Let them fall

Written By: - Date published: 8:00 am, August 3rd, 2018 - 105 comments
Categories: business, capitalism, economy, Economy, housing - Tags:

We’ve seen a fair few construction companies go under or get close to it recently.

It’s the right thing to happen. It’s going to happen often. And it’s the right time to happen.

Construction here, as elsewhere, is a totally cutthroat business. It’s all about stripping back costs to just under the point the client doesn’t notice, then getting them to pay for the tags. It is the most macho of industries outside of a freezing works.

But here’s why these failures are good.

1. Almost all of those companies going into receivership are those doing work for vertical construction, not for infrastructure. Their commissioning clients are large for-profit ventures mostly forming multistorey apartment, hotel and commercial buildings. This ain’t socialism.

2. The remaining subcontractors will view working for the remaining construction businesses with a much higher risk margin. Getting more discerning about taking on the work is appropriate.

Some subcontractor tradespeople may determine that being a very small business, without the protection of a union or of a large company, is not worth it. A few stalwart entrepreneurial types may try again once the bankruptcy shadow wears off. The sensible will aggregate with a larger structure and not let their skills be lost to New Zealand. Whether your collective is corporate or union, it’s a good net result.

3. There is so much infrastructure work building networks for public good rather than private gain that many such trade subcontractors will be absorbed elsewhere. That’s redirecting private gain towards public good. Good net result.

4. The state itself is gearing up to take a much stronger place in managing real estate capitalism. It hasn’t been tried for a while, and there are head-exploding risks with taxpayer money. But the net result is more housing, more public policy outcomes for people, not necessarily more exorbitant private sector profit.

(There’s also a shortage of builders for actual houses. It is now almost impossible to build a house for under $3,500 a square metre in most cities)That’s another area many such builders can go once that really gets going, and it’s right.

5. More commissioning clients will move to Early Contractor Involvement or even Alliance procurement models to work together to strip risks and cost escalations out before the digging starts. Those are well-rehearsed tools within the infrastructure and civil engineering industry, and it’s about time they were more transferred to break down constructions’ macho dick-swinging bullshit and start building trust in the commissioning client.

6. New Zealand has far, far too much capital tied up in speculative property, so failure is sending the right investment category signals. We don’t yet have a tax structure that signals that it’s not buildings and the economy of rentier capitalism that need the investment to generate fantastic and fruitful careers, products, and services. We can use this moment of consistent failure in construction to reallocate investment risk to the stuff New Zealand needs more investment in to really prosper. If this many failures were occurring in startup tech ventures next to Glidepath, Jade, Wingnut, Weta, Fonterra, or Xero, we would be feeling the appropriate blood pressure of a fully-alive innovation system. Instead we see yet another bloodletting of the real estate capitalism that strangles other sectors of investment. Don’t weep.

7. This is the right time to fail. Huge absorbtion capacity in the economy still. A slow but real alignment of the economy. Demand for housing relentlessly high. Pressure on Councils and public departments to require quality less than speed. A government growing the economy with massive redistribution, more to come, and more if needed. Failing during the inevitable recession sucks, but failure now could not be better.

Most of us have been through a few real estate boom-bust cycles. Mezzanine finance isn’t collapsing since most of them were taken out in 2007-2009. We’re being let down easy this time.

This set of failures are painful, but they are painfully sending the right signals at the right time for the right reasons.

So let them fall.

105 comments on “Let them fall”

  1. dukeofurl 1

    Residential high rise seems to be the company killer. Last week it was Canaam Construction who stopped work on some greenlane apartment towers. This week its Ebert going under completely.
    Fletcher who were involved in other sorts of projects seemed to have a problem with the ‘honesty’ of their people doing the quote preparation as they were agreeing to ‘impossible conditions’ or even a price before they knew the final detail design.

    • tc 1.1

      Tauranga cc bailing out a home builder in their lakes area on the ratepayers dime where others in and around have been left to fail……where’s the consistency.

      Those relationships are far too cosy IMO and another slug on the ratepayer where building completion guarantees should kick in. Remember those ?

      It’s a Cowboy industry still with councils far too disengaged on the end quality as regulations are quite easy on councils now who actively do less under their new planning guides while rates keep climbing.

      • dukeofurl 1.1.1

        House builders are a different situation as each house is a standalone project with one owner. often the problem there is the bank reduces their ability to access finance to continue and the builder has 5 or 6 jobs at various stages. Those can be tradie types who arent good managers or they can be other professions who buy into a franchise system.
        What was the Tauranga CC situation where they bailed out the builder ?

        • Tricledrown 1.1.1.1

          Dodgy property developer poor oversight by local council.
          Since deregulation in 1991 courtesy of National.
          We have had a patch work of under regulation and in other areas over regulation.
          These contracts for large projects are run on very tight costings not allowing for hiccups or rapid inflation for materials and labour.
          If contracts drag on because of delays which always happen then their is no room for contingency.
          The lowest price rarely gives you the best option.
          But this driving costs down business model rarely works either.
          No one especially the well off would buy a cheap car or house.
          The costs will catch up.
          Just like the National govt stealing wages out of Nurses teachers sky tower Conference centre etc.
          Cheapskate thinking for infrastructure and services is short term thinking.

