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Builders running businesses – it’s never been more challenging

Michael Chesterman
Michael Chesterman October 17, 2018

I know a number of licensed builders that are either personally running a business or an office bearer of a company (‘licensees or builders running businesses’) and struggling to cope with a rapidly changing industry. Some are seriously considering exiting the industry much sooner than they originally planned.

In terms of the laws and requirements being imposed on builders in an article entitled ‘I have just about had enough, I am getting out of the building game’ I outlined the frustrations in this regard of a friend of mine who has been successfully running a building business in regional Queensland for several decades.

For a vibrant, sustainable and profitable industry, there has to be healthy (not cut-throat) competition amongst builders and it would be tragic if in the future there are just a few large builders.

I have a lot of empathy for builders trying to cope with the unprecedented number of emerging industry issues. At the same time, I am also frustrated with the business shortcomings of some builders.

Having empathy for the challenges facing builders does not mean I am prepared to ignore their mistakes and missteps. Builders should always be held accountable for their actions when they fail to meet their obligations and responsibilities.

While I am focusing on builders running businesses in this article, this should not be construed in any way that I am dismissive of the enormous challenges facing subcontractors doing likewise. I will address this matter in a subsequent article along similar lines.

Outlined below are 16 insights concerning characteristics of builders, the challenges facing them running a business and their capacity to deal with these challenges.

These insights are a combination of:

  • factual information;
  • referenced material with a final proposition arrived at, as a result of intuition on my part; and
  • the dissection of key licensing statistics with commentary.

All these insights are the result of me having a comprehensive understanding of the industry as a result of working for the building regulator over a 22 year period.

Insight 1 – individuals holding a builder licence

According to the QBCC 2017/18 Annual Report, there are 26,593 individuals that hold a builder licence in Queensland. This figure includes an unknown number of company nominee and site supervisor licensees. Aside from these two categories of licensees, all other individuals hold a builder contractors licence which means they are legally entitled to run a building business in their own name.

Insight 2 – individuals running a building business

A significant number of individuals holding a builder licence do not run a building business because they:

  • hold a trade contractor licence (e.g carpenter licence) and are working or carrying out a business under these licences;
  • are doing other things of a non-industry nature; or  
  • retired.

In the above instances a number of these individuals have elected to retain their builder licence for ‘just in case’ reasons. Also the failure by a builder to renew their licence will result in its cancelation and should they wish to become licensed again at a later date, current licensing criteria will have to be satisfied. This can be extremely problematic for older builders who initially got licensed under very different requirements.

Insight 3 – companies holding a builder licence

There are 8,733 companies that hold a builder licence. To be granted a licence of this nature there has to be an individual in the company (office bearer or employee of the company) that holds an appropriate nominee licence. This is to ensure that there is an individual in the company that possesses the necessary technical qualifications.

Insight 4 – companies running a building business

Other than the retired reason outlined in Insight 2, the same reasons apply. Furthermore a significant number of large companies only hold a builder licence to protect them on the odd occasions they may be required to carry out building work as defined under the QBCC Act.

An example in this regard is a civil contractor, not legally required to be licensed to perform works of a civil, engineering and infrastructure nature but may occasionally be required to carry out a minor amount of building work under a contract. To protect their payment rights in these contractual situations many civil companies have very wisely decided to become licensed.

For the purpose of this article I am not going to consider them to be builders running businesses because their operations are almost exclusively based on performing non-regulated licensing work.

Insight 5 – builders running a business

Taking into account everything I stated above, I am of the view that 25% of all individuals that hold a builder licence are currently running building businesses, namely 7,170 and 75% of all companies that hold a builder licence are currently running building businesses, namely 6,550.

Based on these assumptions there are approximately 13,720 builders running businesses in Queensland in 2018.

In a report compiled by CSQ and the CSIRO (CC report) entitled ‘Are you ready for change?’ it is stated that there is 71,000 business of all types operating in the Queensland industry. Therefore this building businesses estimate of mine would appear to be reasonable.

