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The security of payments for subcontractors in the building and construction sector are again in the spotlight

WA builder BuiltonCorp collapses with more than $16 million in debts, as subcontractor payments remain in the spotlight

The security of payments for subcontractors in the building and construction sector are again in the spotlight after Western Australian builder BuiltonCorp collapsed into voluntary administration on Monday.

The company’s administrators are advising clients with homes under construction by the company that it’s likely they will have to find new builders to complete projects their projects.

Dino Travaglini and Jeremy Nipps of Cor Cordis have been appointed as administrators of BuiltonCorp Pty Ltd, as well as Builton Group Pty Ltd, Builton Property Holdings Pty Ltd and Aspireon Homes Pty Limited, with construction stopped on about 130 incomplete sites as the company ceased trading.

The administrators said Tuesday they are still in the early stages of assessing the company’s finances, but 38 staff had lost their jobs as the business has stopped trading. The company reportedly turned over $80 million last financial year.

An estimated $500,000 is owed to employees, while $16 million is believed to be owed to 350 unsecured creditors, many of which are believed to be subcontractors, according to the ABC.

One subcontractor, Dennis te Wierik, who owns Anstey Cabinets, told the ABC the BuiltonCorp owes his business around $1 million. He expects his work turnover to drop by 50 to 70% as a result of the voluntary administration and he has already been forced to let six employees go.

“I’m disappointed that I was led astray and was assured things were OK,” he said.

Administrators have advised suppliers to suspend all deliveries to the business, saying the company is unable to pay for them. The first creditors’ meeting will be held on February 3.

Meanwhile, home owners with unfinished building works have been told it currently looks unlikely that the company will be able to complete the projects, with administrators requesting copies of original contracts, building plans and projected costs from clients to assist with finding new builders to take over the contracts. Clients will also have to find their own construction insurance for the sites from now on.

“We are prepared to try to facilitate obtaining a new builder for you in the event that our assessment over the coming days definitively concludes that the company cannot complete under the contract,” Jeremy Nipps said in a letter to homeowners.

SmartCompany contacted the administrators for an update on potential next steps after the first creditors’ meeting next week but did not receive a response prior to publication.

Payments to subcontractors in the building and construction industry have been under scrutiny over the past year, with continuing concerns over Western Australia’s economic conditions at the mining construction boom slowdown continues.

The most recent CommBank “State of the States” report puts WA as the bottom ranked state for economic performance. The state ranked last in all eight key indicators considered, including building construction works and dwelling commencements.

In 2016, insolvency experts from Worrells said each state is facing unique problems when it comes to company collapses, although the mining slowdown is a key factor, with the flow on effects of the slowdown now also affecting businesses in Queensland as less workers flock to regional centres.

Subcontractor payments played a key role in policy debate at the end of last year, when the collapse of then-Family First Senator Bob Day’s building firms in 2016 prompted independent senator Nick Xenophon to strengthen calls for better protections for subcontractors in the event of company collapses.

The senator secured a concession from the federal government in this area when negotiating the passing of the Australian Building and Construction Commission legislation at the end of 2016, with a “security of payments” working group to be established.

Australian Small Business and Family Enterprise Ombudsman Kate Carnell has also outlined the significant pressures caused to businesses when they receive slow or no payment in subcontract arrangements.

“The reality is, many small businesses in the building sector have been stung by rogue head contractors who either don’t pay their subbies on time, or worse still, the lead contractor goes bust and simply doesn’t pay their subbies at all,” Carnell said in November.

EMMA KOEHN / Wednesday, January 25 2017 originally published

Large construction companies that don’t pay subcontractors will be banned from applying for government work, under beefed-up laws in WA

Complaints about late and non-payments to subcontractors have been rampant in WA’s building industry, with the troubled new Perth children’s hospital a notable example this year with head contractor John Holland accused of ripping off small businesses.

A new code of conduct would apply to the building and construction industry from January 1 with a “Building and Construction Compliance Unit” to monitor compliance, the government announced on Monday.

“If there is egregious conduct, consistent bad practice, serious breaches then yes, the penalty may be you will not be able to tender for government contracts and get the benefit of public money for a period of time,” Attorney-General and Commerce Minister Michael Mischin said.

The new code, changes to WA’s Construction Contracts Act and the introduction of Project Bank Accounts would support small business, help prohibit anti-competitive behaviour such as price fixing and sham contracting and there was scope to sanction head contractors, Finance Minister Sean L’Estrange said.

The ability to impose fines is also being considered.

Nick Xenophon Interview: Pushing For Changes To Protect Sub-Contractors

Nick Xenophon was interviewed this week on ABC Radio National about supporting the Governments Australian Building and Construction Commission (ABCC) Bills. In the interview he discusses how part of the negotiation will involve providing greater protection to sub-contractors, when builders go bust.

Also being negotiated is a way to ensure the Building Code and Australian Standards are used to stop sub-standard imported materials being used in the industry.

These are important issues, especially the protection of sub-contractor payments. As seen with the recent liquidation of Homestead Homes, most sub-contractors will lose money owed to them for work they have completed. The Security of Payments Act is seen as a way to ensure sub-contractors aren’t financially decimated when builders go bankrupt. Part of the issue is that sub-contractors have been made to feel they will miss out on work if they use the provisions in the existing Act. Another issue is that tradies who have been working as contractors unlicensed have no way to claim any payments. Having sub-contractors rights discussed is a great leap forward after so many tradies have been left out-of-pocket.

Are Builders Bullying Sub-Contractors Into Not Using the Security of Payment Act?

A proposal to make it unlawful for a head contractor to attempt to bully or intimidate a subcontractor out of using the Security of Payment Act has been put forward in South Australia under a review of security of payment legislation in that state being conducted by the Small Business Commissioner.

