Bagrie said there was a fundamental problem across the entire construction sector. Photo / File
Bagrie said there was a fundamental problem across the entire construction sector. Photo / File
More building and construction firms are destined to fail following the voluntary administration of Arrow International, an economist says.
"You are going to see more failures within that sector, we haven't seen the last of it," said Cameron Bagrie, an independent economist based in Wellington.
"What you have at themoment is a nasty combination where the sector is basically maxed out capacity wise, access to credit is becoming an issue because the banks are looking at everything closer, and costs keep moving up.
"And if you look at some pockets of the market, particularly up in Auckland, residential property prices are falling."
There were also specific issues relating to contracts and who bears the risk, while many projects have become uneconomic, he said.
Arrow was placed in voluntary administration after a contractual dispute left it with insufficient cashflow to meet operating costs.
BDO partners Andrew Bethell, Andrew McKay and Colin Gower were appointed joint administrators.
It's understood Arrow had earlier been on the losing end of a $4.2m dispute with subcontractor March Construction, a Christchurch-based company now owned by France-based Vinci Construction.
We haven't seen the last of it, says economist Cameron Bagrie. Photo / File
"This is not the outcome we wanted or expected, but in light of a recent adjudicator's decision, we had no choice but to take this course of action," Arrow's board said in a statement.
"We have managed the tough trading conditions which have stressed the entire sector, but this unexpected result has affected solvency to the point that we could not sustain trading as we have been."
Arrow follows other firms into financial difficulty including the liquidation of Hawkins subsidiary Orange H and receiverships at construction companies Ebert's and subsequently Accent.
Arrow, one of this country's larger builders with a national spread, works on retail, commercial, Government, tourism, education, retirement sports and recreation and residential work. The company has about 450 staff and annual revenues of more than $350m.
It was founded by Ron Anderson and Bob Foster in Dunedin in 1984.
"In recent times, the construction industry has become challenging and there is a disproportionate level of risk carried by contractors," they said, adding that they wanted to work with administrators to stabilise the business.
Arrow's work includes Queenstown's new iFLY flight simulator, a $28m 18-level apartment project on Auckland's Airedale St and a $40m 21-level apartment block on Beach Rd, Parnell.
Bagrie said there was a fundamental problem across the entire construction sector.
"The margins are too narrow and there needs to be a reset. But of course the reset involves costs going up and the buyer on the other side doesn't really want to pay."
