Subbies reform crawls along

The Weekend West, 17.9.16, by Paul Murray:

The precarious life of many construction industry subcontractors was thrust into public attention during the Rudd government’s ill-fated $16.2 billion Building the Education Revolution spending spree.

The BER projects in WA were managed by the Barnett Government and the financial failure of seven head contractors led to non-payments cascading down, the line, even though in many cases mandatory statutory declarations were made that the subbies’ bills had been met.

As a result, many subcontractors – in the main, small family businesses – went to the wall around 2012, most feeling they should have been better protected when working on government jobs.

The State Government was undeniably slow to act. The initial reaction of Premier Colin Barnett was that this was the way the industry had always operated and subbies had to accept the risks.

You could trace that comment all the way back to his predecessor Peter Dowding, who formed a tripartite group in the 1980s to try to get away from what he called the “dog eat dog” nature of the building industry.

In the BER fiasco, some sense finally prevailed and a limited number of subcontractors got part of the money owed to them. For many it was too late.

But it did spark a report by Small Business Commissioner David Eaton in 2013 that led to a wider review of WA’s Construction Contracts Act by Professor Philip Evans and which will soon lead to further legislative reforms.

WA Labor’s political instincts on this issue have been much better than the Liberals from the start and shadow minister Kate Doust has come up with a policy that could hurt the Government going into an election.

The Liberal Party’s traditional closeness to the Master Builders Association appears to have created a level of caution that creates an opening for Labor.

The Government is using the Evans report to take a fairly minimalist approach to changes, based on his finding that the Act was substantially sound and the major problem was the industry’s ignorance of it.

However, even the Government’s official response noted that there are significant problems in how the industry is structured:

“The industry’s reliance on cash, low capitalisation and extended contracting ‘chains’ or ‘pyramids’ of subcontractors means that payment default or business failure higher up the contracting chain continues to put those businesses further down the chain under significant financial pressure,” the Government said.

“As subcontractors and suppliers continue to provide 80-90 per cent of trade work for construction projects, their risk level from non-payment remains high.”

Now, it’s not that the Government is doing nothing.

Commerce Minister Michael Mischin has committed to reduce maximum contractual payment terms to 30 business days to facilitate prompt payment and increase cash flows, and expand to 90 days the time for subbies to apply for adjudication of a payment dispute.

“The State Government will consult extensively with industry in framing the best methods for protecting retention moneys during insolvency events and ensuring retention money is not unreasonably withheld from subcontractors,” Mischin said.

And he has promised penalties for intimidation to address “the apparent fear of retribution” among subcontractors if they use the Act to resolve payment disputes.

In a clear response to some of the BER problems, the State Government will tighten the law on building contractors who have forced unfair contract terms or engaged in unconscionable conduct towards subcontractors and suppliers.

And it will introduce a code of conduct for tenderers on government-funded projects through its Building Management and Works arm to act as a good behaviour test for contractors. But Labor has upped the ante, promising a “project trust account” for government contracts to protect access to progress payments between head contractors and subcontractors.

It will also establish a security of payments mechanism for government and non-government contracts to provide more transparency and structure to progress payments.

“In 2013 the Liberal State Government announced a trial of project bank accounts for selected BMW construction projects,” Labor says. “The State Government has decided not to implement this initiative despite overwhelming support from the subcontracting industry.”

Labor is also toying with a big stick approach with tentative support for a demerit points system leading to licence disqualification for offences including the non-payment of subcontractors as has been instituted in Queensland.

“A schedule of offences similar to those adopted by the Queensland Building and Construction Commission will be considered in conjunction with a public register to serve as an alert to contractors, suppliers and homeowners,” the Labor policy says.

Labor senses that the Government has misread the level of community unrest about what happened to subcontractors and the number of people who were hurt by the BER collapses.

“In WA, subcontractors continue to experience uncertainty on government and non-government projects which is evidence of the need for broad industry reform,” Labor says.

“The Liberal State Government has had ample time to implement changes that will benefit subcontractors and has failed to do so.”

The stage is now set for an intriguing policy auction if the Government can get its legislation to the Parliament and dealt with before the election in March.