Global data and analytics firm, Equifax, has revealed that construction sector insolvencies represent the highest proportion of all cases recorded in Australia.
The data was published by Equifax through its Quarterly Commercial Insights for September 2023. Compared to this time last year, 11 per cent more insolvencies had been recorded across the board; for the construction sector, this number stood at 31.5 per cent more than this time last year.
The civil construction and infrastructure industries proved to be the most resilient of the construction sector, with only 13 per cent of companies being downgraded – a negative adjustment to a company’s security ranking – in the three financial quarters completed to date. Residential and commercial construction companies, however, were experiencing “more distress”, according to a press release from Equifax, with 23 per cent of companies being downgraded in the same time frame.
According to the press release, inclement weather and labour constraints have contributed toward project delays, resulting in longer cash conversion cycles that are pushing teetering businesses over the edge. As businesses could no longer rely on a constant cash flow, the broader supply chain – such as sub-contractors and major suppliers of raw materials – also received financial stress due to the lack of financial resources coming in despite its material resources being used, with unsecured creditors receiving less than 10 cents on the AUD when a construction firm collapses.
The issues of construction sector insolvencies can be traced back to two key points, according to the research: inadequate cash flow and trading losses. Equifax say these are the two largest causes of failure in the construction industry.
With early warning signs comes good news, however; as Equifax highlights, the ominous warning signs provide the market with a forward-looking assessment of the risk, and emphasises what the Australian Constructor’s Association has previously highlighted as the drastic need for government intervention.
News of Equifax’ research comes after the Australian Federal Government published its reviewed Infrastructure Policy Statement, highlighting the Government’s new less-is-more approach to key infrastructure projects across the country.