WA company Firma Bouw goes into administration

Western Australian company FIRM Construction has fallen under administration, yet another blow to the embattled construction industry.

CEO Mark O’Gorman said the company has done everything it can to avoid the financial challenges of 2022.

The industry is facing major problems, from a sharp rise in costs to labor and material shortages that have reduced profits on existing fixed-price contracts.

“We have been closely engaged with the Treasury Department over the past few weeks to ensure our approach is aligned with how best to run our public sector projects, and we hope that this process will continue as we take steps to the company,” he said via WA Today.

“It is unfortunate that five projects awarded by the state government between July 1, 2021 and May 2022 were not eligible for any financial relief for the significant cost escalations they incurred.”

Mr. O’Gorman said administrators will try to restructure the company, which turned in nearly $100 million a year just two years ago.

“It has been our focus and priority to pay our staff and subcontractors while continuing to deliver the projects we have committed to,” he said.

“We have ensured that most of our subcontractors are protected through the use of project bank accounts – for both our public and private sector projects.”

FIRM Construction, which has been in business for 20 years, has an $80 million portfolio of properties under construction across Perth.

It was stripped of the contract to build a school earlier this week over fears it would not be ready for the 2023 school year, for which subcontractors are reportedly owed hundreds of thousands of dollars.

It has completed projects worth approximately $500 million for the WA government since 2010.

The Reserve Bank of Australia has warned of more housing insolvencies as builders grapple with rising costs.

Several large companies have already gone bankrupt in the past year, including Probuild, Condev Construction, Pivotal Homes, Waterford Homes, New Sensation Homes, Privium, Home Innovation Builders and Pindan Group.

“Overall, construction company insolvencies have increased sharply, surpassing their pre-pandemic levels and representing nearly 30 percent of all corporate insolvencies,” the RBA said in its semiannual financial stability assessment.

“More recently, the rise in interest rates has increased the cost of servicing debt for many companies, adding to the financial strain.”

The RBA warned that further increases in insolvencies were likely.

“While the direct implications for the financial system are limited because banks have very small exposures to builders, there is a chance that financial stress could spread to other companies in the wider construction industry and to some households,” the RBA said.

Builders usually offer homes at a fixed price with a long lead time, but material costs have risen by more than 20 percent since the beginning of last year.

“As such, profit margins on existing fixed-price contracts have compressed significantly and builders are now making losses on some contracts,” the RBA noted.

“Ongoing delays due to supply chain disruptions, inclement weather and illness-related employee absences have led to further cost increases and delays in meeting payment milestones.

“According to industry contacts in the bank’s liaison program, construction delays for detached homes currently average around 12 weeks – and in some cases much longer.”

Leave a Comment