    • SaveNZ 1.2

      Residential high rise and the building failures of those like leaky building, has also been a massive drain on the owners and ratepayers. NZ has created a dysfunctional building system and dysfunctional council planning and building system with huge processes that don’t work to create safe buildings and contractors can’t seem to build them to last the 50 yeas without remedial work either. Too much interest in profit Rogernomics trickle down in this industry.

      Time also that trade migrants being bought in have to pass the same courses that the Kiwis apprentices have to pass. Aka what they do to migrant teachers, doctors and nurses – the government doesn’t let them loose on the public until they prove they are of the same quality to the Kiwi standard and that is why nobody minds overseas migrant doctors and nurses and teachers to stem a bit of the shortages because they are not cowboys.

      The same can not be said for construction where there does not seem to be the same testing standards to see how qualified anybody is and if they meet a standard as well as the rise of fake qualifications and people who are just fraudsters (aka the bribes for truck and drivers licenses to be passed without sitting the test).

      Construction needs a major clean up and starting with instant fines of those building companies working against the law and not having money for subcontractors in the trust account as well as a qualification check and they have to pass it, before overseas tradies are let loose on the building sites.

      What was the point of making builders all be registered, if half the rest of the crew might be unqualified and also discriminates against local apprentices who have to do expensive courses against those that get waved through with overseas qualifications without any independent testing to make sure they meet the building standards.

      The qualifications have also created a ‘piecemeal system’ by the look of it. Instead of tradies being generalists in the building area and then going into a speciality they just have short courses that you can do say foundations without having knowledge of anything else. So there is no longer a broader knowledge with the tradies which has created a situation where one person aka the Project Manager acts to ensure the work is to standard with the council as backup. Clearly this approach does not work either.

      Still remember renovating my near new apartment and found that there was one piece of insulation – clearly they told the inspector the whole place was done and just insulated a portion that was ‘checked’. Insulation does not cost lives, but other types of scams to save money in that industry does or can ruin people who buy into buildings only to find they are not fit for purpose.

    • 4th_estate 1.3

      I work in commercial construction and from my observations it could be argued that residential highrise is the most difficult and vulnerable in many aspects, commercial is a completely different ballgame. Having said that some of those commercial projects can go spectacularly wrong also…IMHO the entire construction sector in this country is so far behind international benchmarks and so self serving that its going to take a massive disrupt-er, probably from international origins to break the hidebound paradigm the sector currently operates from…$3500 p/sqm is ridiculous even on Mars!

      • Ad 1.3.1

        Good to hear from the commercial construction sector 4th.

        I’ll figure some way to bring that rate down I’m sure.

  2. Gosman 2

    Why is it almost impossible to build a house for under 3,500 dollars per square meter and why would Construction company failures reduce that?

    • tc 2.1

      Pricing cartels and concentration in a few players who keep the framing and other essential items like roofing priced where it suits them.

      I’ve meet many architects who bemoan this as the major reason for building in NZ being far too high given our natural resources of timber etc.

    • Ad 2.2

      A few elements go into the first question, and I’m sure others can add to them:

      – Oligopoly materials suppliers
      – Really high demand for house builders in most cities
      – Increased quality of materials for architecturally designed homes following higher earthquake, heat, and building standards
      – Higher risk margins, and higher insurances for building completion
      – Increased average size and design complexity of standalone houses

      I’m not making any claim for the second question.

      • Gosman 2.2.1

        Except if House builders are making a fortune the construction companies that are going bust because of low margins would stop the low margin work and take the higher paid home construction work.

        • Ad 2.2.1.1

          That would be great.
          I suspect it will need some firm guidance.

          • Gosman 2.2.1.1.1

            Why does it need anything? Are you claiming builders in construction companies are so stupid that they are unaware that they can make far more money building houses?

            • Ad 2.2.1.1.1.1

              Even in the Christchurch earthquake crisis the state had to make plenty of major policy and procurement moves to redirect skills and capacity to the right projects.

              Markets don’t always redirect flows of people and capital in ways that society needs. I think we’re seeing that now.

              Sure, some flows of skilled people occur by themselves. And indeed a point of the post s that some definitely will, threading through this piled-up commercial wreckage.

              The construction industry is in the media – and will be for a while – seeking strong leadership from the government, but I suspect the government will only be operating the levers it requires to get to its policy ends.

              • Gosman

                Ummm… the Government didn’t advise businesses to redirect staff. They just put out tenders for businesses to fill. In essence the Government used the Market to redirect capital and labour to where it was required.

                • Ad

                  Would you like a few more policy pointers that they used, and continue to use?

                  – Immigration skill category changes
                  – Polytech changes through TEC guidance
                  – Secondary school pathway changes
                  – EQC capacity changes
                  – Regulatory changes
                  – Inter-agency partnerships
                  – Council-government partnerships in both planning and procurement
                  – Long term alliance relationships with large construction and engineering firms
                  – Alliances between private insurers, public insurers, and major contracts
                  – Over $20b worth of work, most of which is tilted to just a few businesses
                  – And more to come

                  Seriously Gosman you don’t know what you are talking about when it comes to the number and variety of instruments that governments have at their disposal. Thankfully this government is getting the hang of using some of them.

