DESTROYED: The loss of $2.9 million from the Walton collapse cost Beau Hartshorn his home and the jobs of 10 workers.
DESTROYED: The loss of $2.9 million from the Walton collapse cost Beau Hartshorn his home and the jobs of 10 workers. John Mccutcheon

Senate inquiry forces construction industry overhaul

A SENATE inquiry that focused heavily on the collapse of Walton Constructions has recommended sweeping changes to the way one of Australia's biggest industries operates.

The 12-month inquiry into construction industry insolvency has found it is "burdened every year by nearly $3 billion in unpaid debts, including subcontractor payments, employee entitlements and tax debts averaging about $630 million a year for the past three years".

It found progress by regulators in curbing illegal phoenix activity had been too slow and legal loopholes that allowed dishonest operators to defraud their creditors must be closed.

It recommends the legal requirement for the corporate regulator to prove an intention to defraud creditors in a phoenix operation be removed from the Corporations Act.

This follows evidence that a culture "is developing in the industry in which some company directors consider compliance with the law merely optional, because the likelihood of unlawful conduct being detected and the consequences of non-compliance are so low".

The inquiry met in Adelaide, Melbourne, Sydney, Brisbane and twice in Canberra before bringing down 44 recommendations in a scathing report that found "the structure of the commercial construction sector, serious imbalances of power in contractual relationships, harsh, oppressive and unconscionable commercial conduct play a major role when combined with unlawful and criminal conduct and a growing culture of sharp business practices all contribute to market distortions".

The industry's subcontracting chain is beset by cashflow problems, unfair contract terms, take-it-or-leave-it contracts, zero and negative margin tendering and concentration of market power in the hands of the dominant head contractors.

Subcontractors who provided evidence to the inquiry likened the culture of the industry to that of a battlefield on which subcontractors are mowed down and fresh bodies are poured in to fill the gaps.

The result is a cut-throat industry characterised by entrenched problems with non-payment and a deeply troubling rate of business insolvency, much of which could be avoided by the enactment of uniform, national security of payment laws and protection of subcontractor payments in Project Bank Accounts.

"Construction is a national industry and it is absurd there are eight separate and widely different security of payment regimes operating in each of the states and territories," the inquiry said.

"The continued prosperity and viability of the construction industry requires Commonwealth legislative reform to ensure businesses, suppliers and employees who work in the industry's subcontracting chain get paid for the work they do."

The findings are a massive win for the Subcontractors Alliance formed after the Walton collapse.

The group's founder Les Williams of Coolum attended three of the hearings in Melbourne, Brisbane and Canberra.

He has also lobbied the Queensland Government to wind back LNP reforms of the Building Construction Industry Payments Act made late last year which the Alliance argues has further weakened the position of subcontractors in the contractual chain.

The Senate report found that during the past decade the industry has accounted for between 8% and 10% of annual GDP and roughly the same proportion of total employment.

"Over the same period, the construction industry has accounted for between one-fifth and one-quarter of all insolvencies in Australia," it stated.

"This outcome isn't, as some have argued, the result of market forces. While the construction industry is highly competitive and market forces play a part, there are other powerful factors at play."

As a consequence it wants the Commonwealth to enact uniform, national legislation for a security of payment regime and rapid (dispute) adjudication process for the industry.

It calls for a two-year trial starting in July next year of Project Bank Accounts for all contracts involving a Commonwealth contribution of more than $10 million.

Under Commonwealth legislation that would then roll into a requirement for all private construction contracts to have single project trust funds into which clients would make payments and from which subcontractors could be guaranteed payment.

An interesting debate now looms in the House of Representatives and Senate early next year.

The National Party's federal conference this year adopted national security of payment reform as its policy following lobbying by Juanita Nielsen, a Subcontractors' Alliance member and South Brisbane National Party Women's Branch vice president.

And following yesterday's findings it looks set to form a key tenant of the Labor Party's small business policy package leading into the next Federal Election.

Master Builders Queensland had no one available yesterday to comment about the report or proposals.

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