Subcontractors WA chair Louise Stewart has welcomed the state government’s decision to expand the use of project bank accounts (PBAs) to protect subcontractors, but is pushing for the introduction of legally binding statutory trusts.
The government said today it would increase its use of PBAs to government projects worth more than $1.5 million.
PBAs use a dedicated trust account to facilitate payments directly and simultaneously from a principal through to the head contractor and participating subcontractors involved in a project.
Previously only projects within the Department of Finance above $1.5 million used such accounts.
The changes do not apply to private sector projects.
As part of the regulatory changes announced today, the government will also establish a subcontractor support unit, led by small business commissioner David Eaton.
The commissioner will have the power to force head contractors to prove payments to subcontractors, conduct random and targeted audits, and recommend to government to sanction head contractors.
Subcontractors will also be able to make anonymous complaints to the unit.
The group is expected to be operating in the first half of next year and will include seven full-time employees.
Ms Stewart praised the government for introducing the new regulations.
“We’re very relieved that the state government has acted in addressing the delayed and non-payment issues in the construction industry in Western Australia,” Ms Stewart said.
“They’re recognising that government has an important role to play in setting an example in terms of good payment practise and also imposing a fair payment regime onto their subcontractors.
“We were also happy to see that they’ve recognised the importance of compliance in terms of changing the payment practises in the construction industry and then actually going to be implementing a subcontractor’s support centre.
“It’s a good step in terms of providing more confidence and trust back into the industry in what’s been a very devastating year for subcontractors as a result of the level of insolvency.”
However, she said uncertainty remained around the protection of trusts.
“In terms of the big picture reform we are still advocating for cascading statutory trusts, which means that the protections are there under the statute of law,” Ms Stewart said.
“Cascading statutory trusts go all the way down the supply chain.
“The head contractor might have a PBA in place so they get paid very quickly and they pay their contractors quite quickly but there is a lack of transparency further down.”
Small Business Minister Paul Papalia said PBAs would improve protection for subcontractors.
“It will no longer be acceptable for a head contractor on government-led projects to fob off their responsibilities,” he said.
“The McGowan government will set an example for the private sector by ensuring all subcontractors are rightfully paid.
“I look forward to the commissioner being empowered to receive proof of payment and to showcase our most deserving, best practice contractors.”
Commerce and Industrial Relations Minister Bill Johnston said PBAs did not protect subcontractors if the head contractor went into administration.
"There is no way state law can deal with the insolvency laws in Australia and so there is no question the Commonwealth government should look at its own legislative framework," he said.
The government commissioned a review into the security of payments for local subcontractors in February, which it has not released.
Master Builders Association of WA executive director John Gelavis said the changes were concerning.
“The association fully supports the right of all businesses in the building industry contract chain to be paid in full on time,” he said.
“However, the government’s move pre-empts the outcome of the industry advisory group it set up to review security of payment for subcontractors.
“Finance Minister Bill Johnston already has the advisory group’s report, prepared by the independent chairman, John Fiocco, and assistant chairman, Labor MLC Matthew Swinbourn.
“Before embarking on more PBAs, the government should be honouring its undertaking to produce a discussion paper based on Mr Fiocco’s report.”
The Civil Contractors Federation WA congratulated the government on the changes, but questioned the level of industry consultation.
“Security of payment is a huge issue and we applaud this government for taking it seriously,” Civil Contractors Federation WA chief executive Andy Graham said.
“Along with many other industry groups, CCF WA has actively participated in the state government’s Security of Payments Reform Industry Advisory Group, which examined the issues thoroughly and looked at a variety of measures to improve security of payments and help ensure all construction contractors get paid what they’re due.
“However we would have like to have seen more consultation with industry, including consideration of the Fiocco report, before considering wide-ranging reforms such as PBAs.
“There’s no question that something needs to be done to address this issue – we’re just not convinced that PBAs are the answer, particularly for civil infrastructure projects.
“Firstly, they are a complex mechanism which adds massive red tape and will significantly increase the cost of infrastructure.
“Secondly, they are unlikely to protect most subcontractors on major government projects.
“Due to their complexity, PBAs generally only apply to the first level of the contracting chain – i.e. between a head contractor and its direct subcontractors.
“Subcontractors further down the chain will not be protected.
“On a major infrastructure project, there may be three of four levels of subcontractors, and it’s further down the chain where payment protection is most needed.”
By Tayler Neale
