Subcontractors hit by Mainzeal receivership

Subcontractors around the South Island swept up in the Mainzeal receivership face an unnerving few weeks as the receivers determine the state of the company, and the likely tens of millions of dollars owed to subcontractors.

Dunedin-based Foley Plumbers stopped working with Mainzeal in Canterbury 11 months ago. Other main contractors should ''sit up and take notice'' of the Mainzeal issue, Foley director Chris Sutherland said yesterday.

''This [receivership] is going to have a massive financial impact on subbies ... we're likely talking tens of millions of dollars [owed] here,'' he said.

The receivership appears to have taken by surprise most subcontractors, estimated to number about 1000, who were angered

when greeted at locked site gates by security guards in Auckland and Wellington yesterday. They must now wait for the receivers to painstakingly determine who owns which tools and building materials on site.

Separately, listed electricity lines distribution Horizon Energy Distribution Ltd yesterday said its wholly owned subsidiary, Aquaheat New Zealand, is likely to incur ''a significant adverse financial impact'' because of the receivership.

Mr Sutherland said because of the tight economy and recession during the past two and-a-half years, some main contractors were ''screwing down'' subcontractors during the tender process and their profit margins were being ''cut to the bone''.

''That sort of thing forces corners to be cut during building. [But] that comes back to bite them,'' Mr Sutherland said of the likelihood of inferior work having to be redone. He affirmed the anticipated Canterbury rebuilding had been slower to start than expected, but since the tendering aspect of construction ''took off'' during the last quarter of 2012, subcontractors were now having to commit to work and he expected ''work will take off and fully ramp up this year''.

He estimated Foley's turnover from Canterbury work would be hundreds of thousands of dollars for each of the next two years. The 75-year-old Dunedin company has about 100 employees at six South Island locations.

It struggled a year ago to maintain work for its 12 Canterbury employees, but that number was up to 14 yesterday and when needed, some Dunedin staff had worked two out of three weeks in Christchurch.

Mr Sutherland said Mainzeal ''had a reputation'' for tough dealing with subcontractors and Foley had pulled out of a Mainzeal contract last year, because of ''post-tender issues'', where job pricing was being forced down.

Mr Sutherland's estimates of ''tens of millions of dollars'' being owed is based on Mainzeal having about 400 staff, the majority of who were project managers, who used subcontractors, as opposed to employing their own carpenters, concrete layers, steel-fixers, finishing carpenters and electrical and plumbing tradespeople.

The impact will be ''severe'', because subbies working on already tight margins would have been earning less in recent times, so any unpaid debts hits their businesses harder.

''There's going to be a lot of very worried subcontractors out there, waiting for the receiver's first report,'' he said.

Mr Sutherland said Mainzeal had operated in Dunedin until the mid-1980s, and had since done a small number of smaller jobs in the city and Queenstown, but he understood Mainzeal may had been considered as a tenderer for the $50 million-$80 million dental school project.

Horizon Energy chairman Rob Tait said in a market update yesterday that Aquaheat was owed an unspecified amount of money on Mainzeal contracts and its management was still assessing the financial position.

''However, it's clear there will be an impact on the Horizon Energy Group profit for the current financial year,'' Mr Tait said.

The receivership announcement came as a surprise, as contracts were proceeding as planned and as late as Tuesday Horizon was engaged in discussions with Mainzeal personnel over current and future work, without any hint of trouble, Mr Tait said.

He said Horizon's lines business was constrained by regulations and a limited growth potential in the Eastern Bay of Plenty and the development of non-regulated businesses such as Aquaheat was ''fundamental'' to its growth.

Once Horizon had ''reviewed our commitments and obligations under the many contracts we have with Mainzeal'', the company would advise shareholders and the market ''as soon as we have more certainty'', he said.

- simon.hartley@odt.co.nz

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