Fighting for subbies rights
So what if I used the same photo twice? Photos cost money, I changed it and it's applicable to the industry anyway.
Project Bank Accounts are the answer, this is how it can be done.
I have been asked this question more than once in regard to Project Bank Accounts, "what happens if the builder underquotes the job and the money runs out?"
That’s a good question requiring the right answer but you cannot legislate against stupidity.
This is my take on PBA's.
PBA’s limit the subbies exposure and protect the builders client. Builders can no longer blatantly use subcontractors money to fund other jobs or their own developments like Cullen Group and CMS did.
PBA's ensure payment to the builder simultaneously with the subcontractor.
- The PBA will make it apparent much earlier if the project is underquoted.
- Shorter payment times will protect subcontractors and trigger a warning if the money is running out – limiting subbies exposure.
- If the builder has under-quoted, then it’s up to the builder to tip in more funds.
- If he is unable to do that (under PBA's, the unscrupulous builder can no longer rob from Peter to pay Paul), assuming that the payments are made each 14 days as per PBA’s early payment-
- The loss to subcontractors is minimal compared to the exposure we currently have.
- The worst that can happen to subcontractors is they will lose 14 days, or at maximum, 21 days of their work if the PBA runs out of money (contractually a subcontractor cannot stop work until 7 days or 5 business days after a notice of breach of contract has been issued to the builder)
- If the money runs out, as it stands now, subbies are exposed to many months of losses which was the case in the Cullen, Walton, CMS, Bluestone and numerous other liquidations.
- I know of subbies who kept working despite not being paid for 6 months. That cannot happen under a PBA.
As an example, the people who administer the PBA will see that there is still 1 million dollars of work to do and only 500k in the account and alarm bells will RING, DINGA DING DING.
Whoops! We stuffed that up! Where can I rob the money from to finish that bloody project? Ahhh, good ole subbies money as alway hahaha. What's that you say? PBA? What PBA? No one told me about any bloody PBA when I quoted that job, Yikes!
Oh oh, hell, can't do that any more... phone call to mum and dad, "hi mum, can you lend your number one son half a million?????"
The project should stop at that point and the finances sorted out.
My conclusion is that an integral part of any PBA legislation is:
- 14 day invoicing and payment at maximum, 14 days after the claim is imperative to limit subbies exposure and to get their cash flow working
- No subcontractor should have to continue to work for a further 7 days after breach of contract for non-payment, that unfair clause should be taken out of all contracts. It has been used in the past to rip subcontractors off for an extra 7 days of work
- Faster cashflow for subbies means suppliers, the ATO and Super are paid at the very least, on time
- Our staff don’t have to wait 60 to 90 days for payment of their wages, why should we as subcontractors? It makes no commercial sense.
In SA's discussions with the department of housing, the payment time has been significantly reduced.
Manufacturer
As a manufacturer, we have to start ordering material for a job 3 to 4 months before we start on site. That means more exposure than most but the saving grace is that by the time the job is getting to the stage of requiring our finishing products and the builder falls over, the product may still be on our premises.
Following is an example of the pitfalls without Project Bank Accounts.
Much of the aluminium material in unit projects are:
- Not “off the shelf” and has to be a “mill run”
- Most mill runs have a 4 week lead time
- So to get the material in stock, then manufacture custom products and powder coat ready to install, we have committed significant funds to the job months before we see a cent in payment
- We have ordered and paid for material, wages, rent, powder-coating and in some cases, super and tax before we receive a dollar, that’s if we receive a dollar. Again, that makes no sense commercially.
- Many other trades are in the same boat such as roofers, plumbers, electricians, the list is long.
Then if the builder falls over like many have recently, it’s catastrophic for our cash flow because up to this point, it has all been negative cash flow.
That’s why it’s imperative to have shorter payment times.
That's why it's imperative to have project bank accounts.
How it works
(1) Every progress claim made is paid on a percentage of the job completed. As a result, it will become evident quickly if the builder has under-priced the project.
(2) One of the misconceptions is that the builder is given the money to pay subcontractors. That is not correct, the funds are released by the bank to subcontractors and the head contractor simultaneously. Payments are based on a certification process which is the same as the process now. Disputed money is held in the PBA until resolved. It removes the need for those hog tying Statutory Declarations that builders often fill out knowing they are lying on a legal document.
(3) Subcontractors Alliance have made a submission as requested by the department of housing that secures the client by the builder. The system includes for the use of Bank Guarantee's to secure the client. On the other hand, it also penalises clients who accept ridiculously low and stupid prices knowing that there will be a funding shortfall.
(4) The builder will have to provide the shortfall: the builder will have a statutory obligation to advise the subcontractor that the client has assured the funds.
(5) The builder would be stupid to under-price a job just to win it, knowing they have to tip in any shortfall.
Subcontractors and suppliers are the only ones risking their income and putting their financial security in the hands of people who in some cases, couldn't run a chook raffle, let alone a major construction company.
Why should subcontractors shoulder that significant burden?
I will say it again, we are not anti builder, we are anti corruption in the building industry. We will not stop until we have dragged it kicking and screaming out of the 19th Century and land it in the 21st Century giving everyone a fair go.
Any comments or critiques from any industry participant is welcome.
Send to support@subbiesunited.com.au.