Nov 17, 2018

Insolvency figures fuel further calls for payment reform

Insolvency figures fuel further calls for payment reform

The Civil Contractors Federation (CCF) has called on State, Territory and Federal Governments to act swiftly to address security of payments to subcontractors following the release of ASIC’s latest ‘corporate insolvency’ report.

It comes after the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell announced a new nationwide review focusing on the stress to small business from large companies delaying project payments. (Click here for survey link)

The CCF issued a statement saying it was disturbed that the construction sector represented 22 per cent of the 5380 reported insolvency cases the ASIC report for the 2017-2018 financial year, the majority being small to medium-size corporate insolvencies.

Chief executive officer of the Civil Contractors Federation (National) Chris Melham said that whilst the CCF had welcomed the Prime Minister’s announcement to inject $2 billion into the small business loan market, this initiative would not be maximised unless the ‘root cause’ of SME insolvencies was addressed.

SME’s will potentially access the fund to finance debt resulting from late payments and unfair contractual terms with their head contractor.

“Put simply, sub-contractors are struggling to pay civil and statutory debts because they are not being paid on time by the head contractor. Government’s must address “head contractor-subcontractor terms,” Mr Melham said.

The Federal Government commissioned the National Review (i.e. the Murray Review) of Security of Payment Laws to examine ways to improve consistency in security of payment legislation and enhance protections to ensure subcontractors get paid on time for work they have done.

The CCF said the major issues that were identified in the Murray Review as leading to delayed and disputed payments included:

1. Ineffective ‘security’ of payment where a party higher up the contractual chain becomes insolvent.
2. Complex and confusing ‘security of payment legislation’.
3. An imbalance of bargaining power within the contractual chain resulting in unfair contract terms that
operate to prevent payment to the party that has carried out construction work.
4. Intimidation and retributive conduct by head contractors discouraging subcontractors from pursuing their
entitlements; and
5. Late payment, which continues to be a major issue for the construction industry.


Payment times under scrutiny

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