Donald Cant Watts Corke Director for Infrastructure, Leslie Chung, sheds light on simplifying and reducing impacts caused by contractor insolvencies and project budget inadequacies.
The unpredictable and at times erratic economy, in part caused by global impacts from COVID-19 and Inflation continues to heavily impact the construction and infrastructure industries.
The Australian Constructors Association (ACA) says the industry has seen price increases of up to 70 per cent over the last 12 months. A major contributing factor to the collapse of contracts and even some businesses. An issue for one of Australia’s largest industries.
The construction sector alone contributes eight per cent to Australia’s GDP, while also accounting for the most insolvencies per industry (ACA).
Leslie Chung, Director – Infrastructure Donald Cant Watts Corke (DCWC) says contractor insolvencies have risen, along with the growing pressures on business across the sector. More work will need to be done to quell such wavering conditions.
“Insolvency has been a pretty hot topic as of late, considering the fact that a lot of housing and infrastructure builders have become insolvent,” Chung says.
“A number of factors affect this. Economic conditions are obviously a major one, economic downturns, recessions and changes in government policy can all impact the profitability of the construction industry. And when there’s faltering demand for construction projects, firms may struggle to secure new contracts and maintain a healthy cash flow for example.”
According to Chung, these challenges are often compounded by companies who have inadequate governance and risk assessment processes.
“Construction businesses are inherently risky, due to several reasons, including financial risks whereby projects typically involve significant upfront costs, material procurement, equipment rental, and labour expenses. Delays, cost overruns or client disputes can impact cashflow and profitability. Fluctuating material prices due to inflation, currency exchange rates and economic downturns can all affect the financial stability of a construction business.
To add fire to the fuel is businesses may face project complexities: construction projects are often complex and involve multiple stakeholders. Managing these relationships, coordinating activities and addressing potential conflicts or delays can be challenging. Failure to effectively manage project complexities can lead to disputes, legal issues and worse of all foreclosure” he says.
“With unforeseeable factors, like ever changing climate change / inclement weather, contamination and more can potentially impact the projects timeline and budget. Companies which have unsophisticated management when it comes to governance and risk management can quite easily fall into insolvency due to these cashflow issues.”
The solution
DCWC helps to mitigate these impacts by providing expert consultation, both prior and during challenges for contractors and consortiums.
The company is one of the nation’s largest providers of surveying and management services across a multitude of disciplines covering the infrastructure and construction sectors.
“DCWC has been a trusted advisor for decades,” Chung says. “Since the 1960s we’ve provided trusted, strategic, accurate and high standard advice to the industry. Whether it be building our Parliament House, North-East Link and Melbourne Metro Tunnel Rail Project.”
“Within our teams we’re always aiming to contribute to the wider society to make it a better place, particularly when it comes to built form to minimise such insolvencies and project budget inadequacies.”
DCWC has advisory firm capabilities in both the private and public sector to utilise its intellectual properties, including escalation forecasting and strategic cost control services as part of its core offerings.
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DCWC also adheres to Australian and international standards and best practice, including Australian Standard 36000 Risk Management Services Guidelines.
“Contrary to some of our competitors, we avoid just telling the client what they want to hear,” Chung says. “It’s about telling them the truth and helping them to rectify the issues and challenges at hand.”
“One thing that I believe that sets us apart is DCWC’s meticulous attention to detail and unwavering support to meet global best practices. We conduct extreme due diligence on projects. Mediocracy is overrated.”
Chung attributes the thoroughness of DCWC process to its collaboration with the client.
“It is our mantra to take our clients through a journey on every project. This ranges from roll plot run-throughs through to discussing inherent risk on projects,” he says.
He adds that DCWC’s services could be considered as both qualitative and quantitative.
“We don’t just use benchmark percentages to evaluate costs on projects. We use simulated risk management services to understand the contingency fund which should be allocated to a project,” Chung says.
“Every project needs to be assessed on its own merits, and any broad brush benchmark is only a guidance.”
“The industry is slowly picking up on success stories of innovative procurement strategies and risk mitigation strategies. I think that everyone needs to be part of that journey to educate themselves, so such mistakes won’t be repeated. That’s also where we come in as advisors, to help with that education.”
DCWC’s services were recently put to the test as part of works on the Geelong Line Upgrade, Waurn Ponds duplication, Stage Two.
Utilising its experience in infrastructure projects, the DCWC team’s estimated budget for the project was within one per cent of the eventual pricing. DCWC was also within one per cent of the contracting party’s tender price on a confidential Defence project.
“We help our clients along the entire journey. We aren’t just advisors, but also equal emotional investors,” Chung says.
“We’re full of experienced personnel who’ve built projects in the past, who truly understand the importance of productivity on site and the risks involved.”
When it comes to the future, Chung says DCWC is well equipped to support its clientele for challenges that the economy will present to the industry.
“Over the next 12 to 24 months there’s going to be a lot of budget and government pressures,” he says.
“We’re continuously involved in solving budgetary constraints and the toughest issues facing our construction industry presented to us, both in todays and tomorrows market.”
This article was originally published in the June edition of our magazine. To read the magazine, click here.