The failure of large Christchurch-based builder Corbel Construction over a leaky Auckland apartment repair highlights wider sector issues and more builders could well fail, a lawyer predicts.
Jeff Walters of Auckland's K3 Legal said it came as no surprise to him that the builder which had $35 million of work on in Auckland had gone into liquidation "and it's all part of a trend I've been anticipating."
Derek Firth, an Auckland commercial barrister, is also worried about contractors "bidding on silly terms" and predicts the sector will split into the financially sound contractors and those weaker, less well resourced.
Ebert Construction's collapse in June, Mainzeal directors in court last month and Fletcher's nearly $1 billion losses from a division where construction is held have all highlighted issues in the sector and he is worried.
Trouble arose at Alexandra Park where Canam left one of the two big apartment blocks, replaced by CMP Construction. Other Auckland apartment projects have been cancelled.
Construction sector annual inflation running at around 10 per cent, a drastic skills shortage and under-bidding have all been blamed for sector issues. Expected completion of SkyCity's NZ International Convention Centre and Precinct Properties' Commercial Bay have been delayed.
Walters said more construction firm failures were on the cards and the latest trouble was just the "tip of the iceberg".
He is blaming the construction boom, saying builders and subcontractors are over-stretched, making mistakes, suffering cash flow problems and taking on too many risky projects. Extremely low unemployment and the loss of apprenticeships schemes were also taking a huge toll on the sector.
Statistics NZ said in the year ended October 2018, non-residential building consents were $6.8b, up 4.5 per cent from the October 2017 year.
Andrew Oorschot, Corbel's liquidator, said the firm went into voluntary liquidation at shareholders' behest and he indicated it was due to Parnell Terraces' troubled $24m-plus repair.
"The directors have advised that as a result of an unexpected adverse adjudication ruling in relation to a project in Parnell, Auckland, they were not satisfied that the company will be able to meet its obligations as they fall due and they have been left with no option but to put the company into voluntary liquidation," Oorschot said.
Corbel had six projects in Auckland and Christchurch and had stopped work on them all, he said. Oorschot is assessing all the remaining jobs. All 13 Corbel staff were notified and will be paid their full wages and holiday pay, he said.
Walters said others in the construction sector were showing signs of stress.
"The inability of a contractor to provide a bond is a good indicator they are financially stretched there can be resourcing problems and there's no-one on the building site, no
one supervising so small problems mushroom and the cost to the contractor starts piling up," Walters said.
Margins are too small compared to risk on a construction project with all its variables, he said.
"Construction is a cash-in, cash-out business and there's just no headroom if things go wrong. People are then forced to cut corners and inflate claims. In an industry that's notoriously full of risk anyway, the risk is also often unfairly allocated, especially under government contracts, or risks are not investigated or mitigated," he said.
Ross Meikle, Corbel's chief executive until October, left the firm but denied to the Herald a few weeks ago there were issues.
Corbel took on one of the country's largest leaky buildings: repairing the extensively damaged 81-unit Parnell townhouse complex Parnell Terraces on The Strand in Quay Park. But the business left that job many weeks ago.
Finance documents indicate the BNZ has security over Corbel along with Carters Building Supplies, Fletcher Steel, Fletcher Building Products, Placemakers Riccarton, Christchurch Readymix Concrete, Portacom New Zealand, McKechnie Aluminium Solutions and Southern Hospitality.
Corbel said last year that it had $35m of projects underway in Auckland and was expanding in the North Island.