Wednesday, 21 February 2024

Environment and Planning Committee

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

Nina TAYLOR (Albert Park) (10:14): I am very pleased to speak further to the Legislative Assembly Environment and Planning Committee’s inquiry into employers and contractors who refuse to pay their subcontractors for completed works, in part because I do want to reiterate a key element here, and that is that the construction industry is one of Victoria’s largest industries in terms of its contribution to the economy and the number of people it employs. Therein lies a critical element in terms of why these issues are so important and why the ramifications can be so far-reaching.

I will come back to the core element of the inquiry. The inquiry was into the payment of subcontractors in Victoria’s construction sector, but those who refuse to pay subcontractors for completed works, so the work has been done and yet they are not being appropriately remunerated. I will put a caveat that of course every situation will have its own nuances in terms of who is at fault or otherwise, but nevertheless I will refer to page 7 of the report:

The Committee was informed that payment practices in the construction industry in Victoria are poor. John Murray AM, a specialist in building contract disputes and security of payment legislation –

and that legislation is quite pertinent in this context –

conducted a national review of security of payment laws in 2017. The review included a survey of 526 Australian construction industry contractors.

Now we will get to the crux of why this is important.

It found that 72% had 40% or more of their invoices paid late, and over third had 60% or more of their invoices paid late.

I think in anyone’s language we know that that would pose considerable pressure on any business – or on any household, for that matter – but particularly small to medium businesses are those who are most vulnerable. It is much harder for them to be able to weather the storm, so to speak, of those late payment practices.

These results broadly accord with the findings of a national survey conducted in March 2023 …

Again, I am quoting information that was fed into the inquiry by the National Electrical and Communication Association’s national subcontractors forum.

However, Pawel Podolski, Victorian Executive Director of the Association, cautioned that payment issues are –

and there was a reason for reading that long sentence –

‘hugely underreported’ …

So that implies that perhaps the ramifications are far worse even than those that are officially recognised, which is alarming to say the least. Another issue – and it was alluded to already in the chamber – was the hierarchical nature of contracting in the construction sector. I will be careful, further to some of the comments that have been made by those who have actually worked in the industry, that we are not necessarily pointing the finger at builders per se.

Evidence presented to the Committee suggests that a range of factors inform the imbalance between principals, head- and subcontractors.

I am going to use that language so that we are being accurate in terms of who we are referring to who may be liable or at fault or otherwise in these circumstances.

This includes significant competition amongst subcontractors to secure work and pressure to maintain ongoing work to ensure steady cashflow.

We can see here there is nothing startling in understanding the causal factor for the problems that we are seeing and the dramatic impact that they are having. Nevertheless, the good hard work of this inquiry has been to dig deep and to discover exactly what is causing the dramatic problems in terms of underpayments in the sector. In essence, it is really inequitable and can have shocking and dramatic impacts on so many contractors, subcontractors and the like who are associated with any particular build, which is a shame to say the least – and ‘a shame’ is probably understating the impacts. A further element that I suppose is inherent in construction is that there are risks that are innate within the industry. But of course what we are trying to do, or what I would say the committee has worked very hard to do, is to seek to find mechanisms to mitigate those risks – risks that are pretty well understood ‍– in order to ensure a much better performing construction industry with regard to payment practices into the future.