In recent years, Perth’s building industry has faced significant challenges, with several high-profile builder collapses leaving homeowners with unfinished projects and financial losses. Understanding how to assess a builder’s financial stability before signing a contract is crucial for protecting your investment.
The Current State of Perth’s Building Industry
Perth’s construction sector continues to navigate challenging conditions. Supply chain disruptions, material cost increases, and labour shortages have placed considerable pressure on builders’ cash flow and operational viability.
Several factors currently affecting Perth builders include:
- Fixed-price contracts signed during lower-cost periods
- Material price increases of up to 20-30% on key building components
- Extended project timeframes affecting cash flow
- Labour shortages driving up wages
Warning Signs of Builder Financial Distress
Identifying potential issues early can help you avoid engaging with a builder at risk of collapse. Look for these red flags:
Delayed Construction Progress
When builders face financial difficulties, they often struggle to maintain consistent work schedules. Watch for:
- Minimal activity on site for extended periods
- Frequent excuses for delays without clear explanations
- Subcontractors refusing to return to site
Communication Breakdown
A sudden change in communication patterns often signals underlying problems:
- Difficulty reaching your builder or supervisor
- Delayed responses to queries
- Defensive or evasive answers about project timelines
Quality Compromises
Financial pressure can lead to cutting corners:
- Substitution of specified materials with cheaper alternatives
- Rushed workmanship
- Reluctance to address defects
Supplier and Subcontractor Issues
Listen to what others in the supply chain are experiencing:
- Subcontractors complaining about late payments
- Materials being delivered COD (cash on delivery) rather than on account
- Multiple different subcontractors cycling through the same trade work
How to Conduct a Builder Health Check
Before signing a contract, perform these essential checks:
Financial Stability Assessment
- Request audited financial statements or evidence of financial stability
- Check their registration with the Building Services Board of WA
- Verify their home indemnity insurance coverage
Company History Review
- Research how long they’ve been operating under their current business name
- Check for previous companies operated by the same directors
- Look for any history of liquidations or phoenixing activity
Current Project Inspection
- Ask to visit current building sites
- Speak with current clients about their experience
- Observe the quality of work and site organisation
Reputation Research
- Check online reviews across multiple platforms
- Search for news articles or industry information
- Verify membership with industry associations like Master Builders or HIA
Legal Protections for Perth Homeowners
Understanding your rights provides an additional layer of protection:
Home Indemnity Insurance
All residential building work in WA valued over $20,000 requires home indemnity insurance, which provides coverage if:
- The builder becomes insolvent
- The builder dies
- The builder disappears
- The builder’s registration is suspended for failing to meet a building remedy order
This insurance typically covers:
- Up to 20% of the contract value to complete the home
- A six-year coverage period from the building permit date
Contract Safeguards
Include these protective clauses in your building contract:
- Detailed payment schedules linked to specific construction milestones
- Clear definitions of what constitutes practical completion
- Provisions for independent assessment of work quality
- Specific timeframes for completion with appropriate penalties
Strategies to Minimise Risk
Beyond due diligence, consider these practical approaches:
Engage a Building Broker
A professional building broker can:
- Assess builder financial stability using industry knowledge
- Negotiate stronger contract terms
- Provide ongoing project management and oversight
- Intervene early if issues arise
Structure Payments Carefully
- Minimise upfront deposits (legally capped at 6.5% in WA)
- Ensure progress payments align with actual work completed
- Hold back appropriate retention amounts until defects are addressed
Document Everything
- Maintain detailed records of all communications
- Photograph construction progress regularly
- Keep copies of all variations and changes
When to Seek Professional Help
If you notice concerning signs, act quickly by:
- Consulting with a building lawyer about your contract rights
- Engaging an independent building inspector to assess work quality
- Contacting Building and Energy (WA’s building regulator) for guidance
Conclusion
While no assessment can guarantee complete protection against builder insolvency, conducting thorough due diligence significantly reduces your risk. By understanding warning signs, implementing protective strategies, and knowing your legal rights, Perth homeowners can navigate the building process with greater confidence.
For personalised guidance through the builder selection process and ongoing project management, contact Better Way 2 Build. Our experienced team can help you identify reputable builders and provide oversight throughout your construction journey.
