A subcontractor from a troubled Build Partners’ state housing site claims he is owed “hundreds of thousands of dollars” but the company chief executive said the business had tried to be as supportive of subcontractors and suppliers as possible when price escalations caused problems.
Crown agency Kāinga Ora has taken control of four residential projects for 91 new state apartments previously being constructed by housing construction specialist Build Partners after the state agency said it was contacted by several Build Partners’ subcontractors claiming they had not been paid for their work.
The subcontractor said he hoped Kāinga Ora would pay his bills and those of many others on the project also claiming to be owed money.
He expressed great dissatisfaction with the project his business worked on and said he was left disillusioned.
Mounting bills went weekly without payment.
Patrick Dougherty, Kainga Ora construction and innovation general manager, said: “Kāinga Ora has contacted all known subcontractors and we are meeting with as many as we can this week and next to verify the information provided to us by Build Partners on the amount they are owed.
“We want to assure all subcontractors impacted that we are working with urgency to ensure they get paid, and we are establishing a plan so work continues on all four social housing developments.”
The subcontractor claimed other subcontractors had not been paid since the end of last year, and that he knew of several struggling as a result.
The man did not want his identity known saying he still hoped Kāinga Ora would pay him for work completed but if he speaks out, he fears the money could be at risk.
Steve Mikkelsen, a director of Build Partners and chief executive of its owner Property Partners, said today he anticipated Kāinga Ora would pay the subcontractors.
“When you’ve got 100 subcontractors calling you every day ... we are not a rogue contractor but a trusted partner with the Government that came unstuck because of the current situation,” Mikkelsen said.
The business had built nearly 700 new state homes, he added.
“My understanding is Kāinga Ora are going to make payments for all subcontractors and suppliers. It’s been a really, really tough market. These projects were priced a long time ago and there’s been a lot of cost escalations.
“We got to a position where we had completion problems with cash flow on these projects. This is pretty standard. It’s nothing new,” he said.
Projects were priced three or more years ago “and you can imagine in the construction business, the build process is 18 months to two and a half years”.
That created a big gap between the contract price and what it was costing to complete, he said.
“We are doing everything we can. We are supportive of the subcontractors and suppliers.”
Problems were not related to modular construction, Mikkelsen said.
The four projects which Kāinga Ora have taken control of are;
Kāinga Ora’s move comes amid the Government-ordered, Bill English-led inquiry into the state agency.
The biggest project is Build Partners’ Waterview site for a five-level project.
The 40 units are to have 38 car parks and the company expected a Homestar 6 rating on completion which had been set down for early 2025.
Build Partners’ website described the Johnsonville plot as “a classic tricky Wellington site with challenging access and multiple building platform levels required so this project will provide a combination of both modular and traditional delivery.
“We successfully won this project due to our well-considered approach to the site, community, and environmental approach and our capability in delivering a complete modular three-storey apartment building,” the business said.
The modular apartments would be “totally built and finished in our Auckland factory and transported to Wellington by road”.
“Due to the width of each module, these can be transported on a standard flat deck container truck. With a crane positioned on the road below the site, we will work with the local council and transport authority to minimise site and neighbour access issues,” Build Partners said.
Mikkelsen acknowledged the Johnsonville project “was a hybrid of modular and traditional [construction]. However, the modular component did not contribute to the financial issues on that site”.
Residential construction costs spiked during 2022 due to Covid-affected supply chain issues, as well as a boom in construction activity. CoreLogic’s Cordell Construction Cost Index (CCCI) recorded a rise of 10.4 per cent that year, higher than overall inflation which was 7.2 per cent.
But the rate of construction cost inflation has fallen since then. In 2023 the index recorded an annual rise of 2.4 per cent while overall inflation was 4.7 per cent.
CoreLogic chief property economist Kelvin Davidson said this week that supply chains had normalised while house-building activity had pulled back, easing the pressure on capacity and therefore cost growth.
“Most costs have stayed relatively stable since the end of 2023 and the CCCI has recorded no significant movement across any particular product or labour rates, which can account for up to half the cost of a new build, excluding land.”
Davidson said the return to more normal construction growth rates would benefit both builders and consumers following unprecedented industry volatility, resulting in construction costs being 25 per cent higher than pre-Covid levels.
“The industry is facing less pressure on workloads and the decline in new dwelling consents suggests this softer phase of construction activity may remain in place for a reasonable period.”
Anne Gibson has been the Herald’s property editor for 24 years, has won many awards, written books and covered property extensively here and overseas.
The store is one of the most profitable and popular in Foodstuffs' North Island co-op.