                  • Gosman

                    Yeah, most of those were about reducing government barriers to people doing what they want to do.

                    • Ad

                      What ideological horseshit.

                      Most of those in the Christchurch case were about rebuilding a massively damaged city with the required cooperation and coordination.

                      And most of them in the Auckland case are due to catastrophic decade-long market failure that has seen home ownership plummet, the city dysfunctional, homelessness skyrocket, massive home-quallity litigation and taxpayer bailouts, and massive companies go to the wall.

                      You have absolutely no idea of the relationship between the state and construction in New Zealand either now or historically. Go read a book or something.

                    • Tricledrown

                      Gossipboy we need regulations to function as a civilised society.
                      Anarchy is right up there with communism.

                • Tricledrown

                  Gossipboy.
                  So who negotiated the the sky tower contract.
                  The Canterbury rebuild $500 million wasted on dodgy house repairs.
                  By Gerry Brownlee letting a monopoly take control who picking up the Bill.
                  Sky Tower conference centre negotiated by John Key let to Fletcher a monopoly.
                  Lack of planning a failure of the completely free market.
                  Command and Control economies have a huge advantage.
                  Low and no control economies lurch from crises to crises.

                  • Gosman

                    Yet Command and Control economies constantly fail to deliver. Why is that do you think?

                    • Tricledrown

                      China gossipboy have used their command and control to take 900 million people out of poverty.
                      China can change economic settings to suit prevailing winds.
                      Democracies have a slow reaction to solutions needed sometimes waiting many election cycles before problems are dealt with
                      China has very well educated economists at their disposal who are playing the long game.
                      While Democracies lurch from election to election..

                  • Colin Espiner

                    Tricledrown:

                    There is no such thing as the ‘Sky Tower conference centre’.
                    If you’re referring to the New Zealand International Convention Centre, then John Key had absolutely nothing whatsoever to do with the negotiation of a building contract with Fletcher Construction. No politician or government agency had any input into that contract or deciding who to award it to.

                    Regard

                    Colin Espiner
                    GM Communications
                    SKYCITY Entertainment Group

            • Tricledrown 2.2.1.1.1.2

              Gossipboy.
              Monopoloys and Cartels control big business.
              Branz control products allowed to be used in all new builds and renos.
              They are not allowing overseas products on the whole.
              Then Labour costs have gone up quickly with larger construction projects they have costed labour at existing labour costs.
              But with the building boom carpenters plumbers electricians etc are leaving the big projects and going to the better paid jobs.
              Leaving the big contractor either having to pay more wages or more delays.

        • dukeofurl 2.2.1.2

          “construction companies that are going bust because of low margins would stop the low margin work and take the higher paid home construction work.”

          Thats such an inane comment. They are completly different skills. Only a small overlap of some trades like electricians and plumbers. I think even the painting skills are different

      • dukeofurl 2.2.2

        I think NZ houses have been built with a ‘wall of wood’ for some time. Earthquakes in Christchurch showed some basic existing standards werent being complied with, like no reinforcing in floor slabs, for houses on piles with a wooden floor which wasnt being attached properly to the piles and building on areas with high risk ground conditions. Certainly internal bracing of houses has improved over what it used to be
        You could see some houses the structure was not bad after the quake but the slab was split down the middle or the same with older houses with low grade ring foundations which suffered multiple failures.

        The other issue is kiwis love for a unique home, which means nothing can be standardized.
        In the 70s there was standard group houses,( largest number) individual ‘executive level’ houses ( mostly draughtsman/designer) and high end architectural with an actual architect – who would supervise as part of his fee.
        The group homes have practically disappeared and now the basic level is the ‘executive level ‘home.
        On the other hand things like frames are mostly pre built, slabs make the foundations cheaper, long run roofing is less labour intensive and plastics have taken over from ceramics for drainage reducing labour costs as they uses longer sections

        • Ad 2.2.2.1

          Agree with all of that. Plenty of us have had to rebuild old wooden houses for years.

          And to confess, I’m just starting the design process on two structures on a 1-acre property. So, general sphincter tightening all round.

          • Patricia Bremner 2.2.2.1.1

            Good luck and good wishes AD. Just a wee comment.
            Our nephew runs a building team and he had a large vehicle here in Aus. I commented and he said he encouraged his team to put their gear back in the “Truck” each evening. When I asked why he replied “Too many of the B…….s think nothing of declaring bankruptsy overnight, and the guys would lose the lot.”
            I felt for the contractors and workers on those developments that failed here in NZ. Does that rule apply here??
            That is one aspect which needs looking at if it does. IMO.

            • Ad 2.2.2.1.1.1

              The law was changed to ensure that funding was held in trust for tradespeople and their tools.

              However it’s not really enforced and only some firms keep funding aside.

              Your nephew is smart.

              • Pat

                the tools and funding are separate issues….the tools will be released in a manner that ensures ownership…I understand some of the Ebert sites have released tradies gear already. As anyone who has worked a construction site will know stuff walks …especially when the job goes down and theres a mad panic to grab what you can.

            • Graeme 2.2.2.1.1.2

              I agree with Ad.

