Construction industry must avoid GFC mistakes, warn peak industry bodies

Some of Australia’s leading peak industry bodies representing building and construction industry subcontractors – which make up over 82 per cent of the building and construction industry – have joined together to create a dynamic new working group called ReBuild Australia. And the group has a clear objective: to protect payments to subbies.

ReBuild Australia has been created by Australian fintech ProjectPay and has been joined by peak industry associations including the Australian Subcontractors Association (ASA), Master Painters & Decorators Australia (WA), Master Painters Australia NSW/ACT, Master Plumbers Association of South Australia, National Electrical & Communications Association (NECA) (SA/NT), the Association of Wall and Ceiling Industries (WA and NSW), building dispute adjudicators Adjudicate Today, and a national construction group. Discussions are also well progressed with a number of other builders, government bodies and councils interested in joining the group.

“ReBuild Australia is focused on rolling out the recommendations of the six government-commissioned reviews for the urgent implementation of Cascading Statutory Trusts (CSTs), designed to protect payments for all levels in the contractual supply chain – from principals to subcontractors,” says Louise Stewart, construction fair payment advocate and ProjectPay CEO. “CSTs are far superior to Project Bank Accounts (PBAs), which are heavy on administration and only protect the top tier contractors.”

ReBuild Australia will take the recommendations made by the six industry experts to help ensure the construction industry recovery post-COVID-19. The focus will be on accelerating and protecting payment of trade invoices, ensuring and maintaining subcontractors’ cash-flow and protecting over 1.2 million jobs. 

“It’s anticipated that long-promised legislation designed to improve subcontractor payment protections is expected to be released for comment by the WA government this week,” says Stewart. “We are looking forward to working with them to ensure that industry is engaged in the state and national roll out of reforms.”

Immediate payments

In addition, ReBuild Australia is in discussions with the Australian Finance Industry Association (AFIA) to look at options to access the Australian Office of Financial Management (AOFM) Structured Finance Support Fund, designed to back struggling small businesses that don’t satisfy banks risk criteria. This will be provided via the platform for immediate payment of trade invoices, paid through CSTs across the entire supply chain. 

“CSTs are supported by Small Business Ombudsman Kate Carnell, who released a report in support of industry wide implementation of CSTs as the only sensible way to protect payments for SME businesses in the industry,” adds Stewart.

The Small Business Ombudsman also recently released a report exposing the unethical behaviours of some supply chain finance (SCF) providers to enable large companies to push out payment times. Ms Carnell remarked how SCF is not well served in the building and construction industry, as it doesn’t comply with the Security of Payment laws that dictate statutory timeframes for payment. That’s an issue reinforced by supply chain finance firm Greensill Capital, which enabled the CIMIC Group to extend payments past statutory permitted payment timeframes.

“To fill the capital gap created by the implementation of CSTs we have created a new and ethical supply chain finance category called ‘Cascading Trust Finance’ (CTF),” explains Stewart. “The technology protects users from non-compliance of Security of Payment (SOP) laws and non-payment that could result in supply chains collapsing, significantly impacting the financial viability of the industry and consequential job losses. The Prime Minister even commented last month that compliance to SOP laws is crucial for the industry recovery.”

ProjectPay, which launched in Australia in 2017 and in the UK earlier this year as part of the UK government’s global entrepreneur program, has been working with UK construction financiers keen to protect the payments made on construction projects they fund. In April, the UK Government recommended to industry that payments should be made via trust accounts post-COVID-19 to ensure they reach the whole supply chain quickly. 

Businesses in the building and construction industry, including developers and building companies, are being invited to register their interest in participating in ReBuild Australia. “Accelerated payment of invoices enhances cashflow for the entire supply chain,” says Stewart. “It’s beneficial to everyone to get paid sooner and not have to worry about if they will be paid. The next few months will present unparalleled challenges, with cashflow pressures threatening business survival and jobs. Technology, finance and construction working together is just the sort of innovation that governments need.”

Industry quick facts:

–          Most SMEs in building and construction cannot access “JobKeeper”, due to employing people on contract and casual basis per project.

–          Most SMEs will not qualify for loans nor do they have the capacity to take on additional debt. It’s commonly known that due to the pyramid structure of the supply chain, SMEs have trouble getting paid on time, if at all.

–          The relaxation of the insolvency laws brings into doubt the financial viability of many businesses in the industry, which already has the highest rates of business failure.

–          A recent report from the ASBFEO (Australian Small Business and Family Enterprise Ombudsman) highlights that since the onset of COVID-19, blowouts in payment times have increased and that SMEs are expected to act the part of cheap credit providers.

–          A recent Master Plumbers SA survey shows their members are still waiting for December 2019 payments.

–          Governments need to take a responsible approach to any industry stimulus spending to ensure tax-payers’ funds are being paid to the supply chain for work done and not lost due to business failures.

–          Credit insurers have threatened to exit the market due to increased risk. For example, QBE is no longer offering credit insurance to the building and construction industry.

–          Adjudicate Today has received a flood of requests for help from subbies who are not getting paid.

/Public Release. The material in this public release comes from the originating organization and may be of a point-in-time nature, edited for clarity, style and length. View in full here.