Wednesday, 21 February 2024

Environment and Planning Committee

Employers and Contractors Who Refuse to Pay Their Subcontractors for Completed Works

Wayne FARNHAM (Narracan) (10:09): I rise today on the Legislative Assembly Environment and Planning Committee inquiry into employers and contractors who refuse to pay their subcontractors for completed works. I would like to thank the chair and deputy chair and all the committee who worked on this.

It is obviously something that I am fairly averse to. I have been on both sides of the tracks on this one as a builder and as a subcontractor, and it is an interesting industry, the construction industry, because it has numerous challenges. The problem with the construction industry – and I am going to reference the recommendations – is you have two vastly different types. You have the domestic construction industry and you have the commercial construction industry. They really are different beasts when you are working in them, and I worked in both for a number of years. The challenge we have – and I agree – in reading the report is where they describe the construction industry as a hierarchical system. What they failed to mention is that a lot of time in a hierarchy the builder comes in at number 2. The builder is quite often working for someone else – it could be a developer, it could be government, a client – and therefore when the challenges occur, this will filter down. We see it time after time. We are seeing it at the moment with builders going into liquidation. The bottom of the food chain gets hurt the most. I have mentioned on social media that it is always the subcontractor. If a builder goes under for 10 homes, that could probably affect 30 to 40 subcontractors but one builder.

The hierarchy system is a problem, and it is a challenge I think this government, hopefully in a bipartisan way, has to try to fix. When builders go into liquidation we have got to figure out a way to protect the subcontractors, because quite often they have done the work. They are finished, they have walked away. It is the end trades that always get smacked around – the tilers, the painters, the floor layers, the plumbers on occasion. It is the end trades that always suffer in this, so we need to figure out a way forward. Recommendations 27 and 28 talk about a trust system that I think is really worth exploring.

Also in this, I need to reference the commercial sector of the industry as well. In the commercial sector where a lot of things go pear-shaped is when we get to practical completion. In most commercial contracts there will be 5 per cent retention. Of that 5 per cent, it gets split: 2.5 per cent comes back on practical completion and 2.5 per cent comes back after a 12-month defect liability period. What is happening more and more in the industry is architects – and this includes government agencies as well, and I am going to touch on that in a minute – hold up practical completion. They go, ‘No, we’re not going to give you that 2.5 per cent because there is a $5000 defect over there’, but they are holding $100,000. Again, that gets filtered down. The subcontractors contribute to that 5 per cent, so they are getting delayed on payment. I think this is very pertinent, because if we have got a retention system and it is only $5000 worth of defect, how can you hold up a $100,000 payment and the subbies cannot get their money?

This is really quite interesting. This might shock you to know – I was absolutely disgusted with the behaviour of the Victorian School Building Authority, our own government agency – but through COVID builders got shut down and delayed and they could not have the workforce on site they needed, so builders put in variation claims for prolongation costs, which are totally legitimate. COVID was a one-in-100-year pandemic that no-one had experienced. Those conditions were never written into a contract. I know builders that had claims over $200,000 that the VSBA said it would not pay. Again, out of that $200,000, subcontractors bore that cost. Our own government department screwed over the construction industry through COVID, and that is disgraceful. That is why the government needs to look at the VSBA and get them sorted out, because the way they act is criminal, and we need to protect the subbies.