Subcontractors lost $8m on govt works

The state government will establish a $5 million ex gratia hardship fund for subcontractors who were not paid for work on government building projects as a result of the insolvency of head contractors.

The Small Business Commission today revealed 110 subcontractors had not been paid for their work on projects as a result of the insolvency of seven head contractors engaged by the Department of Finance’s Building Management and Works.

The fund will allow affected subcontractors to claim up to 50 per cent of their verified losses but falls short of the $8.1 million of losses identified in a report by the Small Business Commission.

More than 300 instances of contractor non-payment in the four years to October 2012 were submitted to the Commission, with a significant number of claims related to the federal government’s Building the Education Revolution scheme.

Significantly, the investigation found that there was evidence to support allegations from subcontractors that Building Management and Works was made aware of non-payment issues prior to the head contractor becoming insolvent.

Finance minister Mike Nahan said the government did not bear any legal liability to the affected subcontractors but had established the fund as it was sympathetic to their plight.

He rejected suggestions of incompetence within Building Management and Works, describing the ‘onerous’ demands on the department as a result of the rapid construction requirements of the federal government’s massive infrastructure spend.

“Unlike the eastern states, BMW had a record capital works program,” Mr Nahan told reporters.

“It then got hit with a doubling of that workload and told ‘finish these additional billions of dollars in 12 months or you lose it’.”

The state government will also introduce a trial of project bank accounts which quarantine project funds within a bank account, ensuring subcontractors are paid in the event of a head contractor becoming insolvent.

Subcontractors alleged there had been a failure to check the veracity of statutory declarations signed by head contractors relating to their payment.

Mr Nahan said the new scheme would allow for a greater level of transparency, declaring the statutory declarations “aren’t worth the paper they’re printed on”.

He admitted the introduction of project bank accounts, which were implemented in New South Wales earlier this year in response to similar concerns, would not be popular with contractors.

“Contractors will not like this,” Mr Nahan said.

“It gives the subcontractors a higher pecking order in case of insolvency, in terms of access of project base funds.”

Mr Nahan will tomorrow release an interim report on the government’s attempts to revive the Muja coal-fired power station, which has been subject to a massive blowout in spending.

The Energy minister would not be drawn on the details of the report but said the project had been identified from an early stage as “very profitable”.

“Some projects are very profitable, and if costs blowout they’re still profitable,” he said.

“When it was first put out, it was very profitable.”