Construction has been the largest sector for corporate insolvencies in Australia since 2022. ASIC data shows construction accounting for approximately 26 per cent of all corporate insolvencies nationally.
The pattern is consistent: a business wins work at a competitive margin. Costs rise during delivery. The margin compresses to zero or below. Cash flow tightens as the business funds project costs from working capital rather than project revenue. A variation rejection or a payment dispute breaks the position.
The businesses that survive this environment share one characteristic: they identified the problem early, understood their full cost position, and acted before the cash flow became critical.
Fixed-price contracts in a rising-cost environment. Most construction contracts lock in the price at tender and provide no mechanism for recovery when input costs rise. Full analysis
Completing the loss-making project. One of the most damaging decisions a construction business can make is the decision to complete a project that is losing money. Completing a project that is losing $50,000 per month for 18 months costs $900,000 in addition to the loss already locked in.
The decision to complete or exit a loss-making project requires clear financial analysis and legal advice on the consequences of not completing.
Back-to-back subcontract exposure. A subcontractor absorbing unrecoverable losses becomes a delivery risk. Their insolvency mid-project creates re-tendering costs, delay, and potentially a principal’s claim against the head contractor.
Cash flow timing and retention. Retention is structural leverage held by principals and head contractors. A subcontractor owed $200,000 in retention across three projects whose head contractors are disputing payment is a subcontractor whose cash flow cannot sustain further work even if their underlying business is profitable.
Overhead recovery errors. Many construction businesses discover too late that their overhead recovery rate has not kept pace with cost movements. Shannon Drew’s analysis covers overhead recovery specifically. /construction-cost-crisis/financial-impact-on-margin/
Any one of these warrants a financial review. More than two together warrant urgent legal and business advice.
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Under the Corporations Act 2001 (Cth), directors must not allow a company to incur a debt when there are reasonable grounds to suspect the company is insolvent, or would become insolvent by incurring that debt.
The obligation arises at the point of reasonable suspicion, not at the point of formal insolvency. A director who knows the business is consistently cash-flow negative, that retention is locked in dispute, and that the business is drawing on overdraft to fund operations has reasonable grounds to suspect insolvency even if the business has not formally collapsed.
Directors who allow a company to trade insolvent can be personally liable for debts incurred during that period. In serious cases, there are criminal consequences.
If you recognise your business in this page
The most important thing you can do is get a clear picture of your actual cost position across all current projects, including overhead recovery and pricing exposure.
Then get legal and business advice on your director obligations and your options. Acting early gives you options. Waiting until the position is critical removes them.
Shannon Drew’s full project cost analysis
The complete 8-step response system
Integrated legal and business advice from Rachelle Hare and Shannon Drew
Contact: (07) 3063 3373 | enquiry@blazebusinessandlegal.com.au
Blaze Business & Legal
Three fixed-fee services for construction businesses working through the cost crisis. Rachelle Hare and Shannon Drew directly, from the first conversation.
Rachelle Hare is a construction lawyer and business adviser with 25 years of experience, including in-house roles at Thiess, Laing O’Rourke, Acciona, DHA, and UGL. She advises construction businesses on contracts, cost recovery, risk, procurement, commercial strategy, and business structuring across Queensland and Australia.