              I got ridiculed by fellow workers, and obstructed by site management, for taking my gear home every night. Different story when we were stopped by security guards at the gate one morning.

        • greywarshark 2.2.2.3

          dukeofurl
          That businesss about wooden houses on piles – how should the piles be attached. I have seen them with no. 8 wire coming out of concrete piles and sort of tied round a joist. Is that okay,provided that the ends are hammered into the joist? Or is there a recommended beter way now?

        • greywarshark 2.2.2.4

          You could have a unique home when we built in late 60’s.. Gerard Homes in Hamilton had plans that enabled a nice 3 bedroom of about 1000 square feet on one level. You could change the design a little for the same price. I was perfectly happy with ours. It looked sufficiently different to the others. When I look at the row of 2 storey residences, all alike and filling the whole section, in one project near Karaka in South Auckland, they just look like cold up-market slums, neither homely looking, nor attractive design.

    • mauī 2.3

      Why is it almost impossible to build a house for under 3,500 dollars per square meter

      That’s capitalism and racketeering for you.

  3. Pat 3

    It is easy to sit back and ‘let them fall’ but not necessarily politically desirable….as is usually the case with these events the fallout is not worn by the perpetrators who simply form new entities and continue on, but is rather carried by those further downstream including hopeful homeowners.

    The construction industry is riven with a dearth of skill in all areas from design and finance to execution and that lack wont be solved as long as it remains unacknowledged and even then it will take years…

    Meanwhile

  4. Wayne 4

    If I took this post literally, I would end up thinking more houses will get built if more construction businesses fail.
    Seems pretty unlikely. Any sector with a lot of business failures is typically a sector in decline. And an economy in decline.
    I suspect once the current round of construction in the City Centre is complete that will be that. A whole of tradespeople people are then likely to decamp to Australia.
    Anyway, it has to take the cake as being one of the more unusual economic propositions on The Standard.

    • Ad 4.1

      Good hard capitalists and Marxists alike would appreciate mirrored creative destruction. The trick is to never waste a crisis. The follow up question is how and where workers are guided to “decamp”, which would be a useful public policy point for you post-Ministerial types.

      • Gosman 4.1.1

        If house building is more lucrative you don’t need creative destruction. The companies will naturally switch to the area where more profit can be made. The fact they aren’t suggests some other reason.

        • Ad 4.1.1.1

          Agree.

          I don’t think the signals are there for fast switching to whole new industries. But as we saw with the Christchurch rebuild, builders do come back to it if the pipeline is there.

          The Property Council has been doing some work on this and are strategising around it. I suspect they will release some of their initiatives at the upcoming Wellington conference.

    • AsleepWhileWalking 4.2

      And that will be the argument for the govt to bail them out.

      More worried about the subezs myself

    • SPC 4.3

      Decline … people are bidding for contracts with low margins and getting caught out when costs escalate (labour shortages) … does not indicate decline. But a competitive environment where there is loss of profitability.

      That can be restored with a decline in number of tenders and thus greater margin (provided this does not deter the client from going ahead with the build) to cope with possible wage cost escalation.

    • dukeofurl 4.4

      ” Any sector with a lot of business failures is typically a sector in decline. And an economy in decline.”

      What happens with larger construction companies is the skills remain with the staff and of course doesnt change with the sub contractors who remain viable.

      The new technolgy /IT sector has a lot of failures. For every Trademe that succeeded a dozen others didnt. Its only a few years but who remembers their names now.
      Even a large group like Warehouse has had plenty of failures in trying new business ventures- failed in Australia, failed with its venture in food.

    • Draco T Bastard 4.5

      And an economy in decline.

      Thanks to neo-liberalism (The failed ideology that you support) our economy is in decline.

    • Tricledrown 4.6

      Wayne you are deliberately lying.
      The construction industry is on a massive growth curb most new jobs created.
      Nationals no planning let the market sort it out.
      Has caused a constriction like in your bowels that why your full of & $it.
      National left office with 96,000 youth unemployed not training or studying.
      The building trades have been screaming out for apprentices.
      It has the same deficit.
      120,000 shortage of staff in both industries.
      You would think all Nationals NCEA and continuous testing box ticking education would have set this 96,000 cohort up for a good productive careers.
      Now couch sitting playing video gaming is what they are doing.
      Then the answer Dolittle govts like Nationals hands off BS.
      Is to import the labour without any thought to provide the housing and infrastructure required.
      It’ll be Right (wing blinkered thinking)
      The market will sort it out.
      Yet this govt was prepared to build 10 very expensive Bridges to win Northland.

      • Wayne 4.6.1

        Tricledown

        You may have noticed that unemployment has increased under the current govt. Even the current govt accepts that the previous govt left the economy (jobs and growth) in pretty good shape. Their challenge is to ensure it doesn’t go backwards, or at least keep it growing.

        Standardnistas seem to think getting a strongly performing economy is easy, but it is not. It was no accident that the NZ economy was among the best performing in the OECD in the last few years. That took a lot of detailed microeconomic reform by the previous govt.

        To be generous to the current govt, I would say the jury is still out as whether they will do as well, but right at the moment the early signs are not positive. We will know one way or the other by the end of the coming summer.

