Wednesday, 6 March 2024

Environment and Planning Committee

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

Dylan WIGHT (Tarneit) (10:32): I rise this morning to speak to the inquiry into employers and contractors who refuse to pay their subcontractors for completed works, an inquiry undertaken by the Legislative Assembly’s Environment and Planning Committee. Poor payment practices, such as long-term payment – some terms up to 120 days – late payment, incomplete payment and non-payment are experienced by businesses in many sectors of the Victorian economy, particularly small businesses, and particularly small businesses in the construction sector. In fact small and medium businesses, SMEs, are twice as likely to experience these problems with late payments and long and unreasonable payment terms as larger corporations.

Payment issues can cause financial hardship. If we are talking about the construction sector in particular, some of the margins on these projects conducted or worked on by small and medium enterprises are razor thin. As you can imagine, if you have a situation where you are forced into 120-day payment terms by a larger builder or a larger business that you are subcontracting for but then you obviously have to pay your suppliers within 30 to 60 days, it can cause significant financial hardship. When invoices are not paid promptly, it can affect the working capital of a business, it can result in lost revenue, it can impede business growth and it can impact the ability of a business to pay its employees, other businesses or, as I just said, suppliers. It can increase the risk that a business will become insolvent and affect the wellbeing of owners, their families and their employees. I think we can all acknowledge that this has been a situation that has sometimes been rampant within the Victorian economy, particularly within that construction sector. It can lead to financial hardship, and I think one of the most abhorrent things is that it can lead to insolvency. But also it can lead to well-meaning employees of that subcontractor going without pay.

The consequences also for the Victorian economy are absolutely profound. They can include reduced cash circulation, employment and business growth. Poor payment practices affect businesses in all industries; however, as I said, this is most prevalent in Victoria within the construction industry. Subcontractors in this sector are particularly vulnerable to poor payment practices. We have all heard some horror stories in respect to larger businesses not paying their subcontractors. I know, and I know that the member for Narracan knows, there are some large businesses that have such business practices as quoting for very large infrastructure jobs on a negative profit margin. They have done that in the past, knowing full well that through some of these practices that I have described there will be subcontractors and smaller SMEs on that project that will be unable to continue. They will not have to pay them, and they will make their profit through that infrastructure project in that way. As you can imagine, those practices are condemned by this government, and quite frankly they are abhorrent.

There were several recommendations that came out of this inquiry. Number 1 is to empower subcontractors to make full contract claims. By doing that we would amend Victoria’s security of payment laws to allow subcontractors to claim the full value of their contracts, including previously non-claimable variations and excluded amounts. It would also clarify retention money claims, limit unfair contract clauses and expand security of payment laws.