Risky Business? Assessing Risk in the Australian Construction Sector

The construction industry is a fraught place to operate right now and researching your business relationships has never been so critical.

Historically, the industry has been subject to price volatility and supply chain problems, but recent stressors have stretched it to its limits. Global responses to the COVID-19 pandemic caused delays in production, skilled labour shortages and logistical challenges, as well as alterations to demand as workforces across the world fell under shelter-in-place orders. Then, Russia invaded Ukraine. Today, common materials, like steel or timber, as well as more complex components used in manufacturing construction vehicles, are thin on the ground.

I mention these problems specifically to highlight how challenging it is to assess these supply chains. They’re often long and affected by unpredictable international factors. So right now, if it’s not the worldwide shortage of computer chips needed for auto manufacture, it’s likely to be labour shortages, or industry bans on timber from Russia and Belarus.

This would be challenging enough on their own for a sector that relies on regular and predictable goods distribution, but there are many additional complications, too.

Part of the Australian Government’s response to the COVID-19 pandemic in 2020 was to incentivise construction, particularly in residential properties through measures like the HomeBuilder grant—a driver of demand in what is now a time of extremely limited supply. But a significant proportion of construction companies in Australia also conduct business in a relatively higher-risk way. Our construction companies do not typically enjoy a significant buffer of capital in their businesses, so when fixed-price contracts meet these supply side factors, the builders lose out.

When insolvencies are legitimate, they’re still skyrocketing towards a decade high. But the sector is also famously rife with illegal phoenix companies—that is, businesses that go into liquidation to avoid paying their debts, but which then continue operations under a new name.

It is not surprising to see how nervous people are about selecting a company to do business with in this sector right now.

But there are things savvy business owners and managers can do to protect their relationships. Consider the following steps:

  • Check if a business has a valid ABN—you can do this for free using the Australian Business Register’s ABN Lookup tool
  • Check for insolvency proceedings and make sure the company isn’t in liquidation or external administration
  • Complete a credit check and make sure the company’s still servicing its debts
  • Look in to media about the company, its owners and management, and related businesses—when it comes to news articles, no news is usually good news!
  • Look for testimonials and references, and follow them up as necessary

You can find out a lot of this information online—provided you have enough time to invest in the process. In particular, tools like the ABN Lookup and the ASIC Connect registers are invaluable in researching your business relationships.

But if you’re time poor, or you need to complete a high volume of risk assessments regularly, you are likely best served by an all-in-one service. Look for a risk management platform that aggregates data from a multitude of sources, including the biggest corporate databases in Australia, news media and government datasets.

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