Mainzeal In Receivership

New Zealand’s 3rd largest construction firm has been placed into receivership. Mainzeal is interesting because it is part of Richard Yan’s Richina Group.

Over at the NBR, the comments state the obvious : sub-contractors and employees will bear the brunt of the collapse. The secured creditors are likely to recover most of their loans and the executives at Mainzeal are unlikely to face any civil or criminal sanctions.

Putting aside the role poor management and leaky buildings played in the Mainzeal collapse, we should be concerned when large construction firms go under.

That’s because the construction sector is one of the best industries for creating flow-on work for low marginal product workers. The ~20% contraction of the construction sector since 2008 has been responsible for a whole world of hurt. It has driven a lot of skilled workers to Australia and others into insecure contract work on a project-by-project basis.

Another reason why we should be concerned with the way the construction sector operates is because it best represents the “contractor-sub contractor” model of doing business. Risk is transferred downwards while profits are concentrated amongst firms at the top of the pyramid with the most leverage.

Although Mainzeal didn’t have a major share of the market in Christchurch rebuild work, a lower number of firms operating in that market is clearly not good for homeowners.

I look forward to reading the receiver’s reports. How long until the construction sector gets the regulation it needs when it comes to payment of sub-contractors? The Construction Credit Contracts Act doesn’t help you when a company is placed into receivership.