Tradies and builders forced to undercut to save their business
A stark drop in work for builders, subcontractors and tradies has caused a bidding war in securing jobs, as they drop their charging rates to compete to keep their heads above water.
The onset of COVID-19 lock down restrictions and social distancing regulations has caused many labour projects to be put on hold or broken off, meaning building contracts are like gold dust for industrial businesses.
Sydney-based Prekaro Projects director Jordan Galloway stated that the amount of commercial and industrial labour work has plummeted as COVID-19 brings many lines of trade to a halt. This has caused a chaotic struggle between businesses pressured into charging the lowest rates to score sought-after contracts.
"Everyone is dropping their margins and rates just to win the work, so we have to drop our margins to almost break even, or with only a small profit.
Businesses are now desperately trying other routes to bring in economic gain, offering services outside of their usual line of trade just to secure work to be able to stay afloat.
Mr Galloway added, "We're aiming to counteract this by taking on more work even if this will mean doing different types of jobs than we normally do, like renovations and maintenance work." Prekaro Projects, amongst many other businesses, are being forced to actively hunt for offers of work as more and more projects are being paused or completely cancelled.
"At the moment, we've had eight projects put on hold across Australia, ranging from $100,000 to $2 million, and we're seeing a lot of the proposed work being paused," he said.
Childcare developer Anthony Hanna, of Childcare Development Group, explained how the intense competition due to limited work was becoming increasingly worrisome and putting a strain on the business.
"A lot of builders are coming in and undercutting us which is making our jobs very hard," he said.
"May is usually the busiest time for us but so far this year, we only have one project lined up – an 80-place childcare centre in Appin NSW.
"I'll probably end up doing three projects this year, which is half of what I normally do each year, so that's half of the work gone.
"I just lost one project to another builder who undercut me. But I couldn't go any lower any more because it was not worth doing the job. We're currently making very little compared to what it was two years ago but I just need to keep my subcontractors working during this time."
Tradies are some of the worst-hit, as they suffer steep downturns in earnings due to the ongoing situation of COVID-19. A survey conducted exclusively for The Australian Financial Review of almost 700 tradies concluded that 69.5% of labourers lost more than 20% of earnings in the month of April alone (ServiceSeeking.com.au). More than two-thirds of tradies added that they would have to significantly drop their usual rates in order to maintain their usual amount of work.
Mr Galloway worried that the lack of work would mean many businesses would be forced to fold, as the next 12 to 18 months look difficult for those fighting to stay afloat following the global pandemic. He commented, "I think the next couple of years are going to be really scary."