    • Prices are falling in Aus Wayne, and credit lines are tightening, so I think those builders would do better at home.

  5. Blazer 5

    Its quite clear that these business’ that are going under,are not paying the ‘going rate for talent’.
    We know how efficient the market is .
    With such a surge in demand for builders and construction projects in recent years ,one would presume competition would result in mega profitibility.
    Costs of road construction for example are quite eye-watering on a per km basis.
    It must be the Govt’s fault.

  6. Pat 6

    51. A former President of IPENZ has brilliantly stated that in the 1980’s “There were two
    queen bees in The Beehive – Treasury and the Ministry of Works and Development.
    One of them was going to be stung to death, and it wasn’t going to be Treasury.”
    52. The MOWD was tasked through legislation with providing independent economic
    advice to the Government, and with care of the state of the entire public infrastructure of
    NZ, including local body infrastructure. As a result, it was a rival to the laissez faire
    loons at Treasury, and their plans.
    53. Between 1984 and 1993, Treasury, aided and abetted by the likes of Douglas, Prebble,
    Palmer, Moore, Caygill, Richardson and Birch, visited the following devastation on the
    New Zealand construction industry:
     The MOWD was dismantled, with the ‘intellectual property’ flogged off to
    Malaysians,
     The input of the MOWD into maintaining high standards of practice was lost,
     The role of the MOWD in properly training vast numbers of engineers,
    technicians and especially draftsmen, a role that underpinned the private sector,
    was lost,
     The similar role that Government departments such as NZED, NZ Railways and
    the like played was lost,
     Highly competent design departments (which never designed a ‘leaky
    building’) at bodies like the Ministry of Education were destroyed,
     The often highly competent and very efficient Engineering and Architecture
    departments of territorial authorities were destroyed. This has severely eroded
    the ability of the territorial authorities to adequately perform their duties as
    Building Consent Authorities, and
     In an act of unabashed madness, Bill Birch destroyed the centuries old
    apprenticeship scheme, that had served this country, and especially the building
    industry, so well.

    https://canterbury.royalcommission.govt.nz/documents-by-key/20120813.4973/$file/ENG.SCA.0002.RED.pdf

    read it and weep

    • Gosman 6.1

      What particular industries benefited from all the trained workers from the NZ Railways?

      • Pat 6.1.1

        How many would you like me to list?,…both directly and indirectly every industry in NZ.

        • dukeofurl 6.1.1.1

          Same applies to the Old Post office and Electricity depts -( trained the high voltage linesmen.) Ministry of works trained draughtsmen in a whole range of specialties.

          • dukeofurl 6.1.1.1.1

            Now we have Agriculture Biosecurity run by ex policemen and a former Social Welfare clerk is head of the State Services Commision after running the Ministry of Education with novopay and hopelessly inadequate classroom rebuild program.
            Look what happened in the Ministry of Transport when a former career auditor ran it

          • BM 6.1.1.1.2

            They also trained

            Mechanics
            Metal workers
            Welders
            Cabinet Makers
            Body Builders
            Car painters
            Panel Beaters
            Whatever they call people who design and manufacture electronics

            And probably a few others I’ve forgotten about.

            • Draco T Bastard 6.1.1.1.2.1

              Whatever they call people who design and manufacture electronics

              Engineers.

              And, yes, government departments had a huge hand in developing skills and the economy. In successful economies they still do.

              Our economy isn’t doing too well.

            • Craig H 6.1.1.1.2.2

              General painters – my father was a painter who did his apprenticeship at NZ Rail. Very thorough apparently, as it included sign writing and wallpapering.

      • millsy 6.1.2

        You will find that most small businesses are run/owned by people who used to work for the NZR, NZPO, MoW, etc.

    • Venezia 6.3

      That is a very comprehensive (2012) document which blew my mind to read it Pat. Is/has anyone taken notice of, or implemented, of its many points on technical competence, safety and quality in the building, design and associated processes of the construction industries?? Or has the neoliberal machine ignored them?

      • Pat 6.3.1

        To the best of my knowledge it has been thoroughly ignored…as have his earlier submissions dating back to 2002.
        As is noted Treasury remain the sole voice within Gov. and they got what they wanted….turkeys are unlikely to vote for Christmas.

  7. David Mac 7

    In almost all of the businesses I’ve been associated with much of any profit margin is often a result of revenue streams that use up next to no resources. The money for nothing. In the building game, it costs the same to have a sparky install an F & P oven as it does an expensive Euro job. The cream in the building game is a client that specs German billet aluminium internal door handles.

    This is not the sort of houses we need. We need simple stylish door handles that work a million times without breaking. We don’t need marble bathrooms just at the moment.

    Outfits like Neil Homes, Keith Hay Homes etc, they had grand successes in the 60’s building the sort of houses we need now. Why did that happen? Can we duplicate that?

    • Ad 7.1

      There’s a conference coming up in Auckland on modular housing companies.
      But as we have seen even they can fail.

  8. tsmithfield 8

    I am a free marketeer. So, in principle, I agree. Let them fail. Failure causes pain. Pain causes change.

    But I think there is a broader question to ask. That is, why are they failing?

