New Government guidelines aim to stop tide of construction firm collapses

The Government is warning construction companies they need to stop undercutting each other if the industry is to stop the tide of financial collapses.

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New Government guidelines come into force this week to try and help construction companies stay afloat. Source: 1 NEWS

New guidelines come into force on Tuesday to try and help companies stay afloat.

Economic Development Minister Phil Twyford told 1 NEWS the Government would take a different approach to its contracts, which make up 18 per cent of the market.

"Government agencies have got to look at the financial health of the companies that they're dealing with," he said.

"They've got to look at the lifetime value of the building, not just the upfront price, but the running costs and the quality of the building and the health of the building and the health and safety of the workers," he said.

"A smarter approach to the negotiation of contracts which will mean that the risks and the costs are all transparent, they're out there and upfront in the negotiations."

It comes after work on a Housing New Zealand development stalled when Stanley Group went bust earlier this month.

It has left sub-contractors like Team Cabling Limited, one of 100 possible creditors, feeling ripped off.

Team Cabling director Dave Burt welcomed the Government's move due to the "immense" financial impact Stanley Group's collapse has had.

"It's really incumbent on them to have a leadership role in procurement, making sure that companies have the financial ability to be able take on a project of that size and certainly also to have the technical capability," he said.

One of the reasons Stanley Group gives for its collapse is the underpricing of three major Housing New Zealand projects.

Chair of the Construction Industry Accord, Peter Reidy, said there were lots of examples in the industry of construction firms, architects, engineers, government and private agencies entering into contracts where they were not clear of the risks.

"Both private and Government sector are looking to see what they can do to build a more productive, healthy construction sector," he said.

It's hoped private companies will follow the Government's lead. Mr Reidy said he had already heard of "two or three various companies that have looked to change their contract conditions to try and get a better, fairer risk allocation".

But Mr Burt said sub-contractors were also crying out for reform of the retention system. That law requires companies to hold funds aside in case companies go under.

"They're not holding the money in trust, and so therefore once the business is gone, that's it. Subcontract funds - they're wiped out," he said.