The challenges for builders

The recent wave of highly publicised insolvencies has cast doubt over all Builders; the issues of some causing all to be tarred with the same brush. This doubt has led to ever increasing scrutiny on Builder finances but ultimately, Developers know that they can never be sure; even Builders with great reputations are not immune to external market forces.

Tendering is competitive & without a key differentiator, assessment of bids is largely based on cost, requiring margins be kept low at the best of times. But when you’re competing against Builders who have no intention of making a profit on the project, you’re unlikely to be considered unless you’re prepared to match them with margins that leave you highly exposed.

When you’re working under a fixed price contact on narrow margins, any cost escalation hurts. It doesn’t take much to turn a profitable project into a loss-making one, but Developers and Lenders can be reluctant to help, questioning whether any shortfall is truly due to current market conditions impacting their project, or a case of Builder mismanagement.

From providing financial information during due diligence to signing stat decs with every claim, Builders are already operating under various checks & balances, essentially being asked to ‘prove’ what they say is true. The problem is, none of these processes allow definitive verification & some Builders are willing to falsify responses, meaning all Builders (including the honest ones) are subject to the same risk-mitigating payment terms.
 
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