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New report debunks talks of underpayment in construction sector

New report debunks talks of underpayment in construction sector

The Australian Constructors Association (ACA) has today released a new report that challenges the widely held belief that underpayment is rampant in the construction sector amid the industry’s increasing insolvency rates.

ACA CEO Jon Davies says the report, Trust deficit, reveals that payment performance among construction firms is on par with the rest of the economy and attempts to single out the sector with additional regulation like Project Bank Accounts (PBAs) would hinder, not help, the industry.

“According to the Federal Government data, the construction industry pays almost 70 per cent of its invoices on time, aligning closely with the economy-wide average,” says Davies. “Industries such as health and social assistance, IT and the retail sector are less likely than construction to pay their suppliers on time.”

“The only valid reason to impose additional regulation like PBAs on head contractors would be if the industry’s payment performance was systematically worse than others – and it isn’t.

“PBAs are not a guarantee for subcontractor payment because they don’t reflect the realities of the way construction payments flow. If no money is coming in, there is no money to pay out.

“We have seen this play out recently in the first test case of Queensland’s PBA laws, where the insolvent builder’s trust accounts held less than 10 per cent of the funds owed to subcontractors.”

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The report emphasises that the significant restrictions PBA schemes impose on legitimate trade are not justified by the problem they are trying to solve.

“PBAs require builders to act as ‘trustees’, as if they were a solicitor in a property transaction,” says Davies. “This significant market intervention prevents builders from engaging in essential strategies crucial for business growth and stability.”

Davies argues that making heavy-handed regulations like PBAs mandatory should depend on a compelling case of market failure, rather than being imposed without justification.

“There is no question that the construction industry is in a weak financial position,” says Davies. “But the answer is not to further hobble one category of business that is already heavily burdened with regulation.”

“The answer is to fix the broken commercial model that transfers all the risk to the builder and drives a race to the bottom.

“We need more collaborative procurement models that focus on delivering best value not lowest price at the tender box.”

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