Building, Insolvency, & QBCC: What to do if your builder becomes insolvent during your project

With rises in builders becoming insolvent, this issue is rapidly becoming Australia’s biggest concern…

Current events will attest that the biggest and most reputable builders are not impervious to an economic downturn. Companies such as Probuild, and ConDev, have fallen along with many others. With these collapses, the question surrounding them is if the builder goes bust, what actions need to be taken by stakeholders in order to protect themselves, their money, and their construction project(s).   

Why are builders becoming insolvent? 

It is no news that builders, or businesses in general, can go insolvent. This is especially the case for newer businesses, with high rates of failure likely to occur within the first few years. The Treasury estimates that the survival rate for businesses is alarmingly low at 60%.

Builders in a recent context, are now also struggling for additional reasons, with the manifest issues being that they are struggling to keep up with the rising inflation experienced during and now after the COVID-19 pandemic.

Some of the contributing factors and examples of inflation are:

• The prices of commodities rose too quickly for builders to effectively quote their clients, resulting in legal issues, and costly budgeting issues from underquoting for the builders themselves;[1]
• Fixed-price contracts;[2]
• The building boom experienced during COVID-19 led to high demand of products resulting in shortages. The shortages resulted in significant construction delays, meaning that construction was not running at an efficient level;
• Staff pay increases due to high employee demand and increase in work available;
• Lockdowns preventing project completion deadlines and therefore resulting in financial repercussions due to not meeting obligations under construction agreements.

To further evidence the issue, Russ Stephens, co-founder of the Association of Professional Builders, has estimated around 50% of Australian building companies are currently trading insolvent.[3]

Prevention of issues

The Queensland Building and Construction Commission (QBCC) has identified some key factors to address in order to prevent issues from arising in the first place, or mitigating the extent to the risks that occur:

• Understanding the rights and responsibilities of all parties details in the contract – this is why transparent and dedicated legal professionals are so important, as you should have the process communicated to you in a way that you understand;
• Communication – having regular meetings and establishing times to talk through issues is crucial. It may help to set firmer boundaries and ensure deadlines are adhered to;
• Understanding of the building process;
• Ensure that those involved in construction currently have a QBCC license – this will be an important part of holding them accountable for works undertaken;
• Ensure that you engage reputable contractors and builders – their reputation may proceed them by their past customers;
• Check that the contract has been well drafted – surmounting the importance of both a well-drafted contract and also an experienced legal team;
• Has the contractor given you a ‘Consumer building guide’ prior to you signing the contract? This is a mandatory requirement for any contracts pertaining to building work that are over $20,000.00.
• Have there been variation to the contract? Make sure that all variations are signed by you and your contractor and ensure accurate records are kept;
• Attention to details when keeping records is the final tip. Incomplete or incorrect information can complicate things unnecessarily.[4]

Early warning signs

Sometimes it can be difficult to ascertain whether or not your builder has become insolvent, and this is only furthered by the uncertain economic climate. However, it is strongly encouraged that you seek legal assistance as soon as you are suspicious of or made aware of your builder becoming insolvent to protect your interest.
Below we have listed some (but not all) of the warning signs:

• Lack of communication, it was noted that concerned customers of some construction companies were unable to reach them;
• Significant building delays – however this can also be caused by logistical issues and therefore very difficult to determine the causal factor(s);
• Unexplained increase in progress claim and variations; and
• Lack of accountability for issues that have or are occurring.

What happens if my builder becomes insolvent? 

Queensland

The Queensland Building and Construction Commission can assist when construction plans go awry. They act as an insurer and enforcer providing support for a range of claims.[5] They do fulfil these roles by providing payouts for successful claims, and in some instances can issue directions for the builder to rectify works.[6]

Unfortunately, the authority’s support has strict eligibility criteria, so not everyone is protected.[7] In these situations it is recommended to seek legal advice to pursue other actions, where the contract may be enforced by the courts.

How can we help?

As you solicitors, we will advocate for you and ensure that we provide transparent and effective legal solutions that are tailored to your situation. Given the complexities of building issues from a legal perspective, and how daunting this can be, transparency can provide clarity for our clients. This in turn can take away some of the stress.

Additionally, understanding the criminal and financial liabilities that can be attached to either action or inaction require deep consideration and industry knowledge, so it is crucial to engage a law firm who specialise in industrial relations as well as litigation as soon as you become aware of any issues with your builder.

Resources

Queensland

QBCC homepage: https://www.qbcc.qld.gov.au/

QBCC Builder’s License Search: https://www.onlineservices.qbcc.qld.gov.au/OnlineLicenceSearch/VisualElements/SearchBSALicenseeContent.aspx

 

IMPORTANT: This is not advice. Readers should not act solely on the basis of the material contained in this article. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We, therefore, recommend that our formal advice is sought before acting in any of the areas covered in any newsletter.

This webpage is made available by Arrow White for educational purposes only as well as to give you general information and a general understanding of the law, but not to provide specific legal, tax, financial or investment advice. By using this webpage, you understand that there is no lawyer-client relationship between you and Arrow White. The webpage should not be used as a substitute for competent professional advice from a suitably qualified professional. Nothing on this webpage should be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any asset by Arrow White or any third party. You alone are solely responsible for determining whether any investment, asset or strategy or any other product or service, is appropriate or suitable for you based on your investment objectives and personal and financial situation. You should consult a suitably qualified professional regarding your specific legal, tax, financial or investment situation.

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[1] https://www.rba.gov.au/statistics/frequency/commodity-prices/2021/icp-0721.html

[2] https://www.afr.com/policy/economy/more-construction-companies-to-go-under-hutchinson-builders-20220422-p5afci#:~:text=The%20current%20crisis%20especially%20hurts,prices%20keep%20going%20up.

[3] https://www.news.com.au/finance/business/other-industries/warning-as-thousands-could-be-impacted-by-construction-company-collapses/news-story/%

[4] https://www.qbcc.qld.gov.au/complaints-disputes/preventing-handling-disputes

[5] https://www.qbcc.qld.gov.au/complaints-disputes/building-work-issue

[6] https://www.qbcc.qld.gov.au/complaints-disputes/building-work-issue/defective-work-dispute/help-defective-work

[7] https://www.qbcc.qld.gov.au/complaints-disputes/building-work-issue/defective-work-dispute/help-defective-work

Disclaimer: This publication is intended for general and informative use only and is not to be relied upon as professional financial or legal advice.

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