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It will come as little surprise to many that subcontractors are often forced to deal with head contractors who are larger and in a more powerful bargaining position than what the subcontractor is themselves.

Nor is it surprising that some subcontractors who find themselves in such positions feel a sense of hesitation when it comes to enforcing their rights with regard to payment under Security of Payment law.

With that in mind, a proposal to make it unlawful for a head contractor to attempt to bully or intimidate a subcontractor out of using the Security of Payment Act has been put forward in South Australia under a review of security of payment legislation in that state being conducted by the Small Business Commissioner.

In his consultation paper put out in June as part of the review process, the Commissioner put forth the idea of a new provision in the Act which would make it unlawful for a contractor to threaten to blacklist a subcontractor from future projects on the basis that the subcontractor in question had used the Act to recover payment. Any contractors found to partake in this behaviour would be subject to maximum fines of $100,000 or two years’ imprisonment.

The Commissioner’s recommendation follows a review of the Building and Construction Industry Security of Payments Act (the Act) in South Australia by retired district court judge Alan Moss. In his report, Moss stated that he had received a number of oral submissions which stated that subcontractors were concerned about retribution in the event that they opted to use the Act. He added that there were a number of major firms who subbies believed would never employ a subcontractor again should the Act be used against them. Whilst he was unable to discern how well founded these fears are, Moss said he had little doubt that the fears were genuine.

In the paper, the Commissioner himself said that on the basis of his own conversations with subcontractors, he had formed the view that such behaviour is more widespread than what was generally acknowledged within the industry and that legislative intervention is needed in order to address the problem.

Not surprisingly, the proposal finds support from a number of organisations representing subcontractors. In its submission to the review, the Masonry Contractors Association says it supports the imposition of these penalties and indeed would further push for a Queensland style system of demerit points against a contractor’s licence for serious breaches of the legislation. Though it notes challenges associated with regard to evidence gathering, the Master Plumbers Association of South Australia also backs the move, arguing that the inference that there are types of intimidation by the head contractor to prevent the use of the Act ‘is in fact true’ and that standover tactics are ‘evident with discussions within the industry’.

Perhaps most enthusiastic of all is the National Electrical Communications Association of South Australia (NECASA), representing electrical and telecommunications contractors.

“NECASA agrees with the Moss Review in regard to the existence of a fear of retribution amongst subcontractors if they were to use the Act to recover payments in fact we have been informed on many occasions that intimidation occurs at the time of tendering prior to entering a contract,” the group said in its submission.

“We would therefore agree with the recommendation to include a penalty provision in the Act to bring about behavioural change…”

Not surprisingly, such proposals have elicited opposition from building industry lobby groups. The Master Builders Association of South Australia, for instance said the provision could “potentially become better known for its ability to waste investigative resources, resulting in the underlying scheme being maligned by prosecutors and the broader industry.” The Housing Industry Association, meanwhile, argued that it is not aware of any widespread intimidation practices, at least within the home building sector of the market, and that any form of intimidation which does occur should be dealt with through the criminal justice system as opposed to specific provisions in a form of civil legislation such as the Act.

Other commentators agree that there are concerns.

Referring to the proposal as ‘another pointless piece of rubbish,’ Contractors Debt Recovery managing director Anthony Igra said these types of legislation often sound good on paper but in fact tend to be rarely used in practice and therefore tend to be of limited effect. In New South Wales, for example, there are significant penalties for making false declarations about subcontractor payment, provisions that allow for department officials to swoop in on contractors and confiscate documents in respect of subcontractor payments, as well as jail time for serial offenders with regard to false declarations. Yet no fines or prosecutions have actually been issued and no jail time has actually been served, he said.

Moreover, Igra said there were problems with the proposal at a practical level.

First, intimidation would be almost impossible to prove. For one thing, any form of intimidation often takes place via face to face conversations or phone calls and thus is not evident in writing. Moreover, there are problems associated with defining exactly what intimidation is and what would in fact constitute proof of this.

On any given project, contractors have the right to choose or not to choose to use a given subcontractor on future projects, Igra said. Therefore, a simple refusal to use a particular subcontractor on the next project cannot in itself be taken as evidence that bullying or intimidation has indeed occurred.

Moreover, Igra says, once use of security of payment becomes entrenched within the industry, people became used to the system and actual retribution against subcontractors using it has become rare or indeed virtually non-existent. Instead, he says regulators should focus their efforts upon broadening the use of the Act, which is widely used in states such as New South Wales but rarely used in South Australia.

“I don’t think intimidation happens at all as often as people think and if it does happen, you can’t prove it and people are unlikely to prosecute,” Igra said.

