Choosing a Builder That Won't Go Bust

By Damian Pearce, Pitcher Partners

The consequences of engaging a builder that collapses, or simply ceases trading altogether, are severe to owners. Engaging a new builder can result in cost blowouts and significant delays in construction.

Even with home warranty insurance in place, the insurer will take time, possibly months, to engage another builder and to undertake assessments, identify defects and consult with the collapsed builder's appointed insolvency practitioner regarding the contract's progress. Their liability may also be capped, leaving you with an excess payment.

In extreme situations, owners can bear the brunt of aggressive creditors, such as suppliers and contractors, sometimes resorting to illegal activity such as entering the property to physically remove fittings and installations. The owner may have already paid for these items but the builder will not have paid the supplier.

The best way to avoid this situation is to avoid engaging a builder that may be financially distressed. When choosing a builder, there are warning signs to look out for:

  • Check the builder's history and conduct reference checks i.e. contact former clients and sub-contractors from the builder's last few projects. If your proposed builder's contractors are new, this could be a warning sign of difficulties with previous contractors.
  • Have your accountant or lawyer conduct credit agency searches, which will outline a builder's credit history and defaults.

Your accountant or lawyer can also:

  • Conduct registry searches: Searching ASIC records can help highlight frequent changes of ownership, if there is or has been a pattern of wind-up applications against the company, and if company directors have a history of directorships with failed companies. Business name searches with Consumer Affairs can also flag problems, including complaints made against a company.
  • Conduct a court file search, which can highlight court actions and judgements.
  • Check that the registrations and qualifications of the builder are current.
  • Review the building contract, check that you understand the reason behind any departures from a standard contract, and help you understand your rights and obligations should the builder collapse.

Being alert and informed is the best defence to getting burnt by the collapse of a builder.

For further information, please contact Damian Pearce or David Vasudevan from Pitcher Partners on 03 8610 5000.