Amid a string of construction companies collapsing, a new appraisal tool will help Australian traders and homebuyers avoid getting caught up in the crisis.
Created by global rating agency Equifax with support from the NSW government, the voluntary rating tool provides a thorough and independent assessment of companies’ histories and risk factors.
A database with the first verified companies went live on Friday.
Home buyers and anyone working in or supplying the construction industry are encouraged to consult the newly launched database for builders and developers with a proven track record of quality and reliability.
Another construction company went bankrupt this week following the surprise collapses of the giants Probuild and Condev, reporting that one of the nation’s largest homebuilders, Metricon, was also on the rocks.
“These reforms will help protect people from physical, emotional, and financial harm, leaving the few who have done the wrong thing with nowhere to hide,” said Brad Walters, head of Product and Rating Services at Equifax.
Camera IconConstruction companies can apply for a rating to distinguish themselves as trustworthy in an increasingly obscure field. NCA NewsWire / Luis Enrique Ascui Credit: News Corp Australia
The Independent Construction Industry Rating Tool (iCIRT) gives developers, builders, subcontractors, certifiers, and consultants a rating of one to five stars.
Despite Mr. Walters participating completely voluntarily, Mr. Walters says the tool is an opportunity for companies to do the right thing to differentiate themselves from the rest.
So far, the database contains 19 companies that have achieved the minimum three-star benchmark to be included in the registry, and not all companies that undergo an assessment do.
Post-mortem analysis using the tool showed that 9 out of 10 failed construction companies had a high-risk profile at least 12 months before insolvency.
Collapsed builder, Prebuild’s iCIRT rating dropped from 2.5 stars in October 2019 to 2 stars in December 2020 and was only 1 star in November last year.
Camera IconRating companies based on a range of potential risk factors can help avoid the financial and emotional fallout many felt as bankruptcies skyrocketed early this year. NCA NewsWire / Damian Shaw Credit: News Corp Australia
Rising material prices and labor shortages are responsible for putting pressure on the industry, which saw demand surge amid government incentives during the pandemic.
Last month, Australia’s construction industry default rate was 47 percent higher than the year before, according to data from Equifax.
In addition to bringing together thousands of data points based on company character, capabilities, capital, and other defining aspects of companies, the rating process looks at ownership structures, associates, and key trading partners to create a clear picture of risk.
Mr. Walters said the tool would help “build consumer confidence against a backdrop of challenging times in the construction industry.”
“IRT brings much-needed visibility to an industry where reliable, objective data has been difficult to obtain until now.”
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 an interest in Victoria and New Zealand.
