Learning from the unexpected – the importance of experience and agility…
The collapse of Mainzeal demonstrates the importance of managing risk in projects and to be ready to expect the unexpected. And when the unexpected happens it is the ability to quickly adjust to the new reality that will define the project and achieve the best possible outcome…
The receivership of Mainzeal, the second largest construction company in New Zealand, came out of the blue, caused considerable anxiety for our clients across the country and changed the future of many professionals within the industry. The debate will linger for some time on how this receivership could have been avoided; however, what is important in the first days following this announcement is how the effects of this event are mitigated.
As the project manager to a number of our clients who were directly affected by the collapse of Mainzeal it was important for us to provide them with advice and support to navigate the complexity of the situation. Understanding the requirements set down in law through the Receiverships Act 1993 and any provisions made in the contractual agreements between parties was a fundamental starting point. After all, receiverships of construction companies of this size in New Zealand are not, thankfully, a common event. Knowledge of the legal process is fundamental to moving forward.
Site security in the hours directly following the announcement is critical. We worked with our clients to secure the existing sites, especially where nervous subcontractors sought to recover equipment and materials. A robust plan was developed to inform our clients of the next steps and potential outcomes as a result of the ten-day working period provided to the receivers to inform the Principal of their intentions. These options enabled decisions to be made early on about how to protect adverse cost and time effects by managing the uncompleted works and preventing unfinished buildings being adversely affected by the weather, fire and risks posed by lack of site security.
Lessons can be learned from this experience that can inform all future projects. Regardless of the size of the organisation, having suppliers go into receivership will affect the outcomes of projects. It places importance on understanding the financial position and stability of suppliers during the procurement process and throughout the term of the contract. This approach is common in overseas markets where robust financial stability analyses are carried out during the pre-qualification stage of the procurement process; usually with pass/fail criteria. It should not be assumed that any company is financially secure, especially considering the wider global economic climate.
In short, a business going into receivership is a potential risk that should be managed accordingly. Having a risk mitigation strategy in place is important to future proofing your project. As the receivership process is well defined, it becomes a simple matter to develop a strategy for managing this risk and to tailor it to specific project requirements. While the likelihood of this event occurring, especially with larger businesses, is rare, the severity of the consequences for the project when it does can be considerable.