Construction industry needs to build trust for subcontractors

A comprehensive review of the security of payment laws in the building and construction industry reveals more protection is needed for subcontractors.

The Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, says she supports the recommendations in the final report to improve consistency in the legislation and enhance protections. Change is needed to ensure subcontractors get paid on time for work they have done regardless of which state or territory they operate in.

“We know the construction industry has a track record of poor payment practices and insolvency,” Ms Carnell said.

“The review by John Murray AM confirms that the very structure of the industry pushes risk further down the supply chain, often to small business subcontractors, and things need to change.”

Recommendations include the implementation of a deemed statutory trust model to be applied to all parts of the contractual payment chain for construction projects over $1 million, plus a program of industry-wide education and training.

“I support this recommendation. It is important that all parties involved in the contractual chain are protected, not just the first layer of sub-contractors,” Ms Carnell said.

“Statutory trusts will go some way to alleviate the problem of subcontractors not being paid as the result of illegal phoenix activity.”

In 2017, the Ombudsman’s Payment Times and Practices Inquiry conducted a survey with 60% of construction industry responses indicating that 40% or more of their invoices were paid late, while 37% reported more than 60% of their invoices were paid late.

“We know that a lack of cash flow is the leading cause of business insolvency. We have also seen first-hand issues such as competitive pressure on tender price, short timeframes to complete projects, lack of due diligence, untrue sworn statutory declarations and business owners who are often unaware of, or do not understand, dispute processes,” Ms Carnell said.

“It makes sense to implement the statutory trust, in a standard industry format, that is transparent and of little cost to the contracted entity.”

The Government will work collaboratively with the states and territories and consult with industry to consider the report’s recommendations and explore ways to improve the protections for individuals and businesses in the construction industry.