How to stop builders ‘robbing Peter to pay Paul’
THE building sector's habit of "robbing Peter to pay Paul" has to end, according to an industry veteran who last year headed a Federal Government inquiry into security of payment for subbies.
John Murray AM, an experienced building adjudicator, made more than 80 recommendations for new laws to ensure subbies received more timely payment from builders.
The recommendations included a system of cascading statutory trust accounts, which would work similarly to trust accounts set up by solicitors and travel agents to hold money for clients.
"At the moment, a head contractor who receives payment from a client can use that money to fund other projects, pay its own creditors or buy vehicles," said Mr Murray.
"The days of subcontractors giving such interest free loans to contractors has to stop."
The review found that 72 per cent of Australian subcontractors in the building and construction industry were being paid late on at least 40 per cent of their invoices.
"This is an industry known for being undercapitalised with lots of phoenixing," he said. 'Phoenixing' is the creation of new companies to avoid paying creditors. The practice is not currently illegal under Australian law.
Current laws designed to protect subbies from being exploited by construction companies are a "dog's breakfast", according to the Australian Subcontractors Association (ASA). ASA director Louise Stewart said there was a need for uniform laws across Australia to ensure payment for subbies in the event a building company collapsed or unscrupulous behaviour by a builder.
Ms Stewart said a priority reform should be the introduction of cascading statutory trusts as recommended by the Murray inquiry.
She said Queensland's project bank account (PBA) system, which currently covered government projects, only stipulated a head contractor put money into a trust account for the lead subcontractor. Cascading trust accounts would have to be set up by anyone who engaged subbies to complete work.
"(Housing and Public Works Minister) Mick De Brenni has been exceptional in pushing through reforms for subbies but it only applies to the top subbie," she said. "Cascading trust accounts would apply to anyone who collected money for work completed by others and if you spent that money you would go to jail."
She said conditions in the building industry were set to deteriorate in the next 12 months amid slowing construction in New South Wales and Victoria. "We expect more delays and late payments," she said.
Mr Murray said that while he gave credit to Mr De Brenni for attempting to improve the situation for subbies, PBAs did not protect the most vulnerable subcontractors at the bottom of the payment chain. They also were burdensome from an administrative point of view with three separate accounts having to be established for each project to cover progress payments, disputed payments and retention payments.
Reaction to his inquiry's recommendations had been mixed with the matter being referred by the Federal Government to individual states for review.
Australian Building and Construction Commissioner Stephen McBurney said late payment or non-payment of subcontractors' money was widespread and had resulted in many otherwise viable businesses going to the wall and jobs being lost.