Construction companies urged to take notice as leader enters administration

Last year, we urged construction companies to take a careful look at their financial positions amid troubling industry trends.

Last week, we learned that one of Australia’s largest construction companies, Probuild, has entered sudden administration with no warning to subcontractors.

A long list of factors have likely played a role in the company’s demise, including delays due to lockdowns and increased labour and materials costs. 

While the company weighs its options to restructure and turnaround, it's well understood that a collapse would have huge repercussions for clients, subcontractors, and employees. Probuild currently has $5 billion in building projects underway across the country and engages hundreds of tradespeople whose future is now incredibly uncertain. 

According to sources, subcontractors are owed a huge amount of money. 

As we’ve said previously, a lack of work is rarely a reason for a construction company to go bust. Right now, the biggest risks include:

• building delays leading to cashflow pressures
• supply chain disruptions
• rising material and labour costs
• liquidated damages
• disputes between directors

Difficulty managing the “business side” of running a construction company is also a common issue.

What construction company owners should do right now?

When you’re busy, it’s easy to get swept up in the day-to-day. But current trends would indicate that it’s never been more important to take time out and assess the sustainability of your business.

Even though you may have an internal bookkeeper or accountant, it’s generally difficult for them to see the bigger picture in terms of:

• contract structures
• project incomings and outgoings
• potential risks

A financial audit of current projects is a great way to gain peace of mind that your “cost to complete” figure balances against income projections. If it doesn’t, you can act quickly to mitigate some of the risks and keep things on track.

Where it’s clear that your business is financially stressed, knowing the options available to you will allow you to take early action and reduce potential damages – including to your personal assets.

If the business is struggling due to director disputes, mediation is a great way to navigate through them and find a pathway forward that is acceptable to all parties.

How RSM can help?

We have extensive experience supporting construction companies and property developers across tax, business advisory, and restructuring and recovery.

You can ask us to assist with a cashflow review and Options Report that considers the current challenges facing your business, so we can map out the various options that are available to you to restructure or turnaround your business.  

Our friendly team provides a free initial consultation and genuine guidance that is designed to give you the insight and support you need to make important business decisions with confidence.

Don’t avoid taking action until it’s too late. Start a conversation, and see what it could do for you and your construction business.

For further information

To speak with a property and construction specialist from RSM, please contact your local RSM office.