This article is from the Australian Property Journal archive
THE impact of COVID on supply chain issues, materials costs and labour shortages in the construction industry have brought down another company, with Western Australian FIRM Construction falling into administration, leaving $80 million worth of under-construction Perth projects in limbo.
Administrators will attempt to restructure the 20-year-old business, which was turning over nearly $100 million a year two years ago.
FIRM has completed about $500 million worth of projects for the WA government since 2010. It was stripped of a primary school building contract last week over concerns it would not be ready for the next school year, while subcontractors are owed hundreds of thousands of dollars, according to WA Today.
It had three more government contracts for construction projects, and it is also building the new Metronet Bayswater station.
“We have been closely engaged with the Department of Finance in the past few weeks to ensure our approach is aligned in terms of how best to deliver on our public sector projects, and we hope that process will continue while we are taking steps to restructure the company,” FIRM director Mark O’Gorman told WA Today.
“It is unfortunate that five projects awarded by the state government between 1 July 2021 and May 2022 did not qualify for any financial relief for the significant cost escalations they incurred.”
O’Gorman said the impact of COVID on supply chain issues, labour shortages and material price increases had placed pressure on the company’s operations and finances, as had cost escalations on all private sector projects as well as government sector contracts signed in mid-2021.
Other projects under construction include high-rise residential towers in Nedlands, Mount Pleasant, Applecross and Cannington.
“Paying our staff and sub-contractors while continuing to deliver the projects we have committed to has been our focus and priority,” O’Gorman said.
Supply chain issues have eased and are expected to be less problematic in the next 12 months, although one in three small to medium enterprises construction businesses are still reporting supply chains as a “significant” issue for their business.
The Reserve Bank of Australia noted last month that construction company insolvencies have increased sharply, exceeding their pre-pandemic levels and accounting for close to 30% of all company insolvencies.
This year has seen major developers and builders including ProBuild, Multibillion-dollar developer Caydon Property Group, and Queensland builder Condev.
“More recently, the increase in interest rates has begun to raise debt-servicing costs for many firms, adding to financial pressures. Further increases in insolvencies are likely,” the RBA warned.
“While the direct implications for the financial system are limited because banks have very small exposures to builders, there is potential for financial stress to spread to other businesses within the broader construction industry and to some households.”
Activity across Australia’s construction industry contracted for a fifth consecutive month in October under the weight of supply-side constraints, and further declines are likely in the coming months as interest rates continue to rise. Construction costs remain the key driver of inflation, which has hit 7.3%.
