Big builders argue against new federal payment rules

The forum was established out of last year’s Jobs and Skills Summit to fight a push to tie up the payments builders receive intended for subcontractors.

Independent senator David Pocock last year secured a commitment from the Albanese Labor government to implement recommendations from the 2017 Murray Review to boost payment protections for subcontractors.

Large contractors oppose measures that they say would tie up cashflow in the low-margin construction industry. They argue that if clients take on more risk and pay builders more upfront and more frequently, liquidity would improve down the construction chain.

Friday’s meeting agreed to the establishment of two working groups, one to look at gender equity in construction and the other at security of payment and liquidity in the industry, people with knowledge of the meeting said.

In the report, which cites federal government Payment Times Reporting Scheme data, the ACA argues against the adoption of so-called project bank accounts – a security of payments system used in Queensland to ringfence cash payments intended for subcontractors and suppliers.

“PBAs distort normal market mechanisms,” the report says. “In effect, PBAs compulsorily acquire a builder’s legal property (project revenues) and reduce that property to the status of trust money.”

In the low-margin contracting world, builders routinely use payments received for general cashflow, effectively using subcontractor payment terms as a form of credit. If a builder goes under, that money is lost to the subcontractors owed it.

Subcontractors, who perform up to 90 per cent of the work done on a construction site, want the money to be ringfenced in a trust structure so builders can’t touch it before paying it out for work done. But builders rely on these funds, the ACA said.

“PBAs also remove a builder’s discretion to employ a range of legitimate commercial strategies that are widely practised across industries to ensure financial stability and promote growth,” the report says.

If they’re trying to put an argument as to why PBAs should not be embraced – that wasn’t what I recommended.

— Security of payment review author John Murray

The ACA report, which also cited data from accounting platform Xero showing construction payment times were on par with other sectors, said the federal government-commissioned Murray Review inaccurately painted a picture of the sector as having poor payment practices.

“Untested notoriety is a poor foundation for good policy,” the report says.

But former Master Builders Australia head and review author John Murray said all the evidence was that the industry did have payment problems and the ACA did not reflect the industry’s true state of affairs.

“I have difficulty reconciling that statement with all the surveys conducted during the course of my review,” Mr Murray told The Australian Financial Review.

Mr Murray also said his proposed remedy, for an implied system of trust protection over monies received that “cascaded” down through the construction payment chain, was different from the project bank account system the ACA was criticising.

“I simply recommended that the payment received, particularly higher up the chain, is deemed by law to be trust money and put into a trust account and the various projects are handled by way of a ledger,” he said.

“If they’re trying to put an argument as to why PBAs should not be embraced – that wasn’t what I recommended.”

Mr Murray also said he was also critical of project bank accounts, warning that a system that required builders to set up two bank accounts to manage money for every project was impractical.

CFMEU National Secretary Zach Smith said statutory trusts were “widely acknowledged” as the fairest way to ensure subcontractors and workers were guaranteed to be paid.

“The Albanese government promised security of payments reform before the last election, and statutory trusts must be a part of that,” Mr Smith said.

“While we might disagree with the Australian Constructors Association on trusts, we do share a lot of common ground in ensuring the industry thrives for the benefit of workers and the community.”