When John Murray delivered his report on Security of Payment last year he implored governments to stop “kicking the can down the road” and implement a statutory trust scheme.
Such a scheme would stop the leakage of cash out of the contracting chain. It means that all payments would go into a series of cascading Trust accounts instead of each contractor’s business bank account. It means the moneys are ‘held in trust’ all the way down from the head contractor to the sub-sub-contractor. This means that money cannot be taken out of that account for any other purpose than payments. It means that if any party in the chain goes into liquidation, the money in that account is protected and cannot be taken by liquidators or creditors. It stays there for payment of the work. It would give contractors security that their payment was protected from insolvency events and ….let’s face it; outright theft.
To its credit the NSW Government has now taken the first steps to putting this in place. It has gone to public consultation on it. It has also commissioned some consulting economists to deliver a preliminary report on the costs and effects of a Trust Scheme. I have read the report and the approach has amazed me.
It is a straight-out cost-benefit analysis. That is, the economists say that to be part of the scheme there are costs. And at some point, the costs will be more than the benefits; meaning you shouldn’t be part of it. There follows an assessment of what it would cost to run a trust account and accounting services, and then what costs would be saved by being part of the scheme; financing costs and reduced liquidation costs etc.
The Government had asked the economists to assess whether it was worth having the Trust Scheme apply only above a certain point. That is; only to contracts worth a certain value or projects worth a certain value. This means a two-tier system where above a certain line you get the protection of Trusts and below, you don’t.
The problem here is that the economists are treating the Trust Scheme like a product; not a new framework for an entire industry. It is being treated like a swimming pool filtration pump. One can examine the costs of owning the pump; purchase cost, maintenance costs, power costs. And then one can look at what savings you get from it; less chlorine, less pool cleaning services etc. And out of that you can say that within say 3 months the cost will be outweighed by the savings. You get the idea.
But can you really do that with an industry-wide scheme?
The answer is ‘no’. Firstly, the economists admit that they have scant data to really work from so the whole report is based on assumptions. But that is another article. The point is that with an industry scheme you are either all in or all out. A perfect example is Occupational Health and Safety [OHS]. When that Act came in in 2000 it was to make work areas safe. It created an obligation for businesses to provide safe work conditions for its employees.
Now was there a Cost Benefit analysis here? Did anyone look at the cost of having safety versus the potential savings of having a safe work space? Did someone look at the costs to a roofer for having OHS. Let’s see, you’d need to have safety harnesses, there’s the time to get your Safety Work Method Statements done, other personal protective gear for all employees, consulting time to get it all implemented into the business. Then the savings; less employee downtime, less litigation, more productivity. So, did someone come out and say “Look, based on this Cost Benefit analysis we think that for contracting businesses with less than 5 employees, it is not worth having safety. But for those with 6 and above yes OHS does provide a cost benefit”. So those small businesses, it’s worth letting your employees fall off that roof.
Now that of course is absurd. But it is exactly the flawed approach going on with the assessment of the Trust Scheme. When it came to legislating for work safety the only decision was “Do we want safe work places?” That was it. No one dared ask “Is it worth having safe work places?” So now if you want to be in business and there is a cost to providing safety, you pay it. It is a cost of doing business. There is always a cost of doing business. You want in? You pay.
The question before us now is “Do we want a construction industry where contractors can be confident that they will get paid for their work?”
If the answer is ‘yes’ then we need a Statutory Trust Scheme that applies to everyone. It would be a pathetic outcome if we had a scheme that looked down at some contractors saying ‘you’re too small so you don’t get the protection of Trusts’.
‘But hey, don’t worry about not getting you’re $6,000 for that carpentry work. We’ve done the numbers, and you’re better off without it. You’ve saved a fortune on bookkeeping.’
Get this right New South Wales; let’s go ‘All In’.