In his consultation paper put out in June as part of the review process, the Commissioner put forth the idea of a new provision in the Act which would make it unlawful for a contractor to threaten to blacklist a subcontractor from future projects on the basis that the subcontractor in question had used the Act to recover payment. Any contractors found to partake in this behaviour would be subject to maximum fines of $100,000 or two years’ imprisonment.

The Commissioner’s recommendation follows a review of the Building and Construction Industry Security of Payments Act (the Act) in South Australia by retired district court judge Alan Moss. In his report, Moss stated that he had received a number of oral submissions which stated that subcontractors were concerned about retribution in the event that they opted to use the Act. He added that there were a number of major firms who subbies believed would never employ a subcontractor again should the Act be used against them. Whilst he was unable to discern how well founded these fears are, Moss said he had little doubt that the fears were genuine.

In the paper, the Commissioner himself said that on the basis of his own conversations with subcontractors, he had formed the view that such behaviour is more widespread than what was generally acknowledged within the industry and that legislative intervention is needed in order to address the problem.

Not surprisingly, the proposal finds support from a number of organisations representing subcontractors. In its submission to the review, the Masonry Contractors Association says it supports the imposition of these penalties and indeed would further push for a Queensland style system of demerit points against a contractor’s licence for serious breaches of the legislation. Though it notes challenges associated with regard to evidence gathering, the Master Plumbers Association of South Australia also backs the move, arguing that the inference that there are types of intimidation by the head contractor to prevent the use of the Act ‘is in fact true’ and that standover tactics are ‘evident with discussions within the industry’.

Perhaps most enthusiastic of all is the National Electrical Communications Association of South Australia (NECASA), representing electrical and telecommunications contractors.

“NECASA agrees with the Moss Review in regard to the existence of a fear of retribution amongst subcontractors if they were to use the Act to recover payments in fact we have been informed on many occasions that intimidation occurs at the time of tendering prior to entering a contract,” the group said in its submission.

“We would therefore agree with the recommendation to include a penalty provision in the Act to bring about behavioural change…”

Not surprisingly, such proposals have elicited opposition from building industry lobby groups. The Master Builders Association of South Australia, for instance said the provision could “potentially become better known for its ability to waste investigative resources, resulting in the underlying scheme being maligned by prosecutors and the broader industry.” The Housing Industry Association, meanwhile, argued that it is not aware of any widespread intimidation practices, at least within the home building sector of the market, and that any form of intimidation which does occur should be dealt with through the criminal justice system as opposed to specific provisions in a form of civil legislation such as the Act.

Other commentators agree that there are concerns.

Referring to the proposal as ‘another pointless piece of rubbish,’ Contractors Debt Recovery managing director Anthony Igra said these types of legislation often sound good on paper but in fact tend to be rarely used in practice and therefore tend to be of limited effect. In New South Wales, for example, there are significant penalties for making false declarations about subcontractor payment, provisions that allow for department officials to swoop in on contractors and confiscate documents in respect of subcontractor payments, as well as jail time for serial offenders with regard to false declarations. Yet no fines or prosecutions have actually been issued and no jail time has actually been served, he said.

Moreover, Igra said there were problems with the proposal at a practical level.

First, intimidation would be almost impossible to prove. For one thing, any form of intimidation often takes place via face to face conversations or phone calls and thus is not evident in writing. Moreover, there are problems associated with defining exactly what intimidation is and what would in fact constitute proof of this.

On any given project, contractors have the right to choose or not to choose to use a given subcontractor on future projects, Igra said. Therefore, a simple refusal to use a particular subcontractor on the next project cannot in itself be taken as evidence that bullying or intimidation has indeed occurred.

Moreover, Igra says, once use of security of payment becomes entrenched within the industry, people became used to the system and actual retribution against subcontractors using it has become rare or indeed virtually non-existent. Instead, he says regulators should focus their efforts upon broadening the use of the Act, which is widely used in states such as New South Wales but rarely used in South Australia.

“I don’t think intimidation happens at all as often as people think and if it does happen, you can’t prove it and people are unlikely to prosecute,” Igra said.

Others, too, have expressed reservations. The Society of Construction Law Australia, for example, says it is ‘of the view that there are significant practical and legal difficulties with framing the proposed offence to enable it to operate fairly and evenly for all parties.’ It noted that contractors make engagement decisions regarding subcontractors based upon multiple criteria and a subcontractor who is unsuccessful in tendering for work is likely to be one of multiple subcontractors who had in fact tendered.

Distinguishing a refusal to engage a particular subcontractor for work due to previous use of the Act as against for reasons of an alternative subcontractor simply making a better offer would be extremely difficult, the society argued. Where contractor/subcontractor relations have broken down over payment disputes, as well, distinguishing between the contractor who refuses to engage a subcontractor on future projects on the legitimate basis that the relationship has broken down as opposed to one who refuses to engage a subcontractor for reasons of punishment associated with use of the Act presents further problems.

Even some subcontractor organisations are wary. The South Australian branch of the Air Conditioning and Manufacturing Contractors Association, for example, says it is open to discuss what such a clause would look like but was concerned that the gathering of sufficient evidence in order to secure a successful prosecution would be extremely difficult. Because of this, AMCA says it would need to see further investigation into the issue before it would support the proposed change and it would not support the change ‘as a Stage One issue’ (out of a proposed three-stage process of reform).

Threats and intimidation against subcontractors using the Security of Payment Act to recover money owed to them, it seems, is an issue on the agenda for regulatory reform.

Thus far, however, it seems that there are doubts about how this would work and how effective or otherwise it indeed would be.

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