I was flicking through The Courier Mail in Queensland recently when an article grabbed me. It got me thinking about one of the construction industry’s major weaknesses – a chain reaction which keeps hurting honest professionals, despite following a familiar pattern every time.

The article, titled Subbies on the brink, used examples of several recent builder bankruptcies to send a message. If you’re a subcontractor and the builder you’re working for goes broke before you’ve been paid, you could very easily get caught up in the mess yourself.

We operate in a very competitive market. Some companies don’t hesitate to stretch out subcontractor payments, as their desire to optimise their balance sheet sees them do whatever they can to maximise cash flow. I’m pleased to say that’s not how BADGE operates, but the reality is you don’t have to look very far in today’s industry to see that practice going on.

So when one of those companies goes bust, unpaid subbies get hung out to dry.

The impact of these events is felt far and wide – it hurts the subcontract company, their suppliers, and downstream subcontractors. It may even stretch to other builders and stakeholders of other projects, in the worst-case scenario that the subcontractor becomes insolvent themselves and they had unfinished work elsewhere.

While the financial effect of these events is significant enough, the mental health consequences and emotional toll for all parties involved is also something I have witnessed first-hand, and it is not pleasant.

It doesn’t have to be a lottery though. You can help cover yourself by taking these steps before and during a project.

  • Start with due diligence

    Before you submit an offer to a builder, investigate their finances – it’s easier than you might think. Are their financial documents listed with ASIC? If not, this may be the first sign of duress, and you should ask the builder to show you their audited financials. If you’re willing to pay a small fee, you can also request an online report from a credit agency (such as illion) which tells you if the organisation is at risk of failure or likely to stall on payments.

  • Ask some key questions

    If you want to know what it’s like working for a particular builder, who better to ask than the subbies already there? Approach the builder for a couple of subcontractor referees, and find out how happy they are with the work and the pay situation (both in the past and right now). While you’re talking to the builder you can also ask them directly what their payment terms are. The free ASIC Business Checks app is a tool you might find useful when asking questions.

  • Act on the first sign of trouble

    If you’re working on a project and issues with payment emerge, don’t just let it slide. Escalate the matter to the builder’s management as a matter of urgency.If you’ve got other projects going on elsewhere and the payment issues are impacting your cash flow, talk to the other builder(s) as soon as you can. If they have a strong balance sheet, they should be able to help you manage cash flow and keep the works progressing, which is obviously in their interest just as much as yours.

Of course this isn’t a complete guide to financial stability, but if you’re selective about who you work for, it’ll help keep your business healthy. Remember that your skills are in high demand, and you deserve to treated with respect and dignity.

And if you’re reading this from a client perspective, remember to do your own due diligence before appointing a principal contractor! As you can see, your money flows a long way through the industry – so you have the power to choose an organisation with the financial capacity to fulfil its obligations properly and keep the industry stable.

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