Probuild crash the ‘tip of the iceberg’

The collapse of one of Australia’s largest construction groups Probuild is expected to have a ‘knock-on effect’ on the broader Australian economy.

Subcontractors and tradesmen pack up their equipment and walk off the 443 Queens Street construction site in Brisbane on Thursday. Picture: NCA NewsWire/Dan Peled

The collapse of one of Australia’s largest construction groups Probuild is expected to have a “knock-on effect” on the broader Australian economy.

It also leaves in doubt up the immediate future of $5bn in Probuild construction projects across the country — including the future headquarters of global biotech company CSL, the next stage of US equity giant Blackstone’s huge build-to-rent apartment development in Melbourne, The Towers at Elizabeth Quay in Perth, the 450-room W Hotel on Darling Harbour in Sydney and a 47-level apartment tower in Brisbane’s CBD.

At risk also are the futures of more than 700 staff and thousands of contractors and subcontractors, who could be owed up to $300m.

The firm’s woes have also had an impact on major developers with Downer EDI on Thursday stating it risks financial losses of up to $30m due to Probuild entering administration.

The company says it entered into contracts with Probuild for the provision of mechanical and electrical services for the new Victoria Police building in Melbourne.

In Queensland Probuild, which recorded revenue of $1.3bn last year and a profit of just over $4m, took a $45m hit on the 47-level 443 Queen St apartment tower project.

The tower is being developed by super fund managers Cbus Property, which is understood to have approached Melbourne lawyers Arnold Bloch Leibler on Thursday to represent them.

Cbus Property did not return calls and ABL refused to comment.

The South African parent company Wilson Bayly Holmes-Ovcon (WBHO) put 18 companies within its Australian arm into voluntary administration through Deloitte Turnaround & Restructuring partners Sal Algeri, Jason Tracy, Matt Donnelly and David Orr, who have been appointed voluntary administrators.

It is the same team appointed to Virgin Australia when it collapsed at the start of the Covid-19 pandemic and was later sold to Bain Capital.

Deloitte will seek to turn the company around and sell the business either in its entirety or individual companies or groups of companies; it plans to run a national advertising campaign calling for buyers at the weekend

Probuild’s long-delayed 443 Queen St project in Brisbane was a major contributor to the company’s failure as costs ran out of control. Picture: NCA NewsWire/Dan Peled

“The Covid-19 pandemic has created challenging trading conditions for many businesses, and for WBHOA, which has also been impacted by certain loss-making projects,” Mr Algeri said.

“Our immediate focus will be to undertake an urgent assessment of the entities’ financial positions and work with key stakeholders to stabilise the business and projects where possible.

“We will assess options to preserve value, and engage closely with creditor groups and other stakeholders across the spectrum, including clients, employees, unions, suppliers, contractors and subcontractors.

“We will also be commencing a sale and recapitalisation process in order to secure a new owner for the businesses.”

WBHO pulled the pin on its Australian arm on Wednesday after citing the “level of risk versus reward’ in the Australian construction market and the depletion of resources meant the company will no longer provide financial assistance to Probuild.

WBHO also took aim at the Australian government’s “hardline approach” of managing Covid-19.

“A combination of border restrictions, snap lockdowns and mandatory work-from-home regulations for many sectors, has had a considerable impact on property markets,” it said.

Insolvency specialist Jirsch Sutherland partner Andrew Spring said it was the “sign of things to come” with external administrations set to continue to rise due to Covid shutdowns, supply problems, labour shortages, delayed projects – and poorly negotiated contracts.

“Obviously there’s an immediate concern for all the employees, contractors and subcontractors associated with projects Probuild has been involved in,” he said.

“It’s probably the tip of the iceberg. The building and construction industry has always had a high percentage of the insolvency landscape and now we will see a larger level of insolvencies which in turn will have a knock on effect to the broader economy.”

In a statement, the CFMEU said it was currently seeking information from Probuild to understand the company’s situation and any likely impact on workers.

The boss of Australia’s largest private builder Hutchinson Builders said Probuild will not be the last major construction company to hit the wall as firms undercut each other with “crazy prices”.

Chairman Scott Hutchinson said Probuild’s long-delayed 443 Queen St project in Brisbane was a major contributor to the company’s failure as costs ran out of control.

Mr Hutchinson said his firm had bid for the project but realised it could not compete with Probuild on the price. “We came second on that job but Probuild were well under us (on price),” Mr Hutchinson said.

“Costs ran out of control. Financiers are backing these projects without asking whether they have the balance sheet to complete the jobs.”

He added clients also had a role to play ensuring the price of building a project added up for contractors.

“I have spoken to other multinationals, including some in France, and they all say it is too hard to make money,” he said. “It is highly competitive and regulated.”