How to spot a financially stable Builder

Lauren O'Grady
September 9, 2022

Hi everyone,

It's hard times for the Construction Industry at the moment with many companies having to go into Liquidation.

What does going into Liquidation mean?

Liquidation is a result of a Company being unable to pay their debt and therefore having to cease operating. Liquidation converts a company's assets into cash and then uses those funds to repay as much debt as possible.

Why are more Construction companies going into Liqudation?

Price increases along with the material and labour shortages have really knocked construction companies about. Companies that run on very little profit margins don't have the ability to make up lost costs and are the one's feeling the pinch. Most (not all of them) have been volume builders but any Construction company is at risk if they don't run their business well and they don't know their figures.

Here are my 6 Tips on How to Spot a Financially Stable Builder

1. Have your accountant or lawyer conduct credit agency searches, which will outline a builder's credit history and defaults.

2. Conduct registry searches. Search ASIC records that can highlight frequent changes of ownership. If there has been a pattern of wind-up applications against the company, and if company directors have a history of directorships with failed companies this is a sign they are not financially stable. Building Companies can go into Liquidation one day and can start up a new business under a different name the next day.

3. Contact the builders sub contractors or suppliers for a reference. All good builders should feel very comfortable with giving this sort of information to prospective clients. Do they pay their Invoices on time? Do they question every Invoice and dollar spent on the project and reject price claims? If the builder continually changes sub contractors this could be a warning sign of difficulties with payment. Sub contractors won't work with builders who don't pay on time.

4. Contact past and present clients of the builder for a reference. Ask them if they noticed any issues with the builders cash flow. For example, requesting payments before scheduled progress payments were due or stopping works for a period of time without a good reason for this.

5. If the price is too good true to be true, it generally is. When quoting for your project receive at least 3 different quotes from builders. Don't go for the cheapest option.

6. It’s important that you choose a builder that is licenced, registered and insured. Definitely be wary of builders that either refuse or don’t make it clear upfront that they’re legally permitted to be involved in building and construction. Some builders’ licences or registrations may have simply expired, or they may have had their licences revoked but are still involved in the building industry. One thing is for certain – regulators are historically slow at catching dodgy builders. So, it’s good to be one step ahead. As a minimum, make sure your builder has current Public Liability Insurance and Home Building Compensation (HBC) known as Domestic Building Insurance.

All reputable builders should also hold Annual Contract Works Insurance. This is NOT compulsory but highly recommend for your builder to have. Contract Works Insurance provides cover for a number of risks, some of which are outside of a builder’s control such as fire, theft, malicious damage, storm, hail, cyclone, flood and accidental damage during construction.

Being alert and informed when choosing your builder is the best defence against engaging a possible liquidating construction company!


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