WA Moves to Protect Subcontractors as Losses Mount 1

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Tuesday, August 30th, 2016
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Subcontractors in Western Australia will have greater protection with regard to money owed to them, more time to prepare claims for adjudication under security of payment legislation, greater rights to receive payment sooner and greater protection against bullying and coercion under newly announced changes as the government in that state moves to quell growing anger about non-payment on public sector projects.

In the wake of the collapse of builder CPD Group, small business minister Sean L’Estrange and finance minister Bill Marmion have unveiled a suite of measures designed to provide greater protection for subcontractors.

The centerpiece of the changes revolves around an expansion of the rollout of project bank accounts – a phenomenon whereby money paid by the principal is paid into a special bank account and distributed directly to head contractors and subcontractors who work on a project according to the proportion of the payments each party is owed in respect of the work in question.

These accounts are widely considered to provide better protection for subcontractors as they result in money owed to subcontractors being paid directly to them as opposed to being passed down the line through the head contractor – an arrangement which subcontractor groups say has seen head contractors use money effectively owing to subcontractors for their own working capital purposes.

Project bank accounts will now be mandatory on every project where the value of the works in question is between $1.5 million and $100 million.

In other changes:

  • The maximum amount of time which a head contractor is allowed to take in order to pay a subcontractor has been reduced from 50 natural days to 30 business days (or 42 natural days).
  • Subcontractors will now have 90 business days in which to launch an application for adjudication – up from 28 natural days now.
  • A new offense will make it illegal to attempt to attempt to intimidate, coerce or threaten any party in an effort to prevent or deter that party from pursuing remedies available to them under the Act.

The government will also develop a new supplier Code of Conduct which will apply to all contractors who are selected for work on government funded projects.

Contractors who do not comply with the Code face the prospect of being banned from work on government funded projects.

The latest developments come as the state government comes under immense pressure from subcontractors who have not been paid for work performed on government projects.

Building company CBD, which had been given a clean bill of health by the government last August, reportedly had seventeen government contracts worth $17.6 billion on its books upon going bankrupt in June, whilst subcontractors working on the Perth Children’s Hospital project claim to be owed tens of millions of dollars in alleged late and non-payments by head contractor John Holland.

L’Estrange said non-payment of subcontractors was unacceptable.

He said project bank accounts not only streamlined the payment process and improved transparency but also helped to shield subcontractors from phoenix activity.

“Finance Minister Bill Marmion and I have met with subcontractor representatives and we acknowledge their specific concerns,” he said.

Whilst the new measures will help subcontractors, meanwhile, some of the measures also raise concern from the viewpoint of head contractors.

Whilst the more limited timeframe in which subcontractors previously had to make an adjudication had been raised as a concern by the Small Business Commissioner in a 2013 investigation into subcontractor insolvencies, for example, the new longer timeframe raised concerns about ‘ambush tactics’ and a potential need to increase adjudication response times, leading law firm Corrs Chambers Westgarth said in commentary published on its web site.

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  1. Les Williams

    Subcontractors are burnt in every market so why the restrictions to below $100 m. Maybe to protect the Tier 1 builders who are the worst offenders when it comes to all of the issues identified in the Senate Committee report.. 42 natural days is rubbish as subcontractors don't receive those payment conditions from their suppliers. I believe that in WA the opposition reforms are preferable. How will they police the intimidation and discrimination aspect. Contractors simply remove subcontractors from their tender lists. Most money disputes arise from an onsite dispute and should be resolved that way inside the PBA. The aim surely is to avoid costly adjudication and legal action that main contractors promote having the far superior financial resources. We cant just say we are going to have PBA's — the type of PBA is crucial and should be spelt out. The retention trust in place in NSW has been described in a legal piece as a "claytons trust" and virtually useless. Another issue for subcontractors to be wary of are those who purport to represent subcontractors best interests actually are doing the opposite. The WA government has had ample opportunity to implement change but haven't but now with an election looming they announce reform that has peak bodies fingerprints all over it like SA.

    In the case of the insolvent contractor identified – check for signs of a pre-packeged liquidation particularly if they were a viable organisation when contracted as the government indicates. What action is the relevant government department taking to recover payment for subcontractors? Will they be working with the liquidator to ensure the directors are properly investigated for insolvent trading. Will they fund a PE?