More businesses in the construction sector, already under pressure from stretched supply chains and labour, are expected to go to the wall as public infrastructure spending surges, pushing the cost of materials and wages beyond manageable levels.
Construction-industry insolvencies jumped nearly 40 per cent in the three months to December compared to the September quarter – and were up almost 30 per cent on a year earlier – the latest data from regulator ASIC shows.
Although record-low borrowing costs and changes to improve the security of payments to subcontractors have provided some buffers to businesses, debt servicing is becoming more expensive and surging materials and labour costs will keep the pressure on companies that may have so far been shielded from the worst effects of local and global shortages.
“A tsunami of projects is cresting in 2023, at precisely the time cost pressures – inflation, materials, insurance – and competition for skilled workers are escalating for the industry,” said Guy Saxelby, chief executive and co-founder of Earlytrade, a payments platform for subcontractors.
Earlytrade lets subcontractors, who often operate on 30-day terms, negotiate faster payment in exchange for a discount on their total invoice. The company said subcontractor registrations for early payment leapt to an average of 371 a month in the last three months of last year, from 76 a month in the September quarter.
The current situation did not guarantee a string of company failures, Mr Saxelby said.
“The pipeline presents a huge opportunity but slower-burning and lingering COVID-19, input cost and supply chain pressures will create an ultra-competitive environment, especially when it comes to attracting and retaining quality trades on projects,” he said.