In the wake of the Stonewood Homes collapse a number of specialist insurers are urging all building subcontractors and trades to take out insurance to protect themselves from the cost of such an event.
Builtin New Zealand, a boutique insurance provider that specialises in cover for builders and tradespeople, introduced their Subcontractors Payment Guarantee in the wake of the collapse of Hartner Construction in 2001. In February 2013 Mainzeal Construction collapsed, leaving subcontractors out of pocket to the tune of around $70m. Last month and almost three years to the day since the collapse of Mainzeal, Stonewood Homes NZ, along with its Christchurch franchise, were placed into receivership, owing an estimated $15m to unsecured creditors, including hundreds of subcontracting firms.
Builtin’s Marketing Manager, Ben Rickard, says these large, high profile collapses are the tip of the iceberg and that dozens of firms go bust every year leaving their subcontractors unpaid for work done. Two other regional Stonewood franchises are currently in liquidation, along with at least a dozen other building companies nationwide. “It may seem counterintuitive but there’s as much risk of a building company failing during the boom times as there is during a downturn, and Stonewood is a prime example.” Customers are given a very competitive fixed price, but if the project is delayed, as they can often be when tradespeople are in demand, costs continue to rise to the point that the builder isn’t making any money on that contract. “This is just one example of the ways building firms can get into trouble, sometimes through no fault of their own. But irrespective of the cause, it’s their customers and subcontractors who end up suffering.”
So how do subcontractor payment guarantees work?
Put simply they're a form of insurance that is taken out on an annual basis. If your main contractor becomes insolvent and you have a written contract, it will pay 75% of the money owed to you, up to your chosen maximum limit per year. Simple aye!
How much does it cost?
The cost of working for months and not getting paid for it is easy to work out. What’s harder is knowing how that will affect your cashflow and ability to pay your own staff and suppliers. Compared to this, having payment guarantee cover in place is a good investment in managing the risk of a major bad debt affecting your business.
Premiums start from $380 + GST per year, depending on the amount of cover you need.