Subcontractors push for pay protections as COVID-19 bites sole trader cashflow

Subcontractors are renewing their push for better pay protections as conditions across Australia’s building and construction sector worsen amid the COVID-19 pandemic, with a new consortium of industry players coming together to lobby the federal government over cascading statutory trusts.

As businesses prepare for a record fall in quarterly GDP in June and the prospect of the first Australian recession in almost 30 years, subcontractors say they’re worried a spike in liquidations across the construction sector could leave thousands of sole traders out of pocket.

Paul Williams, owner of Adelaide-based joinery business Comace and board member of the Australian Subcontractors Association, says there’s been plenty of work over the last few months but projects are being completed and the pipeline is drying up.

“There’s going to be a lack of work over the next couple of months,” Williams tells SmartCompany.

“We need ongoing revenue coming through the door … most subcontractors live day to day, the dollars coming in today is the food on the table that night.”

Treasury modelling cited this week by Treasurer Josh Frydenberg predicts an 18% fall in dwelling (housing) investment in the June quarter as the economic consequences of the coronavirus outbreak hit Australia’s real estate sector.

Meanwhile, the Australian Industry Group’s closely watched construction index fell to its lowest level on record in April, compounding 19 previous months of contraction, and pointing towards further pain for the sector heading into the second half of 2020.

Keith Moore, a former subcontractor who founded tender management tool ConX, says he’s already seeing conditions start to turn for his clients, with price pressures already squeezing margins.

“People building houses are looking for better prices from builders and it’s trickling down,” Moore tells SmartCompany.

“We’re seeing bigger subcontractors start to quote on smaller jobs through our software; firms typically doing fit-outs on offices and commercial work are starting to quote on residential jobs.”

With cashflow pressure building, Moore says the headline risk for subcontractors, which make up around 80% of firms in the building and construction sector, is a flood of sole traders going out of business.

“A lot of these guys typically aren’t too on top of their accounts and that sort of stuff, so if margins go down there’s a big risk a lot of these smaller companies will go bust,” he says.

Subcontractors band together

Yesterday a consortium of subcontractor groups across the country, led by financial technology firm ProjectPay, launched an industry push to pressure the federal government into legislating better pay protection for subcontractors.

The working group, called ReBuild Australia, has been formed out of a long list of industry participants, including Master Painters & Decorators Australia, Master Painters Australia, Master Plumbers Association, National Electrical & Communications Association, the Association of Wall and Ceiling Industries, and the Australian Subcontractors Association.

Its top priority is to pressure the Morrison government to introduce cascading statutory trusts on Commonwealth government projects, which ensures money payable to subcontractors on a project is reserved, rather than distributed to other secured creditors in the event of an insolvency.

The use of cascading trusts to address construction sector insolvencies has been previously recommended by small business ombudsman Kate Carnell and the Murray Review of Security Payments Laws.

Williams says the federal government needs to step in urgently to ensure cascading trusts are in place as a protection for subcontractors before the economic bite of the coronavirus crisis really sinks in.

Federal Labor took a cascading trust policy to the last election in a move that encouraged many in the industry, but the subsequent Coalition victory has stalled discussions about policy solutions for subcontractor pay.

At a state level, the Western Australian government is working on new regulations to better protect subcontractors, but Williams says a national approach is needed to ensure businesses across the country can access protections.

“We want a national approach for cascading trusts and that’s been recommended widely for a number of years,” Williams says.

“There seems to be an appetite to get advice regarding payment terms, but there doesn’t seem to be anything that gets done about it in the end.”

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