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New report challenges underpayment rumour within construction industry

7 Nov 2023 12:27 PM | Anonymous

A report released by the Australian Constructors Association (ACA) challenges the widely held belief that underpayment is rampant in the construction sector amid the industry’s increasing insolvency rates.

ACA CEO Jon Davies stated that the report —Trust deficit — revealed that payment performance among construction firms is on par with the rest of the economy and attempts to single out the industry with additional regulation like Project Bank Accounts (PBAs) would actually disrupt the industry.

“According to the Federal Government data, the construction industry pays almost 70 per cent of its invoices on time, aligning closely with the economy-wide average,” said Davies.

Contrary to popular belief, industries such as health and social assistance, IT and the retail sector are less likely than construction to pay their suppliers on time.

Davies said the only valid reason to impose additional regulations like PBAs on head contractors would be if the industry’s payment performance was systematically worse than others and he confirms that this isn’t true.

“PBAs are not a guarantee for subcontractor payment because they don’t reflect the realities of the way construction payments flow. If no money is coming in, there is no money to pay out. We have seen this play out recently in the first test case of Queensland’s PBA laws, where the insolvent builder’s trust accounts held less than 10 per cent of the funds owed to subcontractors,” said Davies.

The report emphasises that the significant restrictions PBA schemes impose on legitimate trade are not justified by the problem they are trying to solve.

Davies explains that PBAs require builders to act as ‘trustees,’ as if they were a solicitor in a property transaction.

He stated that this significant market intervention prevents builders from engaging in essential strategies crucial for business growth and stability.

“Such heavy-handed regulation should not be adopted lightly. It must be based on a compelling case of market failure. That case simply hasn’t been made. There is no question that the construction industry is in a weak financial position. But the answer is not to further hobble one category of business that is already heavily burdened with regulation.

“The answer is to fix the broken commercial model that transfers all the risk to the builder and drives a race to the bottom. We need more collaborative procurement models that focus on delivering (the) best value not (the) lowest price at the tender box,” said Davies.



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