Construction hit looms as PBS creditors blow out to $40m

The industry will see more collapses as supply chain problems linger and costs rise.

The Curl development at Bokarina on the Sunshine Coast, a project by PBS which announced it was entering voluntary administration on Tuesday.

Tough times appear set to continue in the construction industry, with the administrators of the collapsed PBS Building revealing a blowout in creditors to around $40m.

The national construction company abandoned its projects across the nation earlier this month and called in administrators RSM Australia, who told the first meeting of creditors last Friday the estimate of money owed had jumped from $25m.

The higher than expected sum came after a series of construction failures as builders are caught out by rising costs at the same time that they are hamstrung by fixed price contracts.

Some turnaround experts believe that this model is gradually changing but have also warned there will be more administrations after they all but dried up during the pandemic as governments put in place support measures.

Deloitte partner Richard Hughes said that conditions were only just starting to normalise after a long period of cheap money. He said debt was now more expensive and companies were dealing with disruption in the wake of Covid-19.

“We certainly see it as being challenging on the basis that the structure of the industry is generally fixed price contracts,” he said. “But you’ve got costs which move up with inflation … and then you have delays in projects because of supply chain disruptions.”

He cited pressure from both materials and labour.

Deloitte partner David Orr said that labour supply was one of the biggest challenges. “The demand for skilled labour, especially in that engineering space and the construction space in general, is very challenging and we can’t see a solution anytime soon,” he said.

Mr Hughes said that builders were asking for cost-plus style contracts and trying to get away from fixed cost models, but they faced the difficulty of investors and homeowners wanting fixed costs.

“It’s pretty hard to get to cost-plus contracts so there’s a bit more of a shake-out in the supply chain to happen,” he said.

About 180 PBS creditors were updated on the company’s operations across the ACT, NSW and Queensland.

RSM Australia Partners Jonathon Colbran, Richard Stone and Mitchell Herrett took control of the companies on March 7. Mr Colbran said work was being restarted on seven of the 24 PBS project sites.

“This includes five of the eight active projects in NSW, one of the 11 ACT projects and one of the five active Queensland projects,’’ he said. “The 17 other projects that were also in various stages of construction are also advancing towards a resolution.”

A further 56 projects that PBS companies had been contracted to deliver have been completed and are now in a defect liability period.

More than 1,000 secured and unsecured creditors are owed about $40m. This did not include PBS’s 180 employees who were made redundant and were paid out their entitlements in full before the administrators were called in.

Mr Colbran said the estimate of money owing would continue changing throughout the process while the administrators assessed the merits of the incoming claims.

At a planned second meeting, creditors will vote on whether to put the companies into liquidation or enter into a deed of company arrangement. RSM Australia will report to creditors in mid-April.

The Queensland Building and Construction Commission will concurrently undertake a compliance audit of PBS‘ Queensland project trust accounts.

Originally published as Construction hit looms as PBS creditors blow out to $40m