New Zealand’s commercial construction sector has been nailed into the ground by the recession, industry chiefs say, and Mainzeal Property and Construction’s receivership came after a string of others.
Greg O’Sullivan, of Takapuna-based building consultants Prendos, says other building businesses had gone to the wall in the past three years, some of them quite sizeable.
The sector is dogged by margins which are squeezed sometimes down to 1-1.5 per cent, labour costs have been slashed 15-20 per cent and firms have had to discount wildly to secure any work, he says.
Construction Hire, Reconstruct, Reconstruct Administration Services and Reconstruct Payroll Services went into voluntary liquidation two years ago. O’Sullivan said this business was perhaps the biggest in weathertight repairs, employing dozens of people and working across many sites.
“The recession has hammered the industry to the ground,” he said, telling how some builders were forced to cut corners and even create disputes on jobs just to survive. “It becomes a very acrimonious environment. Builders are having to watch every penny to survive.”
The Construction Contracts Act – now in the process of being amended and widened so it captures residential building – had been helpful but could not solve deep-seated issues, he said.
To thrive and grow, New Zealand needed a healthy building sector.
“Mainzeal comes at a time we don’t need it. Construction is a crucial part of the economy.”
The future for more than 400 Mainzeal workers, hundreds of subcontractors and dozens of major construction projects is uncertain after the company’s last remaining director, Richard Yan, asked the firm’s bank, BNZ, to put it into receivership on Waitangi Day. PriceWaterhouseCoopers’ Colin McCloy and David Bridgman are the receivers.
Former Prime Minister Dame Jenny Shipley and two other directors, Tauranga businessman Clive Tilby and ex-Brierley chief Paul Collins, resigned from Mainzeal on December 31.
In December, one of the country’s biggest builders, Brookfield Multiplex Constructions (NZ), went to liquidators Anthony McCullagh and Stephen Lawrence of PKF in a move that frustrated those seeking compensation for leaky buildings including Orewa’s Nautilus, which it built.
David McConnell, managing director of McConnell Group and former acting chief executive of Hawkins Construction, said times had been tough for the sector but he was still surprised at the receivership.
“We’re assessing how we can assist subcontractors because there could be some that we may have exposure to, so we need to look after the supply chain,” McConnell said.
He was “probably not” interested in buying Mainzeal but had not considered this prospect.
“Where one player steps aside, another one fills the gap. You may find areas where competition reduces,” he said.
“This is not good for the industry. People will hurt. It’s been a tough three years, no doubt about that.”
The receivership left Fletcher Construction and Hawkins as the dominant firms, followed by a middle tier which included Dominion Constructors, Kalmar, Aspect, Naylor Love and ABL, McConnell said.
Master Builders chief executive Warwick Quinn said CERA modelling showed Christchurch would need 28,000 to 35,000 building tradespeople during the peak period of the rebuilding in 2014, 2015 and 2016 yet only 17,000 to 18,000 builders were available.
“People will move around in New Zealand or come from overseas and what the Government launched last week will hopefully get some apprentices over the line,” Quinn said.
He hoped Mainzeal’s 400 staff would not be lost to the industry.
“Our main hope is that the staff can stay in their existing jobs and then be redeployed in other roles because we need them for Christchurch and for Auckland.
“There’s a lot of history, expertise and intelligence which we need,” Quinn said.
He was taken aback by the receivership but said apprentices were needed and they usually entered the industry by completing a polytech course or working for a builder who received a subsidy from the Building and Construction Industry Training Organisation.
While the increased level of work was welcome, overall building activity was still quite low and coming off record low levels. Canterbury and Auckland were leading a building recovery but activity in the rest of New Zealand might remain weak, perhaps for some time, Quinn said.
Yan has been at the forefront of NZ Trade and Enterprises’ China Strategy. He once had a dream of hosting a New Zealand House in Shanghai where major New Zealand government agencies could be housed along with prime companies such as Fonterra and Solid Energy.
The downturn: Non-residential building sector value
2007 – $4.2b
2008 – $4.5b
2009 – $4.5b
2010 – $3.7b
2011 – $3.6b
2012 – $3.8b
Source: Statistics NZ, years to December