The nation’s construction sector has been battered by a string of high-profile collapses – and one group is bearing the brunt of the devastating trend.
Following the collapse of a slew of well known building firms in recent months, attention is turning to the plight of Aussie subcontractors, who are regularly left in the lurch when companies fail.
According to Barry Skinner, the director of Canberra-based network cabling installation firm Pathway Communications, subcontractors such as himself have fallen victim for decades.
In fact, over the past 20 years, Mr Skinner’s company has lost a staggering $300,000 from people failing to pay for completed work after going broke – and he warned the situation was only going to get worse.
“When working for yourself in a competitive market, the margins to stay sustainable are tight, but foul play from larger construction contractors not paying is causing immense stress on the industry,” he said.
“Time and time again, subcontractors, like us, are completing projects only to find out the business they’re working for has no money to pay or no longer exists. But our expenses don’t stop. We continue to have a responsibility to pay our staff and meet our obligations like paying our suppliers.
“I can’t say to the next business, ‘Sorry mate, I didn’t get paid for this job, so you’re not going to get paid for the materials you supplied me’.”
Mr Skinner said construction payment reform must be made a priority.
“If you are left $25,000 out of pocket, it can take another $500,000 worth of work at a five per cent margin to recoup the initial losses. That means businesses are constantly working on new projects to make up the margin lost on previous ones, and rarely do you get a five per cent margin,” he said.
“The situation gets worse if you’re a finishing trade. If you’re a subbie, like an electrician, finishing a project, then you get slumped with all the losses.
“Earlier trades get paid once they’ve done their work, but a finishing trade doesn’t get paid until the project is over, and the larger contractor is sometimes no longer solvent.”
Mr Skinner said construction workers were disproportionately represented in Australia’s suicide rate, and that the stressful issue of non-payment of subcontractors was rife.
“If you don’t get paid for one job it takes a toll emotionally as well as financially – my business has 30 employees, so it’s not only my family I worry about, it’s 30 others as well,” he explained, adding it was a case of “Russian roulette” every time a new job was taken on.
“We’ve been lucky, in 20 years we’ve lost around $300,000 from people not paying (after going broke), and fortunately that hasn’t happened all at once, but that’s $6 million worth of work for nothing,” he said.
“When companies go bust it affects everyone down the line and if one person doesn’t get paid, it’s like a domino effect.
“I know the pain these people are going through now with companies going bust and not paying people, because I’ve been through it before.”
Mr Skinner said issues within the sector had been worsened by Covid lockdown and isolation periods, which saw entire worksites shut down for weeks on end.
He said more needed to be done to protect subcontractors who he said had the “riskiest” job in construction, given they were required to pay for materials themselves first before being reimbursed by builders – leaving them seriously exposed.
“It’s a risk – we can’t just turn up and work eight hours and know we will get paid. We have to risk money to make money and it can be demoralising,” he said.
“Every time you turn on the news another company has gone bust and I think it’s only going to get worse. During the housing boom people were snapping up properties before prices went up and builders signed fixed price contracts to be competitive, but all of a sudden it’s costing builders a lot more money to build and the only option is to go broke.”
The National Electrical and Communications Association (NECA), together with representatives from union and other peak building and construction industry subcontractor associations, are now calling on the government to honour its pre-election promise to implement payment protection policy as recommended in the groundbreaking Murray Report compiled several years ago.
The issue is even more pressing today at a time when countless large building firms teeter on the brink of insolvency, putting the payments of around 1.2 million Australians and 350,000 businesses within the $360 billion construction sector at risk.
NECA CEO Oliver Judd said the nation’s subcontractors were “in crisis”.
“Subbies are taking on a disproportionate amount of risk on construction projects, but many of the measures to mitigate these risks are outside of their control,” he said.
“Hardworking family-owned companies are sick of being ripped off by unscrupulous or incompetent construction companies that don’t know how to run their own business and impose unfair contract terms and payment practices to use the bank accounts of tradies to bankroll their mistakes. Tradies have to be protected.”
Mr Judd said it was time to fix the current “mixed bag of Security of Payment laws”.
“This government committed to implementing policy reform immediately, and with the storm clouds surrounding our sector it has to be done now before more honest tradies lose their livelihoods and their homes,” he said.
“Some state governments are beginning to take steps to improve the situation, but we need a comprehensive federal approach that provides consistency and confidence to subcontractors and protects them from the potential to get burnt when they enter a contract.”
At a recent Security of Payment Industry Forum, representatives agreed to call on the Federal Government to take three key actions: Urgently enact federal Security of Payment laws to implement the Murray Report, strengthen prohibitions for unfair contract terms and ensure the government procurement practices support fair contracting down the construction
supply contractual chain.
