Subcontractors says proposed payment laws shake-up still leaves them exposed to project failures

The West Australian
The construction industry accounts for a disproportionate number of business insolvencies in WA and dozens of builders.
The construction industry accounts for a disproportionate number of business insolvencies in WA and dozens of builders. Credit: Mary Altaffer/AP

Subcontractors have reacted with fury to proposed new laws designed to protect payments to tradies working on major projects, saying they fall well short of what is required and leave small business owners exposed to crippling losses.

Prior to drafting the Bill, Commerce Minister John Quigley had been outspoken in his support for the introduction of “cascading statutory trusts” — common in Canada and the US — which would force head contractors to set aside progress payments for subcontractors they engage on a project.

Currently, there is nothing to stop project managers using that money as they see fit.

But the key measure has been omitted from the final legislation read into Parliament Wednesday, with the McGowan Government only moving to protect retention money — which usually represents just 5 per cent of a contract’s total value.

Subcontractors Alliance spokesman Les Williams said that meant builders would continue to be permitted to treat tradies as lines of credit, forcing them to purchase materials and pay their staff upfront with no guarantee they would be compensated if the project goes bust.

“What they have proposed doesn’t in any way provide security for subcontractors, who are the backbone of the economy – not the big builders,” Mr Williams said.

The construction industry accounts for a disproportionate number of business insolvencies in WA and dozens of builders — including major companies — have closed their doors in recent years, in some cases owing millions of dollars to subcontractors.

The new laws do target directors engaged in “phoenixing”, the practice of setting up a new business that has no liability for the debt of the previous operation, proposing to allow regulators to ban head contractors with a history of insolvency.

But Mr Williams said banning dodgy operators would come “too late” to help subbies.

“The builder is off with the money, sometimes millions of dollars, and doesn’t have to do it again while the subcontractor is left with nothing,” he said.

During consultation on the Bill the construction industry strongly opposed statutory trusts, claiming they would impose an unnecessary administrative burden on project managers.

“Where is there proof of the administration costs? All they have to do is operate another bank account with rules saying you can’t take money out of it until you pay your bills,” Mr Williams said.

Louise Stewart, spokeswoman for national subcontractor group ReBuild Australia, also slammed the Bill.

“It is no more administration burden to require cascading trusts for retention funds than what it is for the full progress payment,” she said.

“The real reason for (the construction industry’s) resistance is they don’t want transparency across the project money. They want to be able to go and buy a Porsche or a boat with money that belongs to subbies and not have to answer to anyone.”

Masters Builders Association WA executive director John Gelavis welcomed the proposed reforms but said they should be “phased in” to allow builders to adjust to the new obligations.

“The State Government has rightly not moved forward with statutory construction trusts in the legislation,” he said.

“Statutory provisions that each contractor and subcontractor in the contractual chain is deemed to hold funds in trust for parties further down the chain would have an adverse impact on the industry, particularly in the difficult economic situation we are facing. The proposed new retention trust scheme will be less disruptive.”