Construction insolvency in Australia: reining in the beast

Abstract

Insolvency has become endemic in the Australian construction industry. The scale of the problem has reached such proportions that both the NSW Parliament and the Senate have, in recent times, commissioned inquiries into construction insolvency. This paper aims to identify the reasons as to why the construction industry is so susceptible to insolvency, evaluate the effectiveness of any existing insolvency protection measures available to construction firms, and to identify proposed future measures to address the factors causing construction insolvency. The results of a questionnaire survey designed to discover the extent of the construction insolvency problem, as well as building contractors’ views with respect to the causes and regulation of construction insolvency, in South Australia are presented. The research found that there is an appetite amongst building contractors for the introduction of further regulation to address construction insolvency. Further, although the research found underbidding to be the biggest contributory factor towards construction insolvency, it appears to be the most difficult factor to address through regulation which explains the paucity of recommendations which directly address underbidding emanating from the Senate inquiry in 2015.

Keywords

• Construction insolvency
• underbidding
• security of payment
• phoenix companies