Australian subcontractors in crisis unless governments act now
An industry association for subcontractors has called for urgent intervention from the Federal Government to address the regular forced insolvency thousands of Australian subbies experience when building and construction companies fail to pay.
The Australian Subcontractors Association (ASA) ramped up demands for government action in response to the recent collapse of one of Australia’s oldest engineering firms – RCR Tomlinson, which will have a major impact on thousands of subbies.
“When it comes to the collapse of companies that rely on subcontractors to undertake the work, the domino effect can be devastating. Unfortunately, the subbies are often left to fend for themselves,” said Australian Subcontractor Association (ASA) spokesperson Louise Stewart.
“When companies fail to pay subcontractors for work done, the subbies still have to pay employee entitlements and taxes.”
A 2015 Senate inquiry into insolvency found that the industry is burdened every year by an estimated $3 billion in unpaid debts, including subcontractor payments. In 2018 alone there have been 1,642 construction businesses that have become insolvent. A high percentage of these insolvencies have been attributed to misconduct.
The shock RCR Tomlinson administration has attracted controversy in light of revelations the company undertook ‘contingency planning’ for voluntary administration in August, just two weeks before it raised $100 million from investors.
“Sadly, non-payment issues have long plagued the industry – as evidenced by the subcontractor to RCR Tomlinson that has lost $9 million due to the company not paying for work done,” Louise said.
“We have been advised by subbies that RCR has been delaying payments as far back as 12 months in order to prop up its own cash flow. And it’s unlikely any of these subcontractors will see their money.”
The ASA stated that one family-owned subcontracting business has already lost millions because of RCR delaying payments for over a year. As a result, the two couples who own the business will have to lay off hundreds of employees and stand to lose their family homes.
ASA: the time to take action is now
Although an ASA press release acknowledged government attempts to address the issue, the crisis has become so pronounced that the body says action is required immediately before the damage worsens. The ASA has called on the Federal Minister for Small Business, Michael McCormack to take action to protect subcontractors all the way down the supply chain in the event of an insolvency.
While the Review of Security of Payment Laws, conducted by John Murray, called for cascading statutory trusts to be rolled out across the industry when it was published in May, there has been no further action.
“When Craig Laundy was Minister for Small Business, he said if state governments did not act before the end of the year, the Commonwealth would take action. We are still waiting for that to happen,” Louise said.
The ASA believes national legislation is needed and either cascading statutory trusts or cascading project bank accounts must be mandated.
“The Queensland government is certainly taking the lead on this and has made project bank accounts a legal requirement. However, greater responsibility needs to be taken at all levels. Governments need to act to legally impose these solutions and ensure contractors pay subcontractors rather than spending their money.”