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Labour shortages, supply chain issues and weather all took their toll, BDO survey finds.
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Construction companies account for 30% of insolvencies
16 February 2023
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9 minute read
Around 30 per cent of insolvencies across Australia in December 2022 were in the construction industry according to the latest BDO Construction survey, up 4 per cent from the previous year.
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The trend was highlighted in January when Hallbury Homes became the first major construction company this year to fold, filing for bankruptcy and owing about $7 million to creditors, following crises at ProBuild and Metricon last year.
BDO said the construction industry employed more people than any other in Australia and generated more than $360 billion in revenue, producing approximately 9 per cent of GDP.
Most of the construction companies surveyed for the BDO report had operations in the commercial, industrial and residential sub-sectors and 104 full-time employees on average.
While most construction businesses were either sole traders or very small (employing less than 20 people), organisations surveyed for the report ranged from 10 to 250 full-time employees. All the organisations surveyed reported revenues of less than $500 million in FY22.
BDO found that construction companies across Australia were experiencing significant challenges, driven by inclement weather conditions impacting construction activity, labour shortages and rising inflation.
It revealed that 60 per cent of companies surveyed reported an increase in revenue of more than 10 per cent compared to the previous financial year but net profit before income tax significantly declined for the majority of companies due to supply chain and pricing challenges.
Like many other sectors, the top business priority for most construction businesses was to attract, recruit and retain employees and the top reason for staff attrition was remuneration. The competition for talent had increased the cost of labour, which had adversely affected the bottom line of all businesses.
Only 22 per cent of surveyed participants reported a financial loss due to subcontractor or supplier insolvency in the 12 months preceding the 2022 survey compared to the 2020 survey where a loss was incurred among 40 per cent of participants.
This indicated that construction companies had been more mindful of the risk of insolvencies in subcontractors since the pandemic. Additionally, 56 per cent of surveyed participants reported that there had been some or greater demand by subcontractors seeking shorter payment terms compared to the previous 12 months.
Subcontractors had been the pressures of the pandemic and managing their cashflows carefully, the survey found. Unsurprisingly, all survey participants reported that there had been negative impacts to profits in the last 12 months resulting from intensified competition and supply chain issues.
COVID-19 also caused labour shortages and disruptions to the global supply chain, which in turn caused increases in material costs and delays in receiving raw materials.
The rise in the costs has been felt across all areas from fuel, freight to electricity, but especially timber and metal prices over the past quarter.
The report found the industry still has a projected annual growth rate of 2.4 per cent over the next five years.
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