Lockdown will 'kill' construction companies, 'unless Government acts'

Thursday, 26 March 2020

Cranes all over Auckland stand motionless during the coronavirus national lockdown. Many sub-contractors will not be strong enough to survive the loss of income.

The Government needs to use its financial muscle to save the thousands of small and medium-sized construction companies from going broke during the coronavirus lockdown, a construction boss says.

Rick Herd, chief executive of giant construction company Naylor Love, said Government needed to underwrite current construction projects of commercial buildings, high-rise apartments, hotels, malls and office blocks.

With the projects on hold, thousands of subcontractors like electricians, roofers, plasterers, glaziers, steel-workers and plant hire companies, which typically had weak balance sheets were threatened with going broke as their cashflow had dried up.

'My expectation is a number of these will collapse over the next few weeks, and more even, if the shutdown is extended,' Herd said.

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In the two previous financial crises New Zealand suffered - the 1987 sharemarket crash and the global financial crisis a decade ago- the construction industry was devastated, and took years to recover.

Herd called on the Government to consider underwriting the vertical construction industry as an addition to its Covid-19 economic stimulus package, saying unless it did so, there would be substantial job losses and loss of capability in New Zealand's vertical construction sector, which builds schools, hospitals, civic and commercial buildings.

'A huge opportunity exists for the Government to even further protect the economy against the impact of the Covid-19 virus,' Herd said.

Underwriting the construction sector would save jobs, preserve essential skills, and ensure key infrastructure could be built and ready to use when the economy started to recover, he said.

The Government's recent pledge for $12 billion of infrastructure spending had been welcome, but was slanted towards roading projects.

Building contractors, including subcontractors, worked on low margins and high cashflow, Herd said.

'Disruptions to cashflow can be disastrous,' he said.

'We will almost certainly see many small to medium vertical builders and many subcontracting organisations failing over the next few weeks, unless government can focus on this subsector and provide incentives to keep the current pipe line of work pumping.

'Having projects guaranteed would also give confidence to small and medium sized sub-contractors to hang in there and stay in business, keeping their skilled staff employed,' he said.

'If the Government is prepared to underwrite the finances for that work, our industry can continue to build important structures such as the upgrade of the Queenstown and Auckland Airports; universities can continue with their new building plans; and important new tourist amenities – which will be needed in the future – can get built now so they are ready for the recovery,' herd said.

It would also give confidence to private organisations to continue with the billions of dollars' worth of projects that might otherwise be put on hold until the economy becomes more certain, he said.

'We know from previous experience of New Zealand's boom-and-bust construction industry that, once lost, these skills and businesses can take years to get back, which in turn has a dampening effect on our ability to build crucial infrastructure, and on the economy,' Herd said.