Others, too, have expressed reservations. The Society of Construction Law Australia, for example, says it is ‘of the view that there are significant practical and legal difficulties with framing the proposed offence to enable it to operate fairly and evenly for all parties.’ It noted that contractors make engagement decisions regarding subcontractors based upon multiple criteria and a subcontractor who is unsuccessful in tendering for work is likely to be one of multiple subcontractors who had in fact tendered.

Distinguishing a refusal to engage a particular subcontractor for work due to previous use of the Act as against for reasons of an alternative subcontractor simply making a better offer would be extremely difficult, the society argued. Where contractor/subcontractor relations have broken down over payment disputes, as well, distinguishing between the contractor who refuses to engage a subcontractor on future projects on the legitimate basis that the relationship has broken down as opposed to one who refuses to engage a subcontractor for reasons of punishment associated with use of the Act presents further problems.

Even some subcontractor organisations are wary. The South Australian branch of the Air Conditioning and Manufacturing Contractors Association, for example, says it is open to discuss what such a clause would look like but was concerned that the gathering of sufficient evidence in order to secure a successful prosecution would be extremely difficult. Because of this, AMCA says it would need to see further investigation into the issue before it would support the proposed change and it would not support the change ‘as a Stage One issue’ (out of a proposed three-stage process of reform).

Threats and intimidation against subcontractors using the Security of Payment Act to recover money owed to them, it seems, is an issue on the agenda for regulatory reform.

Thus far, however, it seems that there are doubts about how this would work and how effective or otherwise it indeed would be.

 
  • We find balances in life. In friction with those we have myriad laws and deeper social more. Neither ensure integrity and never will because definition of what is right does not compete in the face of change. Also because as you remove the choice to act with integrity you remove the capacity to build interfaces for better liaison along with wider cognisance of what is possible and appropriate.

    Bullying has occured. Just as in the schoolyard, giving in to bullies is usually a primary cause of its continuation. You have no 'right' to be selected for this or the next job; if you want that, create the jobs yourself. You do have a duty to act with integrity; if enough do, bullying will subside. You have your trades bodies; they are a place to communicate and strengthen resolve not to bow; to build integrity thereby lending some to would-be bullies.

    The alternative, a law for every interaction, is much more dangerous. An inefficient, mind-numbing curbing of the nature of our change, growth and delight.

  • Sub Contractors need to operate a lot smarter than they current are. They need to stand their ground, say NO when necessary, and refuse to work for principal contractors who bully, refuse to pay or play games around payment, forcing subbies to go down the path of SOP Act recovery.

    Until such times as sub contractors take responsibility for their own circumstances, and own the situation, nothing will change, and principal contractors who act in this manner will continue in the manner in which they presently do.

    In all payment disputes, (as in all disputes), their are usually two parties in the wrong, and more often than not, sub contractors lose out through a lack of preparation, documentation, ignorance, and lack of knowledge, and the principal's know, and use this to their advantage.

    A principal contractor who forces you into a dispute is one you should never work for again (probably one you shouldn't have worked for in the first place), so subbies should never have any fear about taking them to task.

    • RB – Easier said than done when your competing for work because you have employees that need to be paid and costs that need to be covered. If a subcontractor was to say NO to the unfair conditions in a contract or stand his ground on unfair working conditions he would never win a job from a builder. For example a common contract condition is "confirm acknowledgement that any terms and conditions listed on your tender/quotation shall not be accepted and shall be entirely superseded by the terms of the subcontract agreement or adjust price to accept" As soon as you say NO your of the tender list! Bullying or not this is reality!

    • RB, your advice may be valid when viewed from afar, however as a Sole Trader not as simple as you purport, I have been screwed at the front end, been let down in the middle and blamed for the delays at the end of the project ! It's not as easy when you've got you house on the block, paid all the wages, been compromised into working 'excessive' overtime due to poor site management by the Head Contractor, forced to accept very dubious "BACK-CHARGES" in order to get your claim approved, all to be told that the cheque is "in the mail" (often well beyond the agreed payment terms), only too often finishing the project in a 'Break Even Situation' then having to wait a further 12-18 months in order to have your retention released ! It would be NICE to be able to stand your ground, but with all your profit tied up in RETENTIONS, or whittled away in Back Charges, the only NO's we get to hear is in the advice from the uninvolved advisor that doesn't have his house at stake, or NO you are too expensive on this one (but if you "sharpen your pencil" I'll talk to the Boss providing you can match the lowest price, and drop another 10%), so often leaving us with NO where to go, and unable to refuse the work…
      Until such times as Head Contractor stops lying, resources the projects adequately, ceases the blame game and accepts his risks as his own (we sub contractors already take responsibility for too many RISKS, not addressed in the original Tender), nothing can or will change. To "walk" just because you are being STUFFED around is still deemed to be a breach of Contract, and principal knows this and invariably use that to bolster their own bottom line. So who is the BULLY Boy ?