    When a business like this fails, often it is not only the creditors, but also the customers that are affected. I understand the government is a customer of this firm, and that the failure may impact on the government housing program.

    I think firms need to be able to demonstrate capability and good management in the tendering process, and that customers should be giving a high weighting to these characteristics rather than just going for the cheapest option.

    When these companies fail, there are a lot of innocent parties affected. So, getting the whole tendering process tidied up is essential IMO.

    • Draco T Bastard 8.1

      That is, why are they failing?

      Because capitalism is a failure as it encourages bludging by the rich.

      • Tricledrown 8.1.1

        Capitalism is failing because of poor and light regulation.
        Competition has been undermined by lack off competition monopolies and Cartels run NZ.

    • Pat 8.2

      the reasons are clearly spelt out in my link…..lack of institutional knowledge that is impacting all aspects of the industry esp.regulation, design and oversight.

      30 plus years racing to the bottom has left us in a position that may be impossible to rectify due to that lost knowledge.

    • David Mac 8.3

      They have a tendency to get corporate heavy as they grow, too many men in suits and not enough swinging hammers.

      If a little plumbing outfit takes on a full-time office lady. They’ll need at least 3 men in vans and overalls to cover her wages.

    • Ad 8.4

      +100

      It’s both changes to the tendering process, and the actual kinds of procurement process itself, that have a lot of gains for the industry.

      And fully agree with you about the amount of damage this does to actual innocent people putting down deposits for apartments.

      For big master planned sites like retirement villages I can easily see more operators self-building or going into very close long arm arrangements with constructors.

    • Tricledrown 8.5

      Tsm the free market self correcting is a myth.
      The self correcting damages the economy.
      Regulation is needed like trades pay being kept in trust.
      Having unfinished projects all over the place as has happened in recent failures.
      Is a massive waste when these projects are let, the costing and contingency should be open to building inspectors who should have quantity survey regulation as well as the physical build

      The Free market is a wild bull that needs Harnessing by regulation to make it a fair market as well.
      Adam Smith said something similar.

    • mike 8.6

      new zealanders are cheap scats and will always take the cheapest price they deserve everything they get

  9. Draco T Bastard 9

    But here’s why these failures are good.

    1. Almost all of those companies going into receivership are those doing work for vertical construction, not for infrastructure. Their commissioning clients are large for-profit ventures mostly forming multistorey apartment, hotel and commercial buildings. This ain’t socialism.

    2. The remaining subcontractors will view working for the remaining construction businesses with a much higher risk margin. Getting more discerning about taking on the work is appropriate.

    1. We actually need higher density cities and so we need multi-story apartment buildings.
    2. What makes you think that sub-contractors have such a choice? Most of them are probably struggling to get by.

    Some subcontractor tradespeople may determine that being a very small business, without the protection of a union or of a large company, is not worth it.

    Many probably already know that it’s not worth it but they don’t have a choice because the people doing the employing are only getting sub-contractors.

    The sensible will aggregate with a larger structure and not let their skills be lost to New Zealand.

    And yet the developers are complaining about lack of skills in the building industry. Also, the larger structures no longer exist so there’s large corporate or union to belong to.

    3. There is so much infrastructure work building networks for public good rather than private gain that many such trade subcontractors will be absorbed elsewhere. That’s redirecting private gain towards public good.

    It’s the same main contractors using sub-contractors. The only way that it’d work the way you think it will is if the government re-instituted the MoW and did the infrastructure build themselves as they used to.

    4. The state itself is gearing up to take a much stronger place in managing real estate capitalism. It hasn’t been tried for a while, and there are head-exploding risks with taxpayer money. But the net result is more housing, more public policy outcomes for people, not necessarily more exorbitant private sector profit.

    As long as the government uses private contractors to do the build there will be more exorbitant private sector profit. It may not be in the same areas but it will still be there and it will likely be larger.

    There’s also a shortage of builders for actual houses. It is now almost impossible to build a house for under $3,500 a square metre in most cities

    Correlation != causation.

    Just because there’s a shortage of builders doesn’t mean that that’s the reason building costs so much. My family in the construction industry have been complaining for years about the double digit inflation in building materials. Meanwhile they still don’t have the same nominal income as they had prior to 2007.

    • Ad 9.1

      New Zealand in particular Auckland does need more apartments. But time and again we have seen at the end of a boom, the shoddiest multistory stuff gets put up, mugs still buy them, then the market tanks and their mortgage is underwater and their building starts to deteriorate once the shiny wears off. GreaterAuckland has a good post up today showing that they high density drive of the Auckland Unitary Plan is working. Good as far as policy goes. But that won’t protect first home buyers from getting wrinsed in the inevitable bust.

      Subcontractors have a choice of work because there is simply more work across the building and infrastructures sector than there are actual people able to hold a hammer. There’s choice all right.

      Your next point about choice about choice and subcontractors is not true, from experience.

      The closest so far this government is getting to reintroducing the MoW is in the formation of urban development agencies. These include HLC and TRC, but there’s going to be be a bunch more in short order. They will be master planning and developing very large chunks of whole suburbs in the next few years.

      The New Zealand state has always used private contractors to build its houses. And for many decades their quality was the benchmark for durable, unexciting, practical housing.

