New rating tool amid building firm collapses

A new rating tool will help consumers judge the reliability of builders and developers amid a string of high-profile company collapses.

Amid a string of construction company collapses a new rating tool will help Aussie tradies and homebuyers avoid getting caught in the crisis.

Created by global rating firm Equifax with support from the NSW Government, the voluntary rating tool involves a thorough and independent review of companies’ history and risk factors.

A database of the first companies to be verified went live on Friday.

Homebuyers, along with anyone who works in or supplies to the construction sector, are encouraged to check the newly launched database for builders and developers with a proven record of quality and reliability.

It comes as another construction firm went bust this week, following the surprise collapses of giants Probuild and Condev, and reports one of the countries largest home builders Metricon was also on the rocks.

“These reforms will help protect people from physical, emotional, and financial harm, leaving those few that have been doing the wrong thing with nowhere to hide,” Head of Product and Ratings Services at Equifax, Brad Walters said.

Construction businesses can apply for a rating to set themselves apart as reliable in an increasingly murky field. Picture: NCA NewsWire / Luis Enrique Ascui

The Independent Construction Industry Rating Tool (iCIRT) gives developers, builders, subcontractors, certifiers and consultants a rating of between one and five stars.

Despite being totally voluntary to participate in, Mr Walters says the tool is an opportunity for companies that are doing the right thing to set themselves apart from the others.

So far the database lists nineteen firms that achieved the minimum three star benchmark to get on the register, with not all companies that undergo review doing so.

Post mortem analysis using the tool showed 9 out of 10 failed construction firms displayed a high-risk profile at least 12 months before insolvency.

Collapsed builder, Probuild’s iCIRT rating dropped from 2.5 stars in October 2019, down to 2 stars by December 2020 and was only at 1 star in November of last year.

Rating companies based on a range of potential risk factors can help avoid the financial and emotional fallout felt by many as construction insolvencies skyrocketed at the beginning of this year. Picture: NCA NewsWire / Damian Shaw

Soaring materials prices and a labour shortage have been blamed for putting pressure on the industry which saw demand surge on the back of government incentives during the pandemic.

Last month construction insolvencies in Australia were 47 per cent higher than the year before, according to data from Equifax.

As well as pulling together thousands of data points based on the character, capability, capital and other defining aspects of firms, the rating process looks at ownership structures, associated parties and key trading partners to create a clear risk picture.

Mr Walters said the tool would help “bolster consumer confidence amid a backdrop of challenging times in the construction industry.”

“iCIRT brings much-needed visibility to an industry where reliable, objective data has up until now been hard to come by.”

So far the tool is only being rolled out in NSW but the company said it plans to expand to other states and territories, with interest being shown in Victoria and New Zealand.