Security of payments is a real issue and should not be given political lip service, Civil Contractors Federation Queensland chief executive Damian Long writes
On average in Australia, since 2013, 1552 construction companies have entered external administration and controller appointments. For the 2021-22 financial year the number is currently 953.
Headline insolvencies are a fraction of the true number. The real tragedy is that a portion of the companies placed into administration each year, due to no fault of their own, suffer because of a company further up the contracting chain going into administration.
These are locally owned companies that employ local people and contribute immensely to the community. The destruction goes beyond the boundaries of the company.
The latest headliners have been Probuild (Wilson Bayly Holmes-Ovcon) and Condev. The failure of these companies has been publicly attributed to COVID-19, extraordinary price increases, restrained resources and the withdrawal of support from their parent companies. The fullness of time will define more accurately the reasons, but regardless contractors do not set out to go broke and not pay their subcontractors and suppliers.
The fundamental issue is that construction companies and the companies down the contracting chain are not being properly compensated for the work they do. The tight margins, allocation of risk, responsibility for controlling uncontrollable supply and labour prices are being passed from the client down through the contracting chain.
It is easy to label these contractors as “rogue” or “dodgy” but when faced with a situation where the costs are going out quicker than the income comes in, they go into damage control, hoping the next project will solve the issues. Invariably this does not happen, and it is usually evident that the plug should have been pulled earlier to mitigate the damage.
Governments enacting security of payment policies are noble but miss the mark. The Queensland Minister for Energy and Public Works, the Hon Mick Di Brenni MP, was quoted as saying in relation to security of payment reforms:
“Ensuring people are paid for the work they perform means industry can stop wasting time chasing late or unpaid invoices and can instead focus on growing their businesses and creating jobs for Queenslanders.
For far too long, subcontractors have had to shoulder most of the financial risk on building projects
These reforms help ensure that subcontractors in the building and construction industry are paid in full and on time, every time.
With these reforms, Queensland will have the strongest protections for subcontractors anywhere in Australia.”
Unfortunately, we are not there yet.
A backbone of the reforms is to implement Statutory Trust Accounts or Project Bank Accounts. These create another costly layer of red tape that does nothing to solve the fundamental problem of ensuring that all parties in the contract are compensated for the work they do. Although the current planned implementation of these accounts does not largely cross over into the civil construction industry, any notion to do so should be rejected.
True security of payment reform would address the procurement and contract regime in the construction industry.
The Queensland Department of Transport and Main Roads (TMR) is leading the way by recognising the importance of competitively procuring fairly, ensuring the contractor can provide a solid price for the work that is required and compensating for extraordinary cost increases that the construction contract does not provide for. The collaborative approaches that TMR is pursuing should be applauded.
Paradoxically other government departments do not do this. Neither does local government and particularly most of the private industry.
Real reform would provide protection against unfair contract terms, provide procurement practices which are fair, transparent and offering sufficient information for the contractor to base their price on, provide equitable mechanisms for fair compensation of items the contractor cannot properly price and appropriate allocation of risk.
The current laws available to contractors, subcontractors and suppliers that provide for recovery of disputed and or unpaid claims are vast and are proven to work. Unfortunately, there are barriers to their use such as cost, awareness and stigma.
Reform needs to include a cheap mechanism that provides information regarding all avenues for payment recovery and strengthen protection against adverse action towards claimants for using these processes.
Hopefully governments, both state and federal, will progress these reforms for the betterment of the industry.