Article first appeared in The West Australian. June 10, 2020 by Josh Zimmerman.
Subcontractors working on projects that go bust will remain exposed to crippling losses after the McGowan Government backed away from plans to protect payments intended for tradies.
Attorney-General and Commerce Minister John Quigley has been outspoken in his support for cascading statutory trusts, which would force head contractors to set aside and “ring-fence” progress payments intended for tradies they engage on a project.
When advocating for the trusts last year, which are common in the US and Canada but would be an Australian first, Mr Quigley said “a lot of governments are scared about doing it” because of fierce opposition from some sections of the construction industry.
“They’re scared about reform and they’re scared about upsetting the status quo,” he said.
“Once they see it operating efficiently in WA and that subcontractors are being protected in WA, I think the pressure will be on those (the other States) to come on board.”
But in new draft laws designed to strengthen protections for tradies the statutory trust provision has been drastically watered down to apply only to retention money — usually around five per cent of a contract’s total value — with progress payments excluded.
Because subcontractors often purchase materials and pay staff upfront, when a head contractor goes bust they can be left tens or even hundreds of thousands of dollars out of pocket.
Compounding anger among tradies has been the practice of “phoenixing”, where the directors of companies that have fallen over set up a new business with no liability for their previous debts.
The long-called for statutory trust protections were first recommended by then chairman of the Law Reform Commission Wayne Martin more than 20 years ago, and again supported in a Commonwealth review by building industry lawyer John Murray in 2017.
Most recently, a WA review commissioned by the McGowan Government and carried out by John Fiocco also supported statutory trusts.
Subcontractors working on most government projects worth more than $1.5 million are already afforded increased protections through the mandated use of project bank accounts — which accomplish the same goal as statutory trusts — but the vast majority of construction work is carried out by the private sector where tradies remain exposed.
Mr Quigley said the McGowan Government had fulfilled its election promise to introduce a retention trust scheme but acknowledged the Fiocco report had recommended going further and legislating a system that would capture all payments made down the supply chain.
“The McGowan Government considered the extensive feedback it received from the industry on Mr Fiocco’s recommendation, with many raising genuine concerns about the significant impact on businesses and the disruption to the pipeline of future works,” he said.
“In light of the economic challenges currently facing the industry, the McGowan Government is taking a measured approach to implementing payment reform, by focusing on protecting retention money first to give the industry opportunity to understand and adapt to these changes.”
He said the coronavirus pandemic meant “we can’t throw a further administrative burden upon the construction sector in this term of government” but that if re-elected the issue would be re-examined.
While praising the WA Government’s new bill for beefing up some protections for subcontractors — including legislating faster payment terms and a more efficient dispute management process — Mr Murray said the lack of statutory trusts remained the “Achilles’ heel” of the laws.
“When enacted the WA Bill will be the best piece of legislation in this area in Australia but it won’t have statutory trusts and that is a missed opportunity,” Mr Murray said.
“It is the Achilles’ heel in the construction industry, it is the gaping hole that needs to be filled.”
There seems to be a higher focus among politicians on the interests of the middle man.
Mr Murray said statutory trusts had been legislated in every province in Canada and most US states but continued to face fierce opposition from Australian housing and construction industry associations who say the use of trusts would add an unwieldy administrative burden to projects.
“There seems to be a higher focus among politicians on the interests of the middle man rather than protecting the interests of the party that actually carries out the construction work,” Mr Murray said, adding subcontractors routinely completed 80 to 85 per cent of a build.
Subcontractors Alliance spokesman Les Williams said it was “appalling” the McGowan Government had backed away from statutory trusts.
“Subcontractors underwrite 90 per cent of the industry (through their purchase of materials and payment of staff) and in the midst of the coronavirus pandemic they need protection now more than ever,” he said.
“If the five per cent retention money can be held in a trust without causing too much of an administrative burden, why not the rest of it?”
