More businesses in the construction sector, already under pressure from stretched supply chains and labour, are expected to go to the wall as public infrastructure spending surges, pushing the cost of materials and wages beyond manageable levels.
Construction-industry insolvencies jumped nearly 40 per cent in the three months to December compared to the September quarter – and were up almost 30 per cent on a year earlier – the latest data from regulator ASIC shows.
Although record-low borrowing costs and changes to improve the security of payments to subcontractors have provided some buffers to businesses, debt servicing is becoming more expensive and surging materials and labour costs will keep the pressure on companies that may have so far been shielded from the worst effects of local and global shortages.
“A tsunami of projects is cresting in 2023, at precisely the time cost pressures – inflation, materials, insurance – and competition for skilled workers are escalating for the industry,” said Guy Saxelby, chief executive and co-founder of Earlytrade, a payments platform for subcontractors.
Construction has always had a relatively higher level of company failures compared to other industries and signs of pressure are growing, prompting the developers of risk-management tools – whether to help with cashflow or to provide security and oversight in procurement – to promote their services to an industry that has long lagged others in technology adoption.
Building industry insolvencies rose to 28 per cent of total insolvencies at the end of last year, from 17 per cent in March 2020.