Insight 6 – licensee financial information

Based on information as at 4 July 2018 outlined in a discussion paper entitled ‘The proposed improvements to the Minimum Financial Requirements for licensing in the building and construction industry’:

  • There are 70,825 licensees subject to meeting these requirements.
  • There are nine financial criteria, eight of which are available to licensees who hold a builder licence. Self Certifying 1 (SC1) criteria, of which there are 25,674 licensees and allows for a Maximum Revenue (MR) $200,000 is not an option for licensees who hold a builder licence. These licensees are typically small trade contractors.
  • Licensees running a building company will not be extensively represented in the most popular licensing financial criteria, Self Certifying 2 (SC2) (33,895 licensees) because the allowed MR is only $600,000.
  • The vast majority of licensees running building businesses will be licensed under criteria categories 1- 4, where category 4 allows a MR of $60,000,000. There are 10,712 licensees in these financial criteria but this figure will also include trade contractors.   
  • 544 licensees are subject to financial criteria categories 5-7. While there will be a number of large licensees running building businesses operating under these criteria, there are certainly not this number. Insight 3 explains the reasons for so many large companies electing to become licensed but who I do not consider for the purpose of this article to be builders running businesses.  

Insight 7 – licensing age of builders

In the CC report it is stated:

“According to the Queensland Building and Construction Commission (QBCC), in 2014 the median age of licenced bricklayers was 52 years and builders was 53 years, while carpenters were among the youngest with a median age of 35 years.”

This situation would not have altered to any extent since 2014 and therefore I am of the view that the median age of an individual holding a builder licence in 2018 will be 53.

Insight 8 – age of builders running a business

The above licensing median age will not be reflective of the median age of builders running businesses because I believe that the majority of the 75% of individuals currently holding a builder licence but not presently running a building business (see Insight 4) will be older licensees.

Therefore I believe that the median age for builders running businesses will be between 35 (median age for an individual holding a carpenter licence) and 53. For discussion purposes I am going to conclude that the median age for a builder running a business is 45 in 2018.

Insight 9 – gender

Information outlined in the Department of Jobs and Small Business website on employment characteristics (August 2018) for carpenters and joiners (no builder category) indicates that only 0.2 % are female.   

Based on this statistic I believe that this situation would be reflective for builders and therefore in 2018, approximately 99.8 % will be male.  

Insight 10 – business management

Unfortunately for a number of reasons, many builders have come through the education, training and licensing system ill equipped to deal with the complexities of a modern and rapidly transformational industry. They were granted a contractors licence without receiving sufficient education and training in business management.

A detailed analysis of the causes of failures in the industry by John Murray in his report entitled ‘Review of Security of Payment Laws’ (annexure c) identifies various deficiencies in business management skills and knowledge as significant contributing factors in this regard.

Insight 11 – CPD

The need for builders to stay up to date with emerging industry developments and issues has never been a mandated requirement for them to demonstrate on renewing their licence each year. I do not expect that any form of licensing CPD to be introduced in the foreseeable future.

Insight 12 – business requirements and protections

In 2018 and looking forward, builders running businesses will be required to understand and comply with an extensive and ever increasing amount of requirements and protections.

I would encourage readers to take a moment and look at information of this nature as outlined in a building and construction industry fact sheet. It is staggering the amount of information and knowledge builders running businesses are required to know.

Insight 13 – current client challenges

In 2018, at age 45, builders running building businesses will be largely dealing with clients from three generations, namely baby boomers (ages 54-74), generation X (ages 39-53) and Millennial generation (ages 24-38). The characteristics of each generation are very different and this will present challenges for them.

For example an article entitled ‘Experts predict build-to-rent revolution coming to Australia’ outlines that millennials are the driving force for this revolution and that:

“The number of homes built explicitly to rent out is set to take off in Australia over the next five years, housing industry experts have predicted.

