This is understandable, as each industry player has its own perspective, but few address the cause.  To date, Government intervention has focussed on the symptoms, rather than reflecting an understanding of the  industry itself, and how we have  a booming construction sector, with contractors going bust.

The publication of this article could not be more timely, with the announcement this morning that the liquidators of Mainzeal Property & Construction (in liquidation) Limited are taking legal action against the former directors of the company for trading while insolvent.  Most will recall, I hope, that the company left $117 million owing to unsecured creditors (primarily suppliers and subcontractors).  At the time the liquidation was announced, the Government (in its amendments to the Construction Contracts Act) was distracted by the shortfall in retentions, which comprised the relatively modest sum of $7 million.  It is also unlikely that the retentions amendments would have made any difference to the Mainzeal insolvency.

What is required is a reconsideration of procurement practises, including early contractor involvement; sensible allocations of risk in the contract, with contract terms properly amended to reflect the requirements of the project, the owner and the contractor; amendment to the Construction Contracts Act to provide more security for subcontractors and suppliers; and provision of effective, interim dispute resolution that the parties can rely on, primarily by adjudication.

The future does not need to be bleak, but it does require careful and considered thought.

Here is a link to the online article: 

and here is a scan of the hardcopy: