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Half of all construction businesses will fail within 4 years

Figures show over half of all construction businesses will fail within four years.

Demand for independently insured builders guarantees expected to grow in 2014.

A leading provider of independent guarantees to the building sector is expecting strong demand in 2014 as changes to the Building Act come into effect. 

The Building Amendment Act 2013 was signed into law last month and will require all building contractors to disclose certain information to their clients before a contract is signed.  There will be substantial penalties for failing to do so and, whilst the specific detail of these disclosures is yet to be finalised, it is likely that the builder’s ability to provide an independently insured guarantee of their work will be one.

Builtin New Zealand, which administers the Homefirst Builders Guarantee on behalf of the Certified Builders Association, believes the new disclosure regime will increase public awareness of the benefits of having an independent guarantee and increase take up rates.

Ben Rickard, Marketing Manager at Builtin, says the industry is a volatile one, with tight margins, many small, unsophisticated businesses and very price focussed customers.  “Figures from Statistics New Zealand show that over half of all New Zealand construction businesses will have failed after just four years.  And 75% will have failed within 10 years.  Building with a well known housing franchise may give you some additional protection, but no group has been immune from individual franchisees failing.”

An independent builders guarantee protects homeowners in the event their builder is unable to complete the contract, or return to remedy defects, usually because the building company has gone bust.

Members of associations like Certified Builders and Registered Master Builders can provide third party guarantees to their clients, backed either by a licensed insurance company or the association itself.

Builtin are also warning Christchurch homeowners to brace themselves for problems in the future, as poor workmanship is exposed. “The challenge for homeowners now is that insurance companies are controlling the purse strings, but the contractual & legal liability for the actual work sits with the building contractor.  If the insurer doesn’t allow for an independent guarantee within their costing, the homeowner, unless they pay for one themselves, may have no recourse if their builder can’t be found when a problem arises.  And legislative protection, such as the implied warranties contained within the Building Act, is of no use if the responsible party is no longer trading or can’t be found.”  The risk of defects is also likely to make prospective buyers much more wary and make homes with an independent guarantee even more attractive to purchasers.

Builtin New Zealand Limited are specialists in independent guarantees and insurance for the construction industry. 

ENDS

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