    • The ACCC has new " unfair contracts" legislation now being implemented for small business. As a spokesperson for the Subcontractors Alliance I would be more than happy to take any unfair contract condition complaints to the ACCC for investigation on your behalf and confidentially. If the unfair clauses are included in your subcontracts then they will be included in others.

  • An interesting article Andrew and one that also highlights the absurdity of the disconnect that is holding back quality and probity within the Australian building construction sector. Your story focuses on another state based 'review' of what everyone knows to be largely ineffectual legislation to try to fix the demon problem of cash flow to contractors whilst simultaneously trying to protect consumer clients with other legislation. Guess what? NSW has just done exactly the same thing and performed their very own 'inquiry' into SoP here. One of the most glaring disconnects from reality in NSW is that whilst every subbie, supplier and consultant can hit the homebuilder up for a payment claim under the Act, the home builder cannot do similarly if their client is a homeowner. The point of my comment is that we as a nation display extreme hubris and ignorance of the fact that we should have uniform laws across Australia covering the building construction sector. Everything from licensing qualification standards and classes of building work licence, insurance requirements, standard form – easy to interpret contracts, pre-construction deposit limitations, forms of security, payment and simple dispute mechanisms, work inspection and certification all based on National Construction Code standards. We need to have government step up and switch off the small mindedness of allowing states and territories to continue to tinker at the edges. This is one area where the public would be very wise to allow federalism to be rammed through because God knows we have established a proven track record of total regulatory failure by continuing to operate with the same old bureaucratic ineptitude of state sanctioned controls.

  • Andrew — will the Office of the Small Business Commissioner and the responsible Minister be responding to the serious allegations made about the conduct of this legislative review of the SOP Act in S.A? The allegations made surround an unauthorised, undated and unsigned Queensland Building Construction Commission document allegedly containing wrong and misleading statistics distributed selectively to influence opinion regarding the proposal to remove ANA's in S.A. The responsible QLD Minister has publically disowned the document.

    Contractors access published adjudication results and simply remove users from their tender lists. How is that policed? Identify the claimant as a number only. Remove contractors who have a pre-determined number of successful adjudications awarded against them from government tender lists . A good business model for subcontractors and suppliers would be to access the same information and make an informed decision about entering into contractual arrangements with these contractors.
    The same should apply to consumers – they need to be able to make informed decisions regarding the builders dispute – payment and defective work record.

    This proposal is simply a useless offering designed to mask the real intent of abolishing a marketplace of ANA's. Proposed amendments beneficial for industry small business are only a consideration

    .

  • Talk about bullying trades?
    Can anyone remember that we have 1000 year old laws called crimes against the person?
    I was watching South Melbourne play football against another team back in the late 1950's or early 1960's I think, when the Policeman on boundary duty stopped the game, called over a player to get his details and had him before the Magistrate for punching another player. He would have been charged with assault not only against one person but every other person witnessing the event. Crimes are shown on TV and the attitude is that it’s part of the football game.
    We are a still a society that gives some people privilege before the law. I do not go to soccer games because of the violence and disrespect shown to women and children. When was the last time anyone was charged with assault against children watching a soccer match?
    We have bullying and threats made against people because the law is not enforced. For every crime committed against sub contractors there is another one committed by contractors / trades. We need to remind everyone that we hold the rule of law sacred at all times.
    Just as people think it is acceptable to punch someone or frighten children with violence during a football or soccer game the same applies to a building site. After all those sun burned and wrinkled men are not quire human; they do not have children waiting for them at the gate or mothers praying for them to return home safely.

  • Andrew, an excellent article. It highlights what is very widespread misconduct in the building industry, namely bullying by 'builders', surveyors and 'consultants' – of consumers, subcontractors and workers. It happens because the little guys, both consumers and subbies have no bargaining power. Over my now 10 years of involvement in the building industry, working closely with damaged owners in the domestic and strata sectors, in most cases where the 'builder' does the wrong thing by the consumer, I have found that the subbies have been wronged – either not paid at all, or paid in part or poorly. Just as with consumers, some tradies have been owed so much money that they have gone broke, lost their business and their own house. And just as for consumers, frequently the marriage and family break up follow, then the depression and too many never ever recover. Their lives wrecked, in some cases they die – a direct result of not being paid. I know of one painter who had 15 employees. When his big contractor refused to pay what was a big bill for 6 months' work, the painter employer paid all his staff, but he lost his house and under the stress he and his wife split up. His wife lost her husband and spent the next 15 years on her own raising the children. He lost his partner, this broke up the whole family – because this painter elected to do the right thing by his workers. But ultimately he paid an almighty price as he, his wife and children suffered such devastating consequences. I agree with Brett re the only way is federal legislation – only meaningful if ENFORCED. And I agree with Les that consumers and subbies should make informed decisions based on builder's history re work, disputes and payments – NOT POSSIBLE to do!

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