      The reasons for building costs going up are complex. I’ve pointed to a few of the elements in other comments.

      • Pat 9.1.1

        If …and thats a big IF..we are going to seriously transition to a carbon neutral economy then this is the perfect opportunity to reinstate some form of MoW to lead in the continuous (across administration) implementation of ALL the infrastructure requirements that will entail….and led by a suitably qualified individual.

        • Ad 9.1.1.1

          I think you may be in luck.
          Or something like it.
          Check the legislative pipeline by the end of the year.

      • Draco T Bastard 9.1.2

        But time and again we have seen at the end of a boom, the shoddiest multistory stuff gets put up

        But that won’t protect first home buyers from getting wrinsed in the inevitable bust.

        Which requires adequate regulation and enforcement of that regulation as well as the developer being personally responsible for shoddy work done.

        Subcontractors have a choice of work because there is simply more work across the building and infrastructures sector than there are actual people able to hold a hammer. There’s choice all right.

        One wonders why the wages aren’t going up then. Cartel behaviour maybe?

        The closest so far this government is getting to reintroducing the MoW is in the formation of urban development agencies. These include HLC and TRC, but there’s going to be be a bunch more in short order.

        Which will just end up supporting the failure that you’re saying should be allowed, and even encouraged, to fall.

        The New Zealand state has always used private contractors to build its houses.

        And we’ve always ended up with sub-par housing that’s cold and draughty compared to the similar housing in other states.

        The reasons for building costs going up are complex. I’ve pointed to a few of the elements in other comments.

        True but in the main article you implied that it was solely due to the shortage in builders.

        • Ad 9.1.2.1

          Why wages aren’t going up is a massive thing I honestly can’t get my head around it’s so complex. The cartel behavior looks pretty close in the materials suppliers but not in the trades themselves, love them as I do.

          There’s always risk. UDA’s do fine in Australia. Most city Councils here have development arms that don’t do too badly. They don’t make much profit but the public accountability usually drives high quality.

          Yes there is a lot of taxpayer money at risk with these arrangements – that’s why this particular Minister rides them very very hard. We’ve only just formed a Ministry of Urban Somethingorother – the public machinery is thin at this point, so there’s more weight on Minsiterial oversight. He’s working on that though.

          The state-built housing from the 1940s still weathers pretty well.

          This is the only Minister coming within a bull’s roar of altering any form of capitalism at all. You don’t have to give him a break until he really delivers stuff, sure. But he’s throwing everything at it.

          We’ll expect to see a whole lot more donations from Barfoot and Thompson et al in the next electoral returns.

          • Patricia Bremner 9.1.2.1.1

            Wages, income and Contracting, always looking for cheaper providers. So wage earners and contractors get less and less.

            In Aus I was told the developer can alter the plans up to 20% during the build?
            It caused heartache for one retired couple we know. Changed lighting and kitchen ware. Plus the deck size. Perhaps that is a built in allowance against failure?

          • Draco T Bastard 9.1.2.1.2

            Why wages aren’t going up is a massive thing I honestly can’t get my head around it’s so complex. The cartel behavior looks pretty close in the materials suppliers but not in the trades themselves, love them as I do.

            The rumours coming through family just before the GFC was that the construction companies in Te Wai Pounamu had a ‘gentlemans agreement’ not to raise pay above a certain amount.

            The state-built housing from the 1940s still weathers pretty well.

            I think you’ll find that most of it is cold, damp and falling down with rot. Anecdote from family in the industry tells me that old houses are shot. Thing is – it’s been in the news as well.

            And not all old houses are state build.

            • Monty 9.1.2.1.2.1

              Do actually believe the shit you talk. “Most of it is ….” where are your facts to support that. Thinking you are just a miserable loser who hates anyone who gets a better deal in life.

              So apart from your slogans, stupid fiscal ideas and pointless crap you keep vomiting. Do you actually believe it or are you just lonely, jealous, miserable and wanting to be important.

              • Draco T Bastard

                “Most of it is ….” where are your facts to support that.

                Government must act on unhealthy houses

                Most New Zealand houses up until approximately the mid 1960s were usually extremely well built. But they were cold. They lacked insulation and were often poorly oriented for the sun. You needed to have an open fire (often in more than one room) to stay warm in winter. You bundled up even inside.

                I grew up in a big old wooden house in Wellington. We had an open fire (later replaced with gas) and electric heaters, but I still got asthma.

                And, as I say, I’ve got people in the construction industry who all say that houses in NZ are built to ‘breath’. It’s to help keep them dry but I can’t say that it works – our houses are cold and damp compared to pretty much anywhere else in the world.

                And all the rest is just another ad hom attack from the RWNJ.

            • Tricledrown 9.1.2.1.2.2

              DTB lack of maintenance and modernization by successive govts Branz recommends complete renovation every 11 yrs.
              State houses are built better than any equivalent private build.

