The building industry has always been intensely competitive which has kept margins tight. However, as we move into 2022/23 the building industry is facing a particularly challenging time as number of factors combine to materially increase the risks confronting the industry.
Well publicised international supply chain and freight issues have resulted in shortages of materials, delays to deliveries, and increases in material costs.
A shortage of skilled tradesmen and labour is pushing up trade costs and adding to delays. Continuing COVID 19 restrictions, escalating infection rates, and other residual impacts of the pandemic have exacerbated skills and labour issues.
As most building contracts are fixed price contracts builders are being forced to absorb these significant and continuing cost increases, pushing many building contracts into losses.
And that is not the end of the story. Rapidly escalating interest rates are adding to the serious headwinds facing builders for the foreseeable future.
The message, if you are a builder, is to ensure that you factor these risks into project pricing, seek to have the capacity to pass on unforeseen cost increases (wherever possible) in new contracts, and manage the pricing risks in existing projects as tightly as possible. Many builders will have to bite the bullet and confront customers with contract increases or terminate contracts to survive,
If you are a subcontractor or supplier to the building industry, be cautious about managing your financial exposure to any builder (large or small). Don’t allow your exposure to grow to the point where your business is put at risk if they don’t pay.
Steve Lloyd
March 2022
Disclaimer
This article contains information and comments that reflect the opinions and ideas of its author which are general in nature and do not take account of the individual circumstances of any specific individual or entity. Strategies outlined in this article may not be relevant to the circumstances of every reader or every entity and are not guaranteed or warranted to produce or result in any particular outcomes. Relevant laws and regulations vary from jurisdiction to jurisdiction and from time to time. Readers are advised to seek independent legal, financial or other professional advice that is current and tailored to their individual circumstances and geographic location. No warranty is made as to the accuracy and completeness of the information contained in this article. Both the author and Survive in Business Pty Limited specifically disclaim any liability or responsibility for any loss, damage or risk incurred to any party as a direct or indirect consequence of the use, application or reliance upon any of the contents of this article.
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