A timely reminder to construction companies to stick to the basics

A University of Canterbury (UC) business lecturer is warning contracting companies that they should stick to the basics, even when the industry appears to be entering a boom period.

Business expert and MBA director Tony Mortensen says key factors include managing working capital, increasing the use of key information systems, attention to key legal requirements and client risk management.

``With the projected growth in the construction industry in New Zealand over the following next five years it is critical that contractors in this industry consider their exposure to risk. They need to understand how they can ensure that they do not overextend the organisations cash flows and other critical resources.

``The demise of Mainzeal, New Zealand’s biggest building group, demonstrates that even the perceived biggest and brightest companies may, in fact, be facing financial distress.

``Such issues often result in financial hardship to a wide section of the community. In Mainzeal’s case the company’s 500 plus employees were cut down to just 14 while many of the company’s customers and suppliers looked to incur significant financial losses.

``While the building industry has been through difficult trading conditions over the past five years there are some positive signs of growth in the coming periods.

``The two biggest drivers of construction growth in New Zealand at present are the after effects of the Canterbury earthquakes and the continued positive population growth in Auckland.

``However, this in itself does not always guarantee success for everyone involved as even the busiest companies can sometimes find themselves in difficult trading conditions.

``It is important that those in the construction industry stick to the basics, even when faced with the prospect of significant growth.

``This is even more critical to firms involved in the Christchurch rebuild, with a projected $40 billion to be injected over the next 10 years creating both opportunities and potential risks in the construction industry.

``The immediate concern is that an increase in the volume of work does not always transpire into guaranteed financial stability and prosperity.

``Even the best operators will have to be extra vigilant and apply sound business practices to ensure they remain financially viable throughout what will be one of the strongest economic times experienced in the past 40 years in New Zealand.’’

Mortensen’s study of the New Zealand construction climate has just been published in The Journal, published by the New Zealand Institute of Chartered Accountants.