Two prominent construction companies, Ebert and Maven, bit the dust this week in the midst of what might just be New Zealand’s biggest construction boom, and the response from recruiters encompassed everything from panic to sick glee (and, thankfully, sympathy). Meanwhile industry experts remind us that these weren’t the first to lose money (Fletcher Building, anyone?) and warn they won’t be the last.
The biggest question thrown around seems to be: Just how do established construction companies go bust during one of the biggest construction booms we have ever seen in New Zealand? The answers are multi-layered, and point to some fairly major problems with the industry as a whole. More often than not, jobs are sold to the lowest bidder with lowest price trumping competence every time. A recipe for failure, and one that will hark an eerie sense of deja vu for any recruiter. How often do we scrimmage over one or two per cent, only to lose out to a cut-price consultant who goes on to perform poorly and further damage the wider industry’s reputation?
Working to fixed price contracts in multi-year projects is of course problematic for construction companies in far more ways than accepting a contingent role at a lower fee is for recruiters. In recent times construction costs have risen anywhere from 10-20% per year, and with some projects taking two or more years to get started, there could be as much as a 25% increase in costs before work even begins. Couple this with unrealistic timeframes, poor cashflow, low equity, a lack of staff training and a shortage of qualified people, and the holes quickly reveal themselves. Economist Cameron Bagrie this week pointed out that’s not even all of it – “You’ve got issues in regard to regulatory burdens. You’ve got issue in regard to the availability of workers. Within the Auckland residential market, you’ve got to go up, you’ve got to go out. You’ve got issues in regard to infrastructure. You’re opening up Pandora’s box. It’s one hell of a big list.”
The domino-effect could be devastating. Employees affected have families, mortgages and bills to pay. Sub-contractors are left owed thousands, some in the tens or even hundreds of thousands – Ebert’s receivership alone could be crippling for a whole load of subbies nationwide. The construction sector has survived on the slimmest of margins and while there remains an abundance of work about, doubts are rising as to just how that will all be addressed – and what the cost might be along the way.
The irony, as reported by Gyles Beckford for Radio NZ, 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.
As it stands, there are still plenty of roles advertised for Construction recruiters (including our own) that are littered with references to the “booming sector”, “lucrative industry” and its “excellent money making potential”. And this remains true – but for how long? And in the big scheme of things, do we really care? My thoughts right now are simply with those affected by this recent fall-out. It’s an excruciating blow, the ripples of which will be felt far and wide. I felt shocked just to read about it, so dread to think how utterly devastating the news is for those directly affected. I sincerely hope we as an industry can pull together and help wherever possible with grace, humility and care.
Be your best selves, recruitment fam.