Ripped-off subbies ready to lash out
FRUSTRATION about non-payment in the construction industry has reached the point a major subcontractor has warned that governments need to act before people start taking matters into their own hands.
Tony Alexander, the proprietor of Total BLOX which employs staff from between Nambour and Coolangatta, lost $1 million in three months through non payment by builders.
He warns that people who have been broken by the indifference of ruthless builders who walk away from debt only to start up again, have the capacity to become irrational in the way they react.
The introduction of project bank accounts to firewall money owed construction sector subcontractors may prove a turning point in a three-decade battle to improve payment security.
The State Government announced last Wednesday it would introduce the system to all government projects between $1 million and $10 million in value from the start of 2018 with legislation to require project banks for all projects over $1 million from January 2019.
The move came after the release last Sunday of a Deloitte report commissioned by Housing Minister Mick de Brenni, which found the introduction of the system would add more than $6 billion to the Queensland gross state product and improve employment annually by more than 1000 people.
At present, clients make progress payments to the principal contractor who then passes money down the line to the small business subcontractors and their employees who do 85% of the actual work and supply the materials.
The problem with that system is subcontractors are left terribly exposed to builders who use the proceeds of one project to make payments owed on other jobs as they attempt to balance inadequate cash flow.
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New legislation will require building and construction projects set up a PBA, effectively a trust account into which the principal pays progress payments, which are then disbursed to the head contractor and subcontractors at the same time.
The timing of the planned introduction of Project Bank Accounts means the issue will be front and centre during the next Queensland state election tipped for November, 2017.
The Walton Construction collapse in 2013, which left Coast subbies working on the Nambour Coles project $3 million out of pocket, and a raft of Queensland construction industry insolvencies since have provided the impetus for the Palaszczuk government to act.
Last year's Senate Economic Standing Committee inquiry into construction industry insolvency heard evidence from the Australian Securities and Investment Commission and the Australian Tax Office of an emerging business model where builders planned insolvency to avoid commitments.
The Senate Report found that while the building and construction industry accounted for 8-10% of annual Gross Domestic Product and the same proportion of total employment during the past decade, at the same time it accounted for between one-fifth and one-quarter of all insolvencies.
Among its 44 recommendations are calls for project bank accounts, which was also a recommendation of the 1996 Queensland Scurr Report that was eventually ignored as were similar recommendations by the 2003 Cole Royal Commission.
There are 85,000 small business subcontractors in Queensland employing more than 250,000 people whose businesses survive on the whim of builders who control all money flowing from the client.
Mr de Brenni said he had been told of repeated instances of head contractors delaying payments to subbies in order to supplement their own cash flow and to offset the costs of other projects, receive interest and to avoid the additional costs associated with accessing their own funding.
"These shonky practices must be stopped," he said.
"Many subbies are being used as pseudo overdraft facilities."
Mr Alexander's company in a three-month period from November last year to February this, was left unpaid for a total of $1 million for work done and material supplied to SX Projects and Trac Construction.
"We worked for Trac and did all the block work on all its projects," he said.
"There was just false promises about payment up to when it closed its doors.
"If they had just gone bankrupt in a way it would have been okay. But not when you know about issues behind the scenes with property transfers.
"I've yet to find a governing body willing to do any- thing about it.
"We had Trac in February for $800,000 and three months before $200,000 unpaid by SX Projects.
"That was a million down the hole. To climb out was a challenge.
"And we had the QBCC after us to prove we weren't trading insolvent. Yet I believe those involved are back developing."
Mr Alexander claims on statutory declarations that subbies had been paid were forged by rogue builders to secure further progress payments by clients.
He describes the latest Queensland Government policy as a commendable step forward but said the announcement felt like Ground Hog Day with similar promises made 20 years ago.
Mr Alexander said the Trac and Walton collapses were examples of the same thing. He thinks rather than project bank accounts a requirement for directors' personal guarantees may be the only way to clean up the problem.
"Contract administrators go to uni to learn how not to pay people," he said.
"It's unethical. If you were paid for everything you did you could earn a good living.
"As it is you sit there wondering why you are doing it.
"The impacts go right down the line. Your staff and their families are left feeling vulnerable. I was getting calls daily asking if we were okay and whether they should be looking for another job.
"It's really tough. I would think why don't we go under a bus too and make it someone else's problem.
"Subbies don't do that. But some builders don't care. They think they can just close it down (a company) and then start up again.''
Nicklin Independent Peter Wellington said his involvement with the Subcontractors Alliance, headed by Coolum civil engineer Les Williams to recover $3 million left owing to Sun- shine Coast subbies working on the Nambour Coles project, had opened his eyes to the way the construction sector operated.
"I have no doubt there is an industry within the building sector that is designed and structured to use money for other purposed that should be going to subbies,'' he said.
"And I have no doubt as a result of numerous discussions with (Housing Minister) Mick de Brenni that the case study of the Walton collapse has highlighted industry practices and provided an opportunity for the Minister to justify the need to change how the building industry operates.
"The Walton example has given the Minister a clear reason to act."