They’ll be nothing like we’ve seen before, either, with building managers looking after apartments, staff to look after leases and run “community” events, and onsite cafes, shops and work spaces. There will also be long-term rolling leases with the potential for tenants to transfer to other allied blocks in different areas if their jobs or circumstances change.”

Furthermore the article quotes Richard Brice, director of real estate advisory services at Ernst & Young that in relation to millennials:

They want to be near services and jobs and entertainment facilities, and they are looking for on-site flexibility and having places to work within their buildings.”

Insight 14 – future client challenges

In 2038, at age 65, (‘normal’ retirement age), builders in business will be largely dealing with clients from three generation, ranging from generation X (ages 59-73), millennial generation (ages 44-58) and generation Z (ages 23-43). As I have already pointed out, the characteristics of each generation are very different and this will present challenges for builders.

For example generation Z people (born after 1995) are very different from any previous generations. In an article entitled ‘Generation Z characteristics: 5 infographics on the Gen Z lifestyle’ the author claims that:

“on average, Gen Z uses their smartphones 15.4 hours per week—more than any other type of device.

Gen Z consume 13.2 hours of TV content per week—significantly less than boomers and Gen X.

There has been a 41 percent increase in the use of ad-blocking software in the past 12 months.”

Builders are going to have to figure out new ways to communicate with generation Z people because they are increasingly not watching TV and even blocking advertisements on social media platforms.

I believe that generation Z is also increasingly influencing older generations along these same lines. As a baby boomer, I now demonstrate these same above characteristics and I do not think I would be an exception in this regard.

Insight 15 – industry disruption

Leading up to the retirement of a builder who is currently 45 years old, at age 65 in 2038, the industry would have been subject to massive transformation and disruption over this 20 year period. I outlined developments in this regard in an article entitled ‘Disruption – more than just a buzzword’ and where I stated during this period:

“the construction industry as we currently know it will not exist as a result of innovation-driven change and disruption. Unfortunately, I am very concerned that current contractors have not adequately prepared themselves for the threats and opportunities that such developments will present.”

Insight 16 – big data

Over this 20 year period, the increased use of data analytics and the sharing of key information between many regulatory organisations and bodies will result in an unprecedented level of government monitoring of the activities of builders.

I wrote an article concerning this matter entitled ‘Enormous Brother is Watching’ where I stated:

“Regulators are attempting to be more proactive in the performance of their roles by seeking to rely on significantly enhanced and upgraded data intelligence, analytics and the sharing of information with other regulators, government agencies and mining publicly available information.”

Some builders are worried about the potential for governments to unnecessary and excessively interfere in their business through such monitoring of their activities.

Final thoughts

For a building or construction project of any significance to occur, in the initial instance there has to be a client with finance and a builder prepared to accept all the necessary legal and contractual obligations and responsibilities. All other contractual arrangements are subsequent to the client and builder entering into a contract. I believe that this fact is often missed these days in conversations about security of payment for subcontractors.

Builders need subcontractors. Likewise, subcontractors need builders.

The point of this article is not to defend builders when they do the wrong thing. The valid criticism of builders should never be shied away from. However I would like to see greater empathy for the tremendous challenges facing builders and if this was to happen, I am sure we would have a much more productive and respectful dialogue in terms of changes and improvements a number of builders must embrace to firstly survive, and then become more efficient, productive and better corporate and business citizens.

I would welcome your thoughts.

2018 has been a huge year. We have loved seeing different stakeholders in the construction game come together at our innovation series events to share their experiences, network and prepare for the future. We are excited to announce the best and last event for 2018 “Construction Disruptors”, showcasing some of the finest construction disruptors seen this year.

Come along to put your finger on the pulse of what the next wave of innovation will be. Don’t miss out on this fantastic finale to the innovation series! We look forward to seeing you there. Tickets are available here.

Not intended as legal advice. Read full disclaimer.
Michael Chesterman
Michael Chesterman October 17, 2018

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