Why You’ll Go Broke on Government Jobs 7

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Monday, July 13th, 2015
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I have run several claims for contractors on large government jobs, and if you think you have any additional security or assurance that the head contractor will be better behaved because it is a government job, then think again.

In fact you are likely to come across even more ruthless and lawless payment behaviour precisely because it is a government job.

This is because you will not find a more disinterested and disconnected principal than a government department. The only concern for them is to make the payment to the head contractor and close their ears to everything else. I have seen utter mayhem go on at the subcontractor level on government jobs; many going broke and having to deal with the most absurd reasons for non-payment. Some are simply not paid at all for months. These often make the headlines, as we know.

What amazes me is this: governments and Ministers make lots of noise about ensuring people get paid in the construction industry, and how they are determined to clean up lawless behaviour, but when an actual scenario unfolds before their eyes these same Ministers head for the hills. They say they don’t want to interfere in ‘contractual issues’ and that ‘it is not a matter for the department.’

I once had a bizarre conversation with an in-house lawyer for a state government department who admitted how absurd it was that a certain builder, who hardly paid subcontractors anything, and who was well known to the department for payment problems, kept getting awarded government contracts.

That really lies at the heart of this: the total disconnect between the government as project principal and the conduct that is carried out in on its projects. Now one may say that what goes on between head contractors and subcontractors is not the principal’s concern; the principal is in a contract with the head contractor and that is all that matters, so why should government clients be any different?

They are different because it is the same government that imposes codes of conduct for its suppliers that require certain levels of ethical behaviour. These same governments spend millions on inquiries into insolvency in the construction industry.

The Federal government is running its own inquiry into insolvency right now. These same governments require their suppliers to submit to financial checks as part of their pre-qualification to ensure they have the financial capacity to carry out projects. They spend time and money implementing legislation across the industry to ensure payment practices are proper and lawful. Most states have reviewed their Security of Payment legislation in recent years with the stated purpose of ensuring everyone gets paid. And finally these are the same government Ministers that have to front the media with every large collapse and voice their concern about the all those unpaid subcontractors.

So governments and Ministers are definitely on message about making sure payments occur properly in the construction industry. But that is really only what they say; the critical issue is, what do they do?

Not much.

When large head contractors collapse on government projects, the same stories emerge: subcontractors not paid a cent for months, or at best very little. These don’t come as a surprise because trade associations, unions, and the subcontractors themselves have often voiced serious concerns for months prior about no one getting paid. The head contractors and governments then offer the same explanation: ‘it’s a contractual issue.’

This phrase has been the mantra that explains why head contractors don’t need to explain anything to their government clients, and why government clients don’t need to see what is going on with its projects.

Even now on a recent collapse another state government Minister said he did not want to ‘peer into the contract.’ Why not?

Given the government investment in legislation, inquiries, and qualification processes one would have thought the relevant Minister would have not peered into the contract, but pulled on his boots and stepped neck deep in it to see what the hell had been going on for the past six months.

Departments and Ministers ought to request a ‘please explain’ from the head contractors when stories of months of non-payment emerge.

Now I am the first to agree that payment disputes between head and subcontractors are not a principal’s concern. But there are ‘payment disputes’ and then there is rampant non-payment. When subcontractors are being paid nothing or only a minute percentage of their claims for several months, that is not a contractual dispute; that is either a head contractor on its way to liquidation or else the money is going somewhere other than into the contractual change.

Government clients would do well to know the difference.

Even more, they would do well to be interested in the difference, and actually do something about it. Until they do, all the inquiries, legislation, and media quotes are mere window dressing.

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7
  1. Grant Spork

    Perhaps close the departments and privatise them? During the "Build the education revolution,"only large builders were taken on to undertake government work. These contractors "Creamed it" while smaller builders were fed crumbs. A prequalification of builders should be conducted by state and federal governments, so that when an intervention is required they have shovel ready contractors and projects. Independent Quantity Surveyors should be contracted to supervise head contractors payments to sub-contractors. The culture of non-payment is so pervasive in the private sector and public sector that something must change. Security of payment legislation should apply in all circumstances and should be mandatory. Voluntary application of SOP has failed sub-contractors and our economy.

  2. John Thomas

    That is a totally incorrect characterisation of Government Depts. Most government agencies have strict policies on the treatment of subcontractors and this is audited regularly.

    • Anthony Igra

      I don't normally make a comment on my articles but John I feel your comment is so inaccurate I feel compelled to respond. In ten years I have never heard of a single subcontractor ever being contacted in relation to any audit by any deparment. Rather the opposite. I witnessed subcontractors pleading with an RMS officer about non-payment by the now defunct Reeds – who insisted that there was nothing the department could do because it was a contractual matter. Even when given numbers to contact, this was refused. In NSW there was once a Construction Contracts Committee that oversaw government works but when I contacted it about non-payment I was told that they did not even have in place any process to address such issues. John if what you say is correct then these 'audits' have been spectatcularly unsuccessful in recent years given the rash of collapses on government jobs and the hundreds of subcontractors left unpaid.

  3. No better example of this can be seen when all of the subcontractors who were engaged by Reed Constructions for work on a government road project missed out on tens of millions they were owed. Three days after it emerged that the subcontractors would be paid essentially nothing, the NSW state government announced a major insolvency inquiry. But from what I understand, the government did nothing to help subcontractors who did not get paid for work on a major government project.

  4. flavio maglica

    Yes all goverment and some council contract go broke, its there fault because CHEAP ALLWAYS WIN THE TENDER and the Govt and council know its to low and why all the other tenders are at a realistic price CHEAP WINS is all about the dollars saving . I lost a conntract by $600k i came second its impssible for company to complete that project at cost, gusses what the the contract won .BULLS**T When will the Government and coucil be held accountable for making these very bad discission , and innocent sub contractors who do all the work going broke.

  5. Peter

    Security of payment legislation. Mmmm, I'll make it simple. Deposit first. Final payment on completion. Difficult to manage the finance on the job when the principal just refuses to pay. No pay, no entry to client.

  6. Mark Nelson

    Anthony
    where do I start as this is like reading my life story.
    I have made contact with you previously re a defence project at HMAS Albatross Nowra.
    Head contractor Hewatt earthworks place in voluntary administration 6 months into job ( May 2014)
    Defence and Lend Lease approached in march re slow payment
    Defence statement – not our problem
    Hewatt enters DOCA in August 2014 for 4.5 & 9 month progress payments.
    July 2015 still not a single cent received.
    ASIC not interested in DOCA breach.
    Administrators unaccountable for delay but continue to draw payments – 500000 + to date.
    Repeated approaches to Government re fraud potential has been dismissed – Potential fraud against Federal Government no less
    Defence says procedures followed yet 30 subbies 3 – 5 million out of pocket.
    Chairman of funding committee for next stage (noted on Hansard) says need work for laywers not to go broke.
    If you wish to further discuss quite willing to provide details as I have just re approached defence/government to indicate how Lend lease received full contract payment when it was well documented 30 + subbies still owed 3 – 5 million dollars on project.
    Hewatt registers 2 new companies following DOCA