Andrew Wallace (Fisher, Liberal Party) Share this | Hansard source

I have been a builder in the construction industry for 30 years. I have worked as a carpenter, an adjudicator and a barrister. As a barrister, I produced three independent reports between 2013 and 2015 for the then Queensland government into the reforms of the Queensland Building Services Authority, security of payment and private certification in the Building Act.

One of the most important issues facing small businesses in the construction sector is that of security of payment for subcontractors. The 2015 Senate inquiry into insolvency in construction found:

In 2013-14 alone, ASIC figures indicate that insolvent businesses in the construction industry had, at the very least, a total shortfall of liabilities over assets accessible by their creditors of $1.625 billion. Others who have analysed the data place the amount at $2.7 billion.

It also found that the industry is burdened every year by nearly $3 billion in unpaid debts, including subcontractor payments. In my own state of Queensland, we have seen the terrible outcomes for subcontractors of failures in security of payment. Since 2013, construction company collapses may have seen as much as $200 million worth of debts left owed to as many as 3,500 subcontractors. In recent months, the collapses of Cullen Group Australia, Batir Construction and Bloomer Constructions have left many tradies struggling to keep afloat. We must do something about security of payment for subcontractors.

We have seen what the wrong approach looks like with the Queensland state government's proposed legislation to impose project bank accounts on all projects between $1 million and $10 million by 2019. Every project of this size will have to have its own project bank account, or PBA—a ring-fenced trust account established and managed by the head contractor. The principal will pay into the trust account, while the prime contractor and first-tier subcontractors will be paid simultaneously from that account. This may sound like a positive idea at first blush, but this move will result in no greater security of payment. Instead, it will form a statewide brake on growth and a catalyst for higher prices in what is already an over-regulated market.

Building projects of a value of over $1 million often involve multiple tiers of many subcontractors. It is those further down the chain—the self-employed tradies and family businesses—who lose out first when there are problems and are most vulnerable to such cashflow problems. The project bank account expressly excludes subcontractors beyond the first tier. Further, it is the head contractor that submits the payment claim to the principal, and the principal or superintendent that submits the progress payment instruction to the bank. The PBA will therefore do little to protect subcontractors down the contractual chain from unscrupulous practices. If the principal chooses not to pay enough money into the PBA because of perhaps a dispute between the principal and the head contractor, the funds will simply not be there to pay either the head contractor or their subcontractors. If a dispute arises—and that is how I used to make my money—between a subcontractor and the head contractor or principal about the payments due, as it often does, the PBA will be of no value. These disputes will continue to be resolved using the security-of-payment legislation, but in the meantime no payment will be made from the PBA to any other party down the contractual chain.

So the PBA will do little to assist. It is very likely that the scheme will actually increase costs for consumers, create significant risk and administrative complexity for head contractors and perhaps even lead to more insolvencies. Under PBAs, builders are going to face a greater need to source finance, overdrafts and industry creditors but will see some of the cash flow they could previously rely on to reassure their potential creditors reclassified as money held in trust. Further, the necessity of operating a PBA system on its own will increase head contractors' costs, literally thousands of complex new trust accounts will need to be created and administered to meet that new requirement, and most head contractors will need to bring in outside help from expensive professional service companies. So we know what the wrong answer is. The Turnbull government has consulted widely, listened to subcontractors and considered these issues carefully. So I ask the minister: what is the federal government doing to better ensure security of payment for subcontractors in the building industry?

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