Forge: a failure of management

It's not often that 6,000 investors are in total agreement, but in the case of the collapsed Forge Group there’s no doubt that all of the company’s shareholders will recognise that the failure had one cause – management incompetence.


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Personally I believe someone should also bring to attention the way the ASX handled this debacle

Directors and former major shareholders profited significantly at the expense of other Forge shareholders, staff and the workforce. I'll bet they won't be dipping in to their excessive profits to help those who have lost out. Contracting is a long term business, Forge got too big, too quick and without the skills to manage such an enterprise. 't be

There are a few other EPC contractors around who fit this syndrome. The distinguishing difference between them and Forge is that they have large parent companies who bail them out from time to time. For example if John Holland, Lend Lease services and Transfield didn't have big parent owners, they would have gone the same way as Forge long ago.

What is much less talked about is the role of the Owner (developer) in Forge's demise. The goods and the greats of the resource world such as Rio, BHPB and others received prices for contracts from Forge that were obviously and clearly way too low in price - at least compared to all the other contractors. The irresponsibility of Forge's clients contributed to the outcome for Forge's shareholders and employees.

I spent a fair bit of time working amongst mining giants, while they are still some distance from getting everything done to perfection. It is a bit rich to suggest as if they have held a gun to the heads of contractors pricing their jobs. If anything they would have sounded alarms on seeing any unusual low bid and would have asked time and again assurance from bidders their price certainty and confidence in delivery their promise before signing them on. Any pricing decision and mistakes made could only be attributed to those offering them not the receipiants.

Engineering contracting business is an industry with relatively long lead times (and multiple bottlenecks). Any mistakes in the pricing model, or the purchasing, or the design, or inefficiency of actual hours spent versus hours planned and priced for, can kill a business. It's also a business with a cognitive dissonance (due to the long lead time), where a month can feel "good" due to "busy ness" and cash flow, but it's actually a bad month because there are no jobs won / purchase orders or jobs are won at the wrong pricing. ... conversely, a month can feel bad ("quiet month" or low profit/cash flow, but it's actually a great month because of good purchase orders being won... So it's a highly "cognitive dissonance" business - if the management team does not take all of the above into account, it can be disastrous for the business (and the industry).

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