Builders advocate renegotiation of contracts while operating at a loss

Australian builders are in crisis.

The Executive Director of the New South Wales Master Builders Association, Brian Seidler, wants others to know what his industry is dealing with.

“A small business goes in to do three to four houses a year and is hit by 40 percent increases. They are absolutely bleeding,” Seidler said. A current matter.

The Executive Director of the New South Wales Master Builders Association, Brian Seidler. (A current affair)

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“We are now in a position where builders are saying, ‘We’d like to renegotiate contracts. If I get the job done, I’ll come out at a loss.’”

In July last year, the government halted all construction work in NSW for two weeks.

The ACT did the same in August, followed by Victoria in September.

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After the reopening, restrictions on local government areas had an even greater impact.

Sick leave rose to nearly 35 percent on some projects in NSW.

While Australia is not dependent on many products from Ukraine or Russia, the war has also disrupted global supplies of nickel, copper and iron.

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“We’ve had increases of up to 40 percent in steel, 35 percent in wood, but overall we’ve had a big increase in doing construction work,” Seidler said.

“We had a successful housing program from the previous federal government, so everyone wanted to build.

“So we had builders who had quotes on projects they couldn’t start for 20 months — even more — but customers said we wanted you to hold (on) the price you gave us.”

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Seidler advises builders to negotiate with their customers, but he admits there is no easy solution.

“Every new contract we now tell builders to do a ‘cost plus’. That means it’s a cost to you, plus a percentage. Any costs that are increased are automatically passed on to the customer,” Seidler said.

But the banks want to know exactly how much they have to lend customers.

The average construction cost in Australia now exceeds $400,000.

The cost of building a home has increased by more than $76,000 in a year.

Builder Richard Achram of InHaus Living. (A current affair)

“Our customers have been loyal to us all along, so we can’t just keep raising prices,” says InHaus Living builder Richard Achram.

“So we have to take part of the hit too.”

He seeks the right balance between keeping his customers happy and keeping his head above water.

“Twenty percent on a bathroom or a house — it’s a lot of money for some people. There are other methods of reducing that, by changing materials and just getting smart,” Achram said.

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Unprecedented rainfall has increased the pressure, with contracts allowing for extensions of time but no cost.

This perfect storm has hit builders in all sectors.

Construction on Sydney’s IMAX theater and W Hotel has come to a halt following the demise of ProBuild.

Gold Coast-based company Condev Construction was liquidated earlier this year.

And Australia’s largest homebuilder, Metricon, has been forced to deny it’s in financial trouble.

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“The subbies and the builders are screaming for materials, the suppliers don’t have them and then the owners want their house built for the same price they were quoted for,” Nine’s Scott Cam told me. A current matter.

He is one of many builders who struggle to obtain materials.

“Bricks for example, some people will know what they are, just a little bit of metal that binds your frame to your masonry. We can’t (get them). I just hope we can survive,” Cam said.

Even Nine’s The block feels the pressure.

“We’re running out of materials, but we have a business budget that we can work towards and we can get extra money,” Cam said.

The Block host Scott Cam. (A current affair)

“But if you’re a mom and dad at home, that’s actually a really tough position to be in, if you’re doing a little reno that you’ve been saving for and your materials have increased by 30 to 40 percent.”

So will we see more builders fall?

“It’s about how they can hold up for the next six to eight months, and then I think until things start to level off,” Seidler said.

Economist Chris Richardson agrees.

“Building will get better, but it won’t be obvious until they start charging you more for a renovation or rebuild. Probably half a year before that becomes apparent,” Richardson said.

Economist Chris Richardson. (A current affair)

“COVID has changed the economy in many ways and those big waves will take time to settle down.”

Until then, it will be especially difficult for small businesses, which make up 95 percent of the construction industry.

“All we ask is that customers be aware that there are significant increases,” Seidler said.

He said that if a contractor starts a job but then falls over and has to get another contractor to take it over, two things can happen.

“First, the price will reflect higher rates, and second, the inbound builder usually has to pay a premium because they take on the liability of the previous build,” Seidler said.

He advises clients to “renegotiate and be reasonable”.

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