Ebert Construction's collapse unexpected but no surprise

4:23 pm on 1 August 2018

Analysis - Another one bites the dust.

Highrise construction generic, multistory building generic, construction generic

Photo: 123RF

The booming construction sector has chewed up another building firm and left another group of accountants to tidy up the mess.

The collapse of Ebert Construction Ltd was unexpected, but it is no surprise that another company has succumbed to the same pressures that have done for a host of small builders and severely wounded a giant such as Fletcher Building.

The company's receivers at PricewaterhouseCoopers say a handful of poorly performing projects in the Auckland region have hit the company's finances, with substantial increases expected in the costs to complete those projects.

The construction sector has survived on the slimmest of margins and a familiar theme in all of the horror stories is the rise in risk, and who ends up wearing the consequences.

In most cases it has been the builders paring their margins to the bone so they could put in a cheap fixed price offer for a job, only to be hit by rising labour and material costs, and changes to the design by the developers.

Builders big and small have chased jobs and signed up to contracts years ahead of the start of the project. In such circumstances trying to anticipate future material costs, labour supply, and potential delays has been like throwing a dart at a board, blindfolded, with the lights off.

Fletcher Building lost the best part of a billion dollars on major construction contracts in the past two years and spoken of quantity surveyor estimates (the people who tot up how much it all should cost) being as much as 100 percent wrong. It's survived because it was a big conglomerate with deep pockets, accommodating banks, and other profitable businesses to give it cash flow.

But others have not been so lucky.

Mainzeal collapsed in 2013 with a full order book, Orange H Group folded in May blaming rising risks and thin margins Steel and Tube was forced into big writedowns and losses.

A British expert warned in March that Fletcher Building's woes would be seen again.

The irony is that the government last week released a National Construction Pipeline Report projecting national building and construction activity for the next six years - "More certainty in construction sector smoothes boom and bust cycle" was the headline on the statement from the Minister of Building and Construction, Jenny Salesa.

Too late for Ebert Construction, and probably a few other firms as well.

Get the RNZ app

for ad-free news and current affairs