Why Home Builders are Collapsing and How You Can Protect Yourself

The consequences of the pandemic have put a strain on our wallets; it’s something all of us have felt in one way or another. From purchasing home-school supplies right through to staggering prices of rapid antigen tests, the pandemic has had unprecedented effects on our bank accounts.   

Though we are continuing to bounce back to the comforts of normal life, the construction industry continues to feel the pressures of residual pandemic problems. With construction costs rising, several Australian construction companies have gone bankrupt, leaving hundreds of Australians in financial limbo without a completed home to show for it.  

Following continuous struggles including supply chain issues, high material costs and labour shortages, a large number of Australian companies have been forced into bankruptcy. If a builder is forced to walk away before the project is complete, the homeowner is faced with a lot of wasted money and additional costs in completing the build as they look for a new construction company to pick up the job.  

In turn, this worsens the skilled labour shortage, with many deciding to leave the industry altogether.   

There are a couple of things homeowners can do to protect themselves from being faced with this situation.   

The most important thing is to do your research thoroughly and ensure the builder you select is reputable. The goal is to find a builder who is financially robust and is therefore less unlikely to go bankrupt; settling for a cheaper company runs a higher risk of facing insolvency in the future.  

Before appointing a builder for your project, assess the financial stability of the builder before giving the green light. Perform a credit check and look into acquiring credit insurance to protect yourself. Be wary of red flags such as credit issues or if the builder has engaged in misconduct.   

It’s also essential to ensure the builder is adequately insured, given the current climate. You can speak with them and ask to see a certificate confirming liability insurance.   

It is vital that you understand and exercise your rights in this current environment. It is highly recommended that anyone about to enter into a contract with a builder seeks legal advice on their contractual documents, as this will help ensure they have the best possible protection should insolvency occur.   

Seek advice at the earliest opportunity wherever possible. Though rights may be limited in the event a company does go into administration, through seeking initial advice you will find yourself better prepared to take steps to protect yourself and investigate alternative options sooner. This will also enable you to negotiate with the developer to reach a beneficial resolution in the event things begin to go south.   

When concerns begin to arise, it’s also important to consider carefully whether the rights to terminate the contract are sufficiently broad. Is the contractor displaying genuine warning signs of insolvency (such as suspension of work by the contractor, failure to pay subcontractors or a decrease of presence on site)? Circumstantial evidence will usually be present, so it’s vital to acquire the needed advice to protect yourself.