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The devastated boss of collapsed Gold Coast homebuilder Pivotal Homes has blamed a blowout in building costs for the company’s failure, warning that fixed-price building contracts are putting undue risk on contractors in the current ‘perfect storm’ for the industry.
Pivotal Homes has been placed into liquidation with 103 homes in various stages of construction. They are among 177 homes the company has in train for clients, with the balance yet to start construction.
Speaking on behalf of company owner Michael Irwin, lawyer Derek Cronin of Cronin Miller Litigation says Pivotal Homes faced the same pressures that brought down fellow Gold Coast builder Condev Construction earlier this year.
“It’s been a perfect storm for the industry and the main drivers (of the liquidation) were the realisation by Michael of potential insolvency due to the rapid increase in pricing, particularly that associated with local trades,” says Cronin, who also acted on behalf of Condev.
“He couldn’t anticipate the cost of a brick rising from $1.20 to $2 in the space of nine months or that the council would take an extra six weeks to come back to them (with approvals) because half of their team would be out of action (with COVID) during the process. This has been principally driven by not only COVID, but the shortage of supply of trades and labour.”
Pivotal Homes operates predominantly on the Gold Coast with houses also under way in Brisbane and the Sunshine Coast. However, Cronin says the company has gone into liquidation with ‘cash in the bank”.
“Michael is obviously devastated. He has 16 staff, and he had a staff meeting yesterday to tell them their jobs will be lost.
“I have known Michael Irwin since 2008. Like Condev, he has been paying his bills on time, and he hasn’t been stretching payments out. He came to this decision early. He has paid his staff up to date and literally has had sub-contractors paid on a weekly basis.”
Cronin concedes creditors could still be owed more than $2 million, although this is still subject to investigation by liquidators Chris Cook and James Robba, of Worrells. Most of the debt is expected to be owed to suppliers.
Customers with homes still under construction will be able to access the Queensland home warranty scheme administered by the Queensland Building and Construction Commission.
Cronin says fixed price building contracts will continue to expose home builders to elevated risk in the current inflationary environment. He says Irwin understandably describes the industry as ‘broken’ and that he wants to shine a light on the emerging problem.
“The builder carries all the risk of a fixed-price contract, and they generally provide for liquidated damages if deadlines aren’t met,” says Cronin.
“Traditionally the risk had been with the homebuyer who could get ripped off by a builder. Legislators have since focused on rewriting contracts to ensure they are watertight with a fixed price that wouldn’t allow a builder to hold a customer to ransom.
“The question is, in the current conditions, is the risk being carried appropriately by the builder?”
The collapse of Pivotal Homes adds to heightened awareness of the crisis facing the construction industry.
The Australian reports today that the NSW government is finalising a rescue package for the state’s building industry and potentially customers of construction group Metricon which has been subject of rumours that it is also under increasing financial pressure.
The rumours escalated after the unexpected death of Metricon founder and CEO Mario Biasin earlier this month, although acting CEO Peter Langfelder denies the company is in dire straits and that it is ‘business as usual’ for the group. Metricon, Australia’s largest homebuilder, has about 4,000 homes under construction.
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