    • Tricledrown 9.2

      Yet National bailed out South Canterbury Finance $1. 6 billion because Bling English forgot to sign the insurance renewal contract.
      Then bailed out the Hilton Hotel contract at Kawerau falls Queenstown for $500 million.
      No complaints from the RWNJ ‘s then
      Until a small editorial on the Standard
      Now saying every badly organised free market business should fail no matter how much money has been invested or the needs for the economy.
      Then all the quantative easing $20 trillion of the GFC.
      Get real RWNJ’s there is no free and fair market.
      Austerity is only for the poor. Corporate welfare is the guarantee against market failure and only the big players “Benefit”
      The rest of us get the crumbs if we are lucky.
      These projects should pay an upfront deposit which is freed up with progress.

  10. ianmac 10

    “But Building Industry Federation spokesman Bruce Kohn says in times of thin margins for construction firms, the cash those retained payments gave them – albeit in other people’s money – was enough to see them scrape through some tough times when banks were putting the pressure on. ”

    So construction firms have been using the subies “retained payments” to cover their mistakes. How sad that now they can’t!

    Alexia Russell:
    https://www.newsroom.co.nz/2018/08/02/176450/subbies-law-has-removed-buffer-for-construction-companies?preview=1

    • greywarshark 10.1

      Another way of using workers’ money is to pay monthly so that for 3 weeks workers are living on their own capital wwhile the firm withholds their wages and probably pays nothing for that, or a pittance in interest.

  11. Herodotus 11

    “It is now almost impossible to build a house for under $3,500 a square metre in most cities”
    Really has the current govt screwed things up that much ?? I am not so sure but given your statement …..
    When only Aug 17 The average cost to build was under $2000/m to build
    eg Fletchers average cost per house $285,575 for a 183m2 house = $1,560/m
    https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11913169

  12. greywarshark 12

    Well thought through Ad. Good points. There is no way we can trundle on pretending that we are a highly developed economy with highly developed building processes. There’s too much old-type old man macho thinking along those lines. Now those jerks, because they are, will be pulled up with a jerk and expect to be watched and judged for what they do.

    Years ago in Oz there was a boom in mining shares. Some of the people involved scarpered off to Brazil as i don’t think they had extradition there. I think they were the ones in Poseidon the shares of which zoomed to about $90 and luged down to under $5 and I think they were down to cents at one time.

    Reining in these so and sos rigging tenders to grab all the jobs and then hold them and fight legal battles to get what they needed all along to build the project must to come to an end.

    • Exkiwiforces 12.1

      Ah, the Poseidon Nickel Mine from the late 60’s and now known as the “Poseidon Bubble” yes a awful lot of people got burnt with that one. A similar thing happened with Andrew Forest’s Anaconda Nickel Mine in 90’s as well and it was to bite him later when he was trying to set up Iron ore mine in Pilbara during the last great Australian mining boom which was very similar to the one during the 60’s when my dad mining at the Broken Hill “The Hill” which crashed at the first oil shock.

      https://en.m.wikipedia.org/wiki/Poseidon_bubble

  13. greywarshark 13

    It is interesting to think about our Treasury bringing forth a new economic system where private companies policed themselves. Either Treasury were full of young
    uns who hadn’t heard of this heaving mining debacle with all the attendant ploys that went with it (dropping false notes purporting to be favourable shows of minerals from surveyors of the mining claims), or they went merrily ahead despite with the new flavour (old mix) of laissez faire.

    It was obvious that companies would not police themselves, and it was a great moral hazard situation. Either way, Treasury and the pusillanimous politicians in Labour who threw caution and us to the winds, could still be tried for wilfully manipulating the financial market and not husbanding our country’s business enterprise by adopting neo liberal economics. They couldn’t plead ignorance because it is a well-known standard in pleadings, that ignorance of the law is no excuse. What a fantastic lawsuit that would be.

  14. Hongi Ika 14

    Directors and management seldom held accountable for company failures ?

  15. Tricledrown 15

    Don’t forget the pilbara mine at Wittenoom George and Yampi.
    Where 1 Lange Hancock who’s family got a WW1 land parcel for returning soldiers then a £2 1/2 million hand out /up to develop the asbestos mines they never turned a profit so in 1941 Handcock sold out to CSR as they though because of the war the demand would go up for military use.
    Hancock handy payout gave him money to buy up more land and an airplane he built an airport at Wittenoom and went fossicing.
    Now Gina Reinhardt is Australia’s wealthiest person started by corporate welfare.
    Then 16,000 cases of asbestosis and lung cancer later.
    Hancock/Reinhart(no doubt had shares in CSR as part of the sale) take welfare but no responsibility.
    Julia Bishop senior minister in the lib/Nat coalition was CSR’s lawyer denying dying men, dying miserably of asbestosis. The children’s playground’ sand pit box’s were filled with blue asbestos fine dust tailings Bishop helped this corporate avoid responsibility for severely shortening young people’s lives many not making it to 30.
    Who picked up the tab for their extensive health care the taxpayer the mining companys took every possible step to avoid paying compensation or take any responsibility.
    Yet while they are in positions of high power the expect the poor to take responsibility yet can’t lead by example
    Bishops denial had no empathy just self preservation.

  16. mike 16

    new zealand is a grave yard of failed construction companies a lot like Ebert are designed to fold no assets low capitalization its a business model no responsibility . its the sub contracts who supply the working capital usually small firms with mortgages against the family home who get hurt the most. the principles of Ebert will start up again tomorrow.

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