Wellington developers are insisting peoples' homes will be finished and their money is safe despite the company building the projects being put into liquidation.
An Armstrong Downes Commercial project, The Paddington, sits unfinished. Photo: RNZ / Angus Dreaver
Grant Thornton liquidators says the company Armstrong Downes Commercial had been suffering substantial losses from fixed price contracts on two of its biggest projects.
It has eight projects under way in the capital including work on schools, and a multi-million dollar revamp of Frank Kitts park on the waterfront.
The liquidators said it comes at a time of spiralling costs, procurement challenges, and labour shortages.
It was a shocking start to the week for hundreds of Wellington tradies - turning up to work to find themselves locked out.
Developer Kevin Melville contracted the firm to build 40 apartments in former commercial space in Lower Hutt.
He said he recently gave the builder $600,000 to go on contractor wages.
"We tried to work with [Armstrong Downes Commercial] and we offered them a lifeline, we offered to help their cashflow situation, we offered them more money but they didn't take it.
Melville said he would finish the $15m project which was about three-quarters done.
But he said the liquidation would leave him substantially out of pocket, and he felt terrible for the subcontractors stuck in the middle.
"I mean we will try and work with each subbie, and we'll probably end up paying each subbie twice."
RNZ understands word about issues with the company started circulating on Armstrong Downes sites last week, and that some subcontractors did not get paid.
Promises were made their money would come through this week.
Photo: RNZ / Angus Dreaver
Meanwhile, a person who has bought a property in the Paddington development being built by Armstrong Downes is gutted about the situation and did not know what was going to happen next.
The $130m project to build 150 terraced houses on Taranaki Street is being developed by Thames Pacific, and its owner Stephen Sutorius is reassuring people their money is safe.
"There's no risk on the buyers with this liquidation of the construction company for us moving forward on this project.
"We're in a good financial position and well supported by the banks and our financiers where we can actually go on and complete the project."
Sutorius said it paid Armstrong Downes more than $1m late last month which was supposed to go to subcontractors, but none have got a cent.
"A lot of these guys live hand to mouth and they will be struggling to put food on the table or pay their staff."
Sutorius said his company would complete the build themselves, and was looking to rehire all of the subcontractors and builders on the site.
He hoped the project would only be delayed by a few weeks, but it could ultimately cost the company millions of dollars.
The liquidators said the sites would only be closed for a short time, and that contractors would be able to get their tools back soon.
The construction industry is facing thorny problems including supply chain issues from the pandemic, spiralling material and wage costs, and inflation.
The Paddington, a $130m project to build 150 terraced houses on Taranaki Street, s being developed by Thames Pacific, whose owner says the project is going forward despite the Armstrong Downes liquidation. Photo: RNZ / Angus Dreaver
Fixed-priced contracts' time is over - industry
Construction Industry Council executive director Graham Burke said he was not surprised to see a company fold citing fixed-price contracts and expected others could follow suit.
He said the time of fixed-price contracts was over.
"In this current climate we would suggest that contractors don't sign up to fixed-price contracts, it's just too much risk.
He said for some specialist materials it was not possible to get fixed prices that last for more than a few days.
RNZ has approached Armstrong Downes for comment.
The Ministry of Education said the first it knew of issues was when the liquidation notice was published by the Companies Office.
It said it was working to understand the implications for ministry projects.
Wellington City Council, which has contracted the company for the Frank Kitts Park playground redevelopment, said it was waiting for information from the liquidators.
The liquidators will release their first report on the company on Friday.
Master Builders chief executive David Kelly was concerned there may be more liquidations to come. "You'd like to think not, but sadly history tells us that this is the case," he told Morning Report.
"The really important thing for... big or small contractors over the next 18 months is to focus really strongly on the bottom line - what is their cashflow like, what are their margins - and don't give away the margins.
"Sadly, what's happened in the past is that when there's a downturn people start to chase the work and underprice it so that has a snowball effect." - Master Builders chief executive, David Kelly
Kelly said the most important problem for contractors was the delay in the supply of materials, because when subcontractors could not do to their work without criticial products, cashflow started to dry up.