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ARTICLE · 12 JULY 2019

Building failure in the construction industry: understanding and mitigating the downside

KordaMentha
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The construction industry is disproportionately represented in insolvencies, so developers should be aware of the risks.

AustraliaReal Estate and Construction
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Our team of Real Estate and Restructuring experts discuss the time and cost implications of replacing a builder due to the incumbent falling into external administration, and the early warning signs to look for to help mitigate these risks.

The construction industry is disproportionately represented in corporate insolvencies, representing 23% of all external administrations despite accounting for only 8% to 10% of the national GDP.

Developers, with their finely tuned feasibilities, assume considerable counterparty risk when entering contractual relationships with contractors who are entrusted to deliver their projects on time and on budget.

Whilst a large proportion of construction insolvencies are experienced at subcontractor level, it is when a head contractor falls into external administration that the full effect is felt on the profitability of a development project.

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