Pivotal director warns other ‘big builders’ face collapse as ‘gouging’ pushes construction industry to edge

The managing director of the collapsed Gold Coast building firm Pivotal has warned other “big builders” face insolvency, with skyrocketing costs of construction and “price gouging” compounding an industry-wide problem. 

Pivotal, which has built more than 1,500 homes over 15 years, was placed into liquidation on Thursday, following other major firms such as Condev and Probuild earlier this year.

Managing director Michael Irwin said the combination of floods, building material price hikes, high demand for labour and COVID disruptions gave him no other choice.

“This is a bigger picture,” he said.

“There are other builders, big builders, out there at the moment that are in the same position that we were.”

Pivotal, which employs 16 people, has 103 houses under construction, with work yet to begin on 177 more.

Home dreams dashed

32-year-old Sam Huth said he signed a build contract with Pivotal in May 2021 and hoped to begin construction in December when the land settlement was finalised.

But Mr Huth said construction never began and that three weeks ago he signed off on a $12,000 build variation for the site’s slab.

“Then on Monday I received a call from them going ‘we’re going to send you through another variation’ and it was $93,000,” he said.

Mr Huth said he was unsure what he would do next but that the $5,000 deposit has probably been lost.

“There’s no point, I bought it 12 months ago with a contract that said that we were going to get a build for this much money,” he said.

“I’ve taken out my ($325,000) mortgage with the intent of that, with a little bit of variation obviously because things happen in builds, but I’m not going to be able to go back to the bank and say ‘hey, I need another $100,000.”

Mr Huth said the dream of owning his first home has been delayed, and that instead he will sell the land and find a new rental property.

“For me to be able to build the same house now would cost $100,000 more at least,” he said.

‘Price gouging’ and fixed contracts

Mr Irwin said pandemic measures such as the HomeBuilder scheme fuelled high demand within the construction industry.

But because homes are built on fixed-price contracts, firms such as Pivotal have been forced to absorb the rising costs of materials and labour.

“We used to see price increases once a year in January,” he said.

Mr Irwin said the pay rate for bricklayers had jumped by 100 per cent over the past 12 months, while the cost of carpentry had increased by 44 per cent.

“That adds thousands of dollars to the cost of a house and with a fixed-price contract, the two ends just weren’t going to meet,” he said.

“Rather than keep trying to wing it and go forward I had to make the really hard decision.”

But Mr Irwin said some tradespeople had been “gouging the prices and putting them up” beyond what was necessary.

“Because there’s such a shortage of trades out there, it comes back to demand and they can demand what prices they want if you want your houses finished in time,” he said.

“We supply everything, they just turn up on site.”

A ‘domino effect’ for builders

Mr Irwin said Pivotal’s staff would have their entitlements paid out, that his suppliers had been paid and that any other outstanding debts would be resolved “over the next week or so”.

Derek Cronin of Cronin Miller Litigation, which is acting on behalf of Pivotal, said he has seen an increase in inquiries from the building sector.

“The company will have significant creditors,” he said.

Mr Irwin said “this week was the turning point”.

“Do I take the responsible position yesterday and put the company into liquidation knowing my staff would be paid in full, knowing all the accounts were up to date,” he said.

“Or do I keep on going and wing it, which you can’t do but other builders probably are.”