What did builders at Placemakers LBP seminars say were the best ways to manage the top 5 risks their businesses faced?

At the sessions in Wellington and Napier we had attendees break into groups and come up with ways to eliminate, reduce or manage the top 5 risk builders face (according to builders). The results of those sessions are below.

ONE: Customers not paying or cancelling jobs, cashflow issues and financial strain

Construction businesses are more than twice as likely to fail compared to the average NZ business. Construction companies made up 26% of all liquidations in Q2 2024 (increasing +22% vs the prior year), despite making up only about 12% of registered companies.

MANAGE CASHFLOW RISK CHECKLIST

1. Get deposits from customers
2. Use a third party to manage payments (eg. escrow)
3. Have appropriate insurance (unfortunately something that is not really feasible for small businesses)
4. Credit check new customers, check references, research them on social media and at the Companies Office etc
5. Make sure your contracts are bulletproof
6. Take payments weekly or fortnightly not monthly or on milestones – don’t leave a large payment at the end of the project
7. Have enough capital in the business to withstand short term issues
8. Communicate expectations to customers clearly and early, then regularly through the job
9. Always use CCA compliant payment claims and schedules
10. Get variations in writing every time

When should it be used

They felt these things should be done before quoting, at the beginning of every job and regularly (eg. monthly) after that.

Who is responsible

It should be the business owner’s responsibility to follow this checklist.

TWO: Illness or injury affecting the business owner

Did you know non-fatal injuries are 50% more common in small businesses? And that self-employed people are around 15% more likely to get injured than employees are?

If a business owner gets sick or injured this can significantly hamper the ability of the business to continue trading successfully.

STAY WELL FOR YOUR BUSINESS CHECKLIST

1. Prevention (good wellness practices, regular check-ups, living a healthy lifestyle – including drinking habits, diet and exercise)
2. Have a succession plan and/or trained back-up resource that can step in if needed
3. Make sure paperwork is always up to date (not just in your head)
4. Allow for delays due to illness within contractual terms
5. Have income protection and/or key person insurance
6. Set aside “rainy day income” – have good cashflow so you can ride it out
7. Ensure key staff and sub-trades have access to necessary systems (eg. store documents in the cloud)
8. Take health & safety (prevention of accidents) seriously
9. Have an up-to-date list of contact details for everyone
10. Make sensible decisions around sport and recreation activities
11. Have regular team meetings, so everyone is up to speed and communicate regularly with staff and customers
12. Have a good work/life balance and take time out when it’s needed for your mental health
13. Delegate as much as you can to reduce stress and avoid becoming a knowledge bottleneck

When should it be used

At the start of every project, daily, monthly or yearly depending on the task.

Who is responsible

They said either the business owner themselves (makes sense) or a partner, manager or 2IC to make sure it happens.

THREE: The cost of poor staff availability, reliability and competence

 According to the stats, roughly 1 in 8 workers leaves a small construction business every 3 months. Mental health-related absenteeism is rising, small businesses report a 20% increase in mental-health absences year-on-year.

Replacing an employee can cost between 50-200% of their annual wage, covering recruitment costs, training, lost productivity, and operational disruptions.

Conversely, businesses with engaged employees report up to 20% higher profits and happy staff are 12% more productive.

KEEP QUALITY STAFF CHECKLIST

1. Have a labour hire option as an emergency back up
2. Conduct proper interviewing and onboarding of new staff
3. Schedule work efficiently, so workers are in the right place at the right time
4. Make sure your employment contracts are up to date
5. Set clear expectations, company rules and KPIs and have appropriate incentives in place
6. Regularly use the same trades/contractors and build long term relationships
7. Have a quality control checklist for staff to refer to that is consistent and have same rules for all sites/jobs
8. Set clear job roles – who is managing jobs and who is managing staff
9. Have a training programme for upskilling workers, including obtaining licenses
10. Build a good culture to retain good, skilled staff
11. Ensure supervision where required and check in regularly with those that need it
12. Consider relying more on contractors than employing staff

When should it be used

Participants felt this list should be applied regularly, eg. for every new hire and reviewed before every job.

Who is responsible

The business owner, or a general manager or foreman should be responsible (perhaps for different aspects).

FOUR: The cost of fixing defective work

A BRANZ/NZIER study conservatively estimated that up to 90% of new homes contain at least one quality defect, with an average defect correction cost of about 6% of build value.

Around 68% of recorded defects were directly due to poor workmanship, with an additional 14% from omissions.

From 1998 to 2018, there were an estimated 8,800 defect-related building disputes, equating to around 2.5–3.2% of consents issued.

MINIMISE DEFECTS CHECKLIST

1. Check in with clients throughout the job and get their sign off at each stage
2. Have clear guidelines for the scope of work and standards/expectations for workers and subbies
3. Train newbies well
4. Have a good ratio of experience vs inexperience on site
5. Check in with the less experienced workers more often
6. Hire people that have the right attitude towards quality
7. Use/check the quality of subbies
8. Keep a written account of who has done what work to ensure accountability
9. Maintain long term relationships with subbies – check that they invest in training and have good quality standards and supervision of their workers too
10. Make sure you understand the limitations of your workers
11. Maintain strict quality control over products
12. Use quality tools and maintain them regularly
13. Make sure the right product is used for the right situation
14. Conduct a root cause analysis if there is an issue, to identify where it went wrong
15. Document and communicate design-related issues

When should it be used

They suggested this should be a daily task at toolbox meetings, or at least once a week.

Who is responsible

Responsibility should sit with the foreman and main contractor, but aspects of it are for everyone, including individual LBPs, project managers and business owners.

FIVE: The cost of natural disasters and bad weather

BRANZ research indicates that weather can reduce onsite productivity by 10–30%, particularly during winter months. Up to 20% of project delays in small construction jobs are attributed to weather, according to MBIE insights.

According to BRANZ, on average, weather causes 15–25 days of lost time per year, depending on region. Rework due to water damage or wind displacement can increase job costs by 5–15%.

In a BRANZ case study of cyclone-affected projects, average remediation costs due to weather damage ranged from $8,000 to $35,000 per site, with small builders most affected.

PREPARE FOR WEATHER/NATURAL DISASTER CHECKLIST

1. Conduct a proper site assessment prior to starting the job to identify any potential issues
2. Prepare site works such as drainage/run off control in the event of significant rainfall
3. Have protection measures such as covers/tents, pumps, generators and site fencing on standby
4. Have an action plan ready to go if a serious event hits, including clear communication with staff
5. Review your insurance and have a good understanding of what it covers and what is required to comply with conditions
6. Include serious natural disasters in your health & safety plans, including evacuation plans for staff
7. Have a plan for disposal of waste after a disaster
8. Have a backup plan for obtaining materials and other necessary supplies to continue work
9. Consider accessibility to site if a disaster hits
10. Secure materials and fencing and provide adequate bracing on wind exposed sites
11. Allow for lost time in your pricing

When should it be used

They felt that this should be assessed at the start of every job and regularly at toolbox meetings.

Who is responsible

It should be the responsibility of the site supervisor or a health & safety officer.

In a nutshell

There are many simple ways a building business can reduce the impact of some of the most common and costly risks they face. The biggest challenge is actually doing something about it. Checklists that are reviewed regularly and individuals that are held accountable for them are one of the most effective ways of doing so. Other ways include engaging a risk professional, such as a virtual risk adviser from Builtin, or implementing a system, such as LMI’s Continuity Coach, to manage this for you.

To try Builtin’s free Risk Audit for Construction Contractors visit: www.builtin.co.nz/risk-audit