Industry News

Subbies call for overhaul of system to protect themselves from corporate failures

A wave of subcontractors opportunities for the tunnel and station work packages will be released for the Cross River Rail project in the coming weeks.

Australia’s subcontractors are demanding the government legislate on how building firms structure bank accounts amid claims that corporate failures in the construction sector are causing a “crisis” and leaving suppliers without payments.

The Australian Subcontractors Association (ASA) demands that the Federal government take swift action to protect suppliers who are being “forced into insolvency” by the collapse of larger construction firms.

This comes after the recent collapse of engineering giant RCR Tomlinson, which had delayed payments to suppliers for up to 12 months.

“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 Loise Stewart, ASA spokesperson.

“When companies fail to pay subcontractors for work done, the subbies still have to pay employee entitlements and taxes.

“Thousands of subcontracting businesses will be adversely impacted by the recent collapse of engineering firm RCR Tomlinson – in just the latest example of the flow-on effects to SMEs from corporate failures.”

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 is attributed to misconduct.

“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,” Stewart 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 is now calling 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”.

“The Federal government Review of Security of Payment Laws by John Murray has already made recommendations for cascading statutory trusts to be rolled out across the industry, however, there has been no further action,” Stewart said.

“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.”

Stewart added that 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,” Stewart continues.

“However, greater responsibility needs to be taken at all levels. Governments need to act to legally impost these solutions and ensure pay subcontractors, rather than spending their money.”

RCR Tomlinson announced on November 22 that it had entered voluntary administration with the intention of commencing an immediate sale process.

McGrathNicol is the appointed administrator. The first meeting of creditors will be held simultaneously in four locations (Sydney, Brisbane, Melbourne and Perth) on December 3, 2018.

At the time of its collapse, the ASX-listed group employed more than 3,400 people in Australia, as well as in New Zealand and other areas within Southeast Asia.

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