News

New Zealand's current construction and housing boom presents some big opportunities for small to medium building and construction companies as a recent spike in funding applications suggests but it's a 'goldrush' not without risks and pitfalls.

 

New Zealand Director at The Interface Financial Group, Gary Wong, says the company has seen an increase in inquiries from sub-contractors in the construction industry wanting to move to bigger jobs.

"Many construction SMEs are moving out of the renovation and maintenance market characterised by domestic household customers into commercial building projects."

The development is consistent with predictions that New Zealand's construction industry is tipped to boom for another six years. Building and Housing Minister Nick Smith announced recently that *$209.4 billion worth of work is projected to be completed by 2020 much of it in housing.

"The risk is that many SME builders focus on winning the contract say to build ten houses without thinking through the implications of taking on the bigger jobs.

"In a domestic type work situation, the builder is paid on completion. In a commercial scenario, it's on approved progress claims which maybe payable on 20th month following."

Gary said it is important to remember that the company is going to have to hire more staff or sub-contract additional people and buy or hire additional equipment, not to mention sometimes funding the cost of materials.

"Payment terms for people, equipment and materials doesn't necessarily and frequently won't match the payment terms under the commercial contract.

"It can also be a change from a time and cost mentality to a fixed price based business. There are profits to be made, but the company is undertaking a lot more risk."

Implementing a robust quoting system is essential because underquoting sinks companies.

"We've seen some companies complete a contract, only to find they can't begin the next project because of delays by the developer in finalising the last payment.

"My advice is that if you're contemplating moving from a domestic customer to a commercial customer such as a housing developer make sure you have a solid plan to achieve it and the necessary working capital, or access to that working capital, that you're going to need.

"Don't underquote, avoid trying to win the job by undercutting, and plan for setbacks, like delays in getting payment," he said.

* http://www.buildersbase.co.nz/#!NZ-Construction-Boom-Tipped-for-next-Six-Years/c1kod/55c126260cf265ef515e7a54