The Australian Subcontractors Association, Adjudicate Today, Master Plumbers Association SA, the National Electrical and Communications Association (NECA) and fintech payment protection platform ProjectPay have written to the Prime Minister asking him to enact urgent payment reform to protect SME subcontractors as bad debt activity spikes.
The group opined that the government needs to mandate cascading statutory trusts (CSTs) to ensure subcontractors will be well placed to assist with rebuilding the economy once the COVID-19 emergency has passed.
According to the small business ombudsman, a CST is a trust imposed by law that “cascades” down through a string of “deemed” trusts. The money that is payable to a business down the line is held for the benefit of that business by the business above.
Put simply, CSTs function like a piggy bank to protect payments for all levels in the contractual supply chain, from principals to subcontractors.
Calling for urgent government intervention, fair-pay advocate and CEO of ProjectPay Louise Stewart referred to the situation in the industry as a “national emergency”.
“Our first priority must be to fix the payment problems in the industry so that the government’s economic stimulus flows through to the tradies that do the work,” Ms Stewart said.
“We urgently need the support of all governments to keep as many tradies afloat as possible. As part of relaxing the insolvency laws, we believe the federal government has an obligation to put in place protections for the public and subcontractors to ensure they get paid.”
Also arguing for the urgent implementation of CSTs, to protect subcontractors even where a contractor above them becomes insolvent, Paul Williams, chair of the Australian Subcontractors Association, said the industry is flooded by irregularities.
“This is an industry already plagued by illegal phoenixing, and changes to insolvency regulations make the ground even more fertile for this type of reprehensible behaviour,” Mr Williams said.
“That’s why it’s more important than ever to expedite the introduction of statutory trusts. It’s a proven solution: the real estate industry has been using such trusts for years.”
In the letter itself, the group makes three requests of the government to ensure that SME subcontractors are able to keep their doors open.
Among them