More construction companies will fold this year as lock-in contracts leave builders unable to pass on the rising cost of labour and supplies, the Master Builders Association warns.
Two Queensland firms, Privium and BA Murphy, went into liquidation just before Christmas, with customers and subcontractors waiting to find out how much, if anything, they will get from the wash up.
Liquidators FTI Consulting told the ABC that Sunshine Coast-based BA Murphy owed almost $11 million to about 550 creditors.
The company's 30 employees were owed more than $400,000.
BA Murphy also had 50 unfinished building projects across Australia, including 21 in Queensland, 18 in Victoria and about 11 in New South Wales.
Meanwhile, the final amount owed by Privium is likely to be more.
The company has 831 unfinished contracts around Australia and records show a $28m loss in the 2020 financial year.
Sunshine Coast regional manager for Master Builders Queensland, Nicola Scott described the collapse of BA Murphy as "absolutely devastating".
She said the prices of supplies, from timber and steel to plumbing and tapware, had risen substantially over the past 12 months amid increased home building demand globally.
"I think it would be a miracle if somebody wasn't affected by that, because they're continually having to absorb the cost," Ms Scott said.
Last year, the Master Builders warned the new year could be a tipping point.
Ms Scott said the association was counselling stressed builders who were trying to pay their subcontractors.
She fears other building firms will follow Privium and BA Murphy this year.
"I don't think the new year is going to bring some wonderful miraculous change where it's a brand new year and it's all going to be rainbows and whistles," Ms Scott said.
Push for project bank accounts
Subcontractors around Australia who are owed millions of dollars on building projects want to speed up the implementation of changes to protect them when builders go bankrupt.
From January 1 2022, new rules mean project bank accounts must be in place, where deposits for works worth more than $10m are held in a trust account to pay workers if the builder is unable to complete the project.
From January 2023, projects worth up to $1m will require project bank accounts.
But these changes will not protect plumbers, scaffolders and others working on medium and small projects like the individual houses constructed by BA Murphy.
Les Williams was owed nearly $700,000 for earthworks when construction giant Walton collapsed in 2013 and he now lobbies for subcontractors around Australia.
He fears many will be left short if more building firms go under.
"[Subcontractors], on average, do 80 per cent of the work," he said.
"In the case of builder insolvency, subbies and suppliers get nothing in the wind up."
Mr Williams said when COVID-19 hit in 2020, he argued that builder insolvencies "would explode" and that the rules for project bank accounts needed to be brought forward.
"We also argued that the $1m threshold was too high and should be lowered to $200,000 to cover residential builders," he said.
"To be frank, I would not like to be operating in the industry at the moment.
'Addicted' to fixed prices
Lawyer Stephen Burton deals with builders trying to adjust or get out of contracts.
As a partner in the Construction, Infrastructure and Projects Group at Holding Redlich, he said he was seeing a growing number of builders struggling with prices of supplies and labour.
"In the short term, anecdotally, what my clients are saying to me is that those pressures around supply of materials and cost of materials is continuing, if not getting worse," Mr Burton said.
"In terms of the builder insolvencies, and I don't see that getting any better … I do see real risk that this is going to get worse over the next six months."
Mr Burton said customers getting building work done needed to be open to paying more than the initial agreed price rather than have their builder go insolvent before finishing the project.
"What we are seeing is an industry that really is historically addicted to fixed prices," he said.
"Whilst it's good to get things for a good price … it's worse to have a builder go insolvent in the middle of your job, because that creates a whole raft of other complications."
Collapse felt throughout community
Ben Murphy's Mooloolaba-based company BA Murphy had supported charities and helped build Australia's first live-in eating disorder clinic, now known as Wandi Nerida House, on the Sunshine Coast.
STEPS Charity managing director Carmel Crouch said the "highly respected" BA Murphy Constructions had also organised subcontractors to donate their time and build the STEPS Pathways College for people with disabilities.
"Ben and Amanda Murphy, you know … are the most amazing people to be contributing to charities like ours," she said.
Ms Crouch said she was concerned about future fundraising without the generosity of builders and subcontractors.
"I think there wouldn't be a charity anywhere – I don't think in Australia, let alone on the Sunshine Coast – that wouldn't be very worried about the amount of incredibly good businesses that are actually caught up in all the COVID issues that have happened," she said.
