A key subcontractor representative in Queensland has hit out at claims that the case for reform of subcontractor payments in that state has not been made, saying that the need for change is highlighted by a spate of insolvencies and a ‘culture of non-payment.’
In a stinging response to criticism by the Housing Industry Association (HIA) of a discussion paper which outlined potential reforms to subcontractor payment law in Queensland late last year, Subcontractors Alliance president Les Williams said the need for change had been demonstrated over many years, and that the mentality and ‘arrogance’ of key lobby groups attempting to push back on important amendments was ‘offensive’ to subcontractors, suppliers and consumers.
According to Williams, there were more than 8,000 small business insolvencies throughout the construction sector between 1996 and 2013, whilst no fewer than seven two tier builders have gone bust owing about $110 million to around 2,400 subcontractors since the beginning of 2014.
“If we do not have a problem in the construction industry in Queensland, then why are we witnessing the financial devastation we are seeing currently?” Williams asked.
Beyond insolvency, Williams talks of a ‘culture of non-payment,’ the effect of which he says has been exacerbated since amendments to the Building and Construction Industry Payments Act in 2014, which saw the removal of authorised nominating authorities (ANAs) from the adjudication process.
Since the removal of ANAs – whose role was to provide administrative assistance to parties involved in the adjudication process and to nominate adjudicators – the ‘fall-over’ rate of claims has tripled amid an environment where claimants are provided with no support regarding the administrative aspects of the process, Williams said.
Williams’ comments follow a strong critique on the part of the HIA with regard to a discussion paper published last year by the Queensland Building and Construction Commission which outlined a number of proposals for subcontractor payments reform, including requirements for progress payments made by the principal to be paid directly into a special bank account from which amounts owing to subcontractors would be distributed directly as well as new requirements for retention funds to be held in special trust accounts.
According to the HIA, the paper lacked rigour and analysis, neglected important issues of the relationship between the principal and the head contractor and contained a number of solutions which represented costly and undue regulatory intervention.
In terms of payments throughout various parts of the chain, the HIA insists that contractual arrangements between the principal and head contractor are a separate matter to those between the head contractor and subcontractors. Money paid by the principal to the head contractor belongs entirely to the head contractor who is entitled to use this as they see fit notwithstanding their obligations to meet their own separate payment obligations to their subcontractor, the HIA argues.
In terms of retention funds, as well, money withheld to cover defects or incomplete work remains the property of the head contractor until the retention period in question has expired and head contractors should again be free to use this money as they see fit provided they do meet their requirements to subcontractors when required, the Association argues.
Sydney-based debt collection expert and Contractors Debt Recovery managing director Anthony Igra disagrees, saying subcontractors rather than head contractors typically perform the majority of the work, supply the bulk of the labour and materials and carry the majority of the risk on projects.
Whilst it may be true that contractual arrangements between a principal and a head contractor are a separate matter from that between the head contractor and subcontractor, Igra points out, it was also the case that the majority of typical payments made between the principal and the head contractor actually related to work performed by the subcontractor.
“It’s the bricklayer who has to go out and get $20,000 worth of bricks on his account to do the brickwork for the house, the roofer who has to order tiles on his account to do the roofing, and the plumber who has to go and get all the pipes and everything on his account and his labour to install the plumbing,” Igra said. “What’s the builder doing? He’s investing in his double shot latte so he can watch it all.
“It’s the subcontractor who carries the bulk of the risk. This is why all the reports, investigations and inquiries are trying to help the subcontractor.”
Australian Subcontractors Association chairman Rick Green commended the HIA for raising its members' concerns but said the Department’s discussion paper addressed real concerns and that its recommendations if adopted would bring a resolution to what had been fundamental concerns on the part of subcontractors over a long period.