Cash Is King For Government Policy And Construction

By Mark Austin

Australia's Construction Crisis Reveals Cash is King

After 25 years building technology solutions for complex financial markets, I'm watching Australia's construction crisis with both concern.

The latest Treasury data shows 26.4% of all corporate insolvencies in 2023-24 occurred in construction, with the Reserve Bank reporting a "sharp increase in insolvencies" driven primarily by inadequate cash flow. That's not just a construction problem - that's a systematic finance failure.

But here's what’s interesting: the government's policy response is working, and it's validating digital finance solutions.

Small Business Restructuring: A Digital Success Story

The Small Business Restructuring (SBR) regime has become the government's most effective policy response. The results speak for themselves.

According to ASIC Report 810, there were 3,388 SBR appointments between July 2022 and December 2024. Construction and accommodation sectors account for 50% of all appointments - exactly where the crisis is deepest.

There were over $101 million returned to unsecured creditors, with the ATO recovering approximately $88 million. Recent SBR plans achieved debt reductions of 65% to 91%, with restructuring costs between just $5,500 to $33,000.

Those efficiency ratios would make any fintech founder jealous. More importantly, they demonstrate what's possible when you apply systematic, technology-enabled processes to complex financial problems.

The Cash Flow Problem

Having built global trading systems that processed billions daily, the construction industry's cash flow problems aren't cyclical - they're structural.

Take retention practices. According to industry best practice guidelines, retentions typically account for 5-10% of progress payments and create a huge cash flow drag across the sector, with capital stuck for 60 to 120 days after project completion.

In my experience building payment systems, that's like designing a system with mandatory 90-day settlements. It's fundamentally broken architecture.

The Australian Government's response to security of payment law reviews has led to reforms in Queensland and Western Australia, with WA's Phase 3 reforms now requiring retention monies to be held in trust, but this piecemeal approach highlights exactly why we need standardised, digital solutions that work across all jurisdictions.

What You Need to Know

Traditional financing structures are creating concentration risk at unprecedented scale. When 27% of all business failures come from one sector, that changes how you assess counterparty risk across your entire portfolio.

The policy response demonstrates government recognition of systemic risks. SBR's effectiveness suggests similar targeted interventions may emerge for larger commercial failures. That fundamentally changes the risk profile for institutional lenders.

Critically, this crisis is accelerating the shift toward digital platforms that provide real-time visibility into cash flows, automate compliance across multiple jurisdictions, and standardise processes that have historically been manual and opaque.

The Tech Opportunity

The policy response is gaining momentum. The Commonwealth's Supplier Pay On-Time policy now mandates 20-day payment terms for government contracts, while the broader national security of payment reforms are introducing statutory trusts for retentions and promoting e-invoicing adoption.

This crisis validates everything we've been developing in commercial real estate financing.

Traditional payment structures, retention practices, and cash flow management systems weren't just inefficient - they were creating systemic vulnerability that technology can address.

The focus has shifted from simply providing capital to ensuring efficient deployment, monitoring, and recovery. Digital platforms excel at exactly these capabilities: standardising processes, providing real-time visibility, and automating compliance across complex regulatory environments.

For institutional investors and developers, understanding these technological solutions has become as important as evaluating individual deals. The winners will be those who embrace platforms that address structural problems, not just individual transactions.

Looking Forward

What we're witnessing isn't just a crisis - it's a market transition accelerated by policy intervention and technological capability.

The construction sector's challenges reflect broader shifts in commercial real estate financing. Smart players are already adapting their processes, embracing digital solutions that provide the transparency and efficiency that traditional systems couldn't deliver.

The policy framework is taking shape, technology solutions are maturing, and the market is ready for transformation.

Despite these challenges, the sector continues growing. The ABS reports construction work rose 3.0% to $76.1 billion, while construction costs are rising 3.2% annually. This growth amid margin pressure creates the perfect environment for digital transformation.

The crisis continues, but the digital infrastructure to solve it is no longer emerging - it's here.