Builder’s collapse leaves defect claims under a cloud for new Docklands projects

The collapse of Probuild, one of Australia’s biggest builders, may have implications for its newly completed projects in Docklands after reports emerged the company could be up for millions of dollars in defect liability claims.

It comes as Probuild’s sites were shut down across the country after the construction giant was formally put into voluntary administration on February 23, casting a cloud of doubt over the future of its $5 billion construction projects.

While there are believed to be no construction sites in Docklands associated with Probuild, the firm’s crash may impact its new 46-level Victoria Police headquarters tower at 311 Spencer St after ASX-listed integrated services company Downer EDI stated it risked incurring financial losses of $30 million after entering contracts with Probuild in 2018 for carrying out mechanical and electrical services at the building.   

“There are outstanding claims which are unpaid by Probuild, of which approximately $30 million has been recognised by Downer and recovery is now subject to risk due to the administration,” Downer EDI said in a statement.

As the Probuild administration process progresses, Downer said it would assess whether there was any “potential financial impact on Downer and will keep the market updated”.

Downer said it had completed works on July 9, 2020 with the defect liability period ending on July 9, 2022.

In July 2020, Downer announced its exit of non-core businesses, including the higher risk construction markets in the infrastructure and construction business, and would no longer provide mechanical and electrical construction services to the commercial sector.

Probuild’s financial woes are also understood to have potential repercussions for its newly built 23-storey office skyscraper at 1000 La Trobe St, Docklands, which was completed in 2021 after the firm was appointed as the builder by Poly Australia.      

While sources close to the project told Docklands News that the quality of the building was “a very high standard” it “might have some implications for defects” – however assurances were given that this wouldn’t be “too much of an issue”.

Melbourne-based lawyer Hubert Wajszel, who specialises in construction law with firm Barry Nilsson, said addressing any defects within a defects period could become an issue if problems arose with Probuild’s completed projects.

“I don’t know how many may well be in that space but that would be of relevance because if for example, if something was only completed recently and defects were identified, Probuild, as things currently stand, arguably won’t be able to go back to rectify the defects,” he said.

Mr Wajszel said the pandemic “would no doubt have played a part” in the collapse of Probuild “because lockdowns would have had an impact on the ability to continue with work”.

However, he added “I think there’s been for a number of years other issues that have put the whole construction industry under stress.”

“One of which does apply to Docklands has been cladding – obviously with Lacrosse [apartment tower] in particular.”

“But what that has meant is that building professionals including builders in particular who have been under not so much attack, but the subject of claims of non-compliant cladding.”

Mr Wajszel said he expected many large contractor insurance premiums to have “have gone through the roof” due to the construction industry being seen as a “significant risk” in insurance premiums because of a surge in litigation and “by extension a greater liability exposure, in particular in respect of cladding claims.”

Owners of apartments at the Lacrosse tower in La Trobe St won more than $5.7 million in damages in a lawsuit after a fire caused significant damage to the building in November 2014, which was fuelled by flammable cladding.

In the CBD, Probuild’s collapse has left its West Side Place in doubt, which is a two-tower project comprising of 1376 apartments and 263 hotel rooms at 250 Spencer St.

Also under a cloud is the Elizabeth North project, a $1 billion project that includes CSL’s new Melbourne home.

Administrators at Deloitte have begun a search for a new owner of Probuild after a total of 18 businesses within the Australian arm of Wilson Bayly Holmes Ovcon Ltd (WBHO) including Probuild were placed into administration.   

“The COVID-19 pandemic has created challenging trading conditions for many businesses, and for WBHOA, which has also been impacted by certain loss-making projects,” voluntary administrator, and Deloitte turnaround and restructuring leader Sal Algeri, said.  

A Probuild spokesperson said it was working closely with the administrators “on a number of plans to protect our clients, subcontractors and employees.” •