Buying a Shed, lowest risk to the consumer

Posted on : February 4, 2014

It is a sad fact that too many people over the years have lost money when buying sheds.

The most recent being the Sidach debacle, but this is in a long list including

 

What are the risk to the consumer

 

1.  A distributor goes bankrupt or illegally takes the money from the consumer.

This is the retail outlet, the one that has the sites that you walk around and look at the shed.  They usually don’t have the relationships with the suppliers and rollformers, but are important as they do the sale, site inspection, and organise the building of the shed.  The are also important as the do the after sales support and help with damaged or faulty sheds.

Often the distributor is holding the clients money and pays the manufacturer on a schedule.

  • This creates a risk as while it provides operating cashflow to the distributor it does provide a risk that the consumer can loose their money part way in the process of their shed being manufactured.
  • There is a timing risk in the deposits being collected and the shed not being ordered and in the milestone payments not being passed onto the manufacturer.
  • To be clear there are 100’s of extremely talented, ethical and trustworthy distributors in the shed industry
  • That said due to their being in the vicinity of a 1000 distributors in Australia the risk of an unscrupulous or poor business operator is increased.

Model One : The current model in the industry is shown in the below diagram.

Payment_To_Distributor

An easy way to remove the above problems is for the client to pay the money direct to the wholesaler.

Model Two : A new way to eliminate this risk is shown below.

Payment_To_Wholesaler

This is an extremely rare model in the industry and the research that we had done shows that only Sheds n Homes has this arrangement in place through their Manufacturer / Wholesaler Steelx PTY LTD.

This labelled the “Guarantee Of Supply” by Steelx and is represented by the below label.

Guarantee-of-Supply-Logo

This definitely protects the consumer from mismanagement at the distributor level, as the distributor never sees any money outside of their commission.   That leads to the next risk, what happens if the Wholesaler / Manufacturer goes down…

2.  The manufacturer goes bankrupt or illegally takes money from the distributor.  While less likely it is a far more significant event.

These groups are smaller in number, have the relationships with the suppliers, own the brands and have the software and systems that provide the kit to the distributors.  You might ask what happens if the Wholesaler goes bankrupt, well they end up with the money at some stage in the process, so this risk is inherent in the Model 1 above.   The Guarantee does not remove this risk, but as stated both Model 1 and Model 2 above are both subject to this risk.

3.  The rollformer goes bankrupt.

Rollformers turn the cold rollformed steel into shed components.  This would be a devastating event and could send shockwaves through the whole Shed Industry.  Lets hope this never happens!!!

All in all a large percentage of the Shed Industry is ethical, honest, professional and hardworking.  Like any industry there are bag eggs and Model 2 above seems to remove the surface area of risk for the consumer.  I am sure many in the industry will disagree and a we welcome their feedback.

 

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5 Responses to “Buying a Shed, lowest risk to the consumer”

  1. Chris said...

    Good to see you back. there is an inherent problem with your second option and it revolves around Home Warranty Insurance (as called in NSW but similar schemes apply in other states) applying to the kit and the use of builders licenses for the construction.

    In NSW the HOW Insurance only applies if the “total” contract exceeds $20,000.00. If you buy the kit direct from the wholesaler or manufacturer and then take out a contract for the slab and erect with the distributor you have effectively split the contract (illegal in NSW) and increased the chance the contract for construct is less than the required amount for the insurance.

    Having a total overall contract with an properly licensed distributor who is eligible for HOW Insurance means if you go over the $20,000 limit the insurance must be taken out and you have full coverage for your purchase. If the contract amount is under $20,000 AND you know the distributor is eligible for the Insurance you at least have the peace of mind they have been audited by the insurance company and have proven they are financially viable as the insurance underwriters are very thorough in ensuring they are not at risk.

    As for the wholesalers being financially viable, if you knew the “business” history of most of the main players and their connections with other failed shed wholesalers you would be even more worried. Incestuous is the most common name used within the industry.

  2. Shedeye said...

    Hi Chris,

    Thanks greatly, it is has been an extremely busy period.

    As far as I am concerned the Home Warranty Insurance is all about protecting people with an established / completed building. This is an extract taken from the NSW fair trading site

    Minimum cover
    From 1 February 2012, home warranty insurance policies must provide cover of at least $340,000. Between 28 February 2007 and 31 January 2012, the minimum cover that had to be provided was $300,000.
    Future increases in the minimum cover provided under the scheme will be in line with any corresponding increase in the Producer Price Index [Materials used in House Building (Sydney)] that might have occurred since the previous increase.
    The cover may be subject to limitations relating to over payment of deposits and progress payments and other limitations specified in the policy.
    Claims for incomplete work are limited to 20% of the contract price (up to a maximum of the cover provided under the policy).

    The problem is that almost all of these incidents would only protect 20% of the consumers money. Hence I think the line is blurred, and that Model 2 is still superior. I believe that the government should change this condition, as Home Warranty insurance is just a gravy train for the single insurance company that gets to issue these policies.

  3. Chris said...

    In the shed industry, the dollar value never up in the 100’s of thousands, hence the policy value is for the full amount covered. It certainly has covered a lot of disappearing distributor’s customers that I know of locally. When a full supply and construct contract is taken out with an appropriately licensed distributor the kit is covered as part of that contract, a kit on it’s own or under a split contract from two different sources (kit from wholesaler and construction by distributor) the kit would not be able to have any cover at all.

    I also know that when a large wholesaler goes under they take a lot more people with them than a few small distributors going under, including a lot of small distributors. Also, the major cause of smaller distributors going under is a direct result of their aligned wholesaler’s actions and policies. The vast majority of small distributors I know and have known are hard working decent people not getting the full and correct support and supply from their wholesaler. This can range from consistent supply errors, inadequate training and supervision to too many distributors covering the same area/s.

  4. Brett said...

    ShedEye,
    If you look at the Building Act and payment schedules, the maximum deposit allowed for a project of value over $20,000 is a mere 5%. There are a subsequent 4 payments that cen be taken as the project progresses. No payment in this schedule can legally be greater than 35% of the total amount (without good reason). As Chris says for a distributor to become a liceneced builder there is quite a lot of training and financial backing needed for that person to get their licence. If consumers have concerns with a distibutor, then it would be safer to purchase a product from a licenced distributor with warranty insurance, than someone just selling you a pile of steel. The warranty insurance covers death or insulvancy of the builder. Many distributors force a customer to go owner builder and then organise the constuction of the shed. Not only is this illegal but then places the customer at greater risk if things go wrong.

  5. Shedeye said...

    Thankyou I appreciate your comment. What state are you in as I believe each state has different rules in regard to payment schedules? Do you have any info on what is required in regard to the financial backing needed for a building licence (please send to support@shedeye.com.au)? Both you and Chris have presented a view I had not considered carefully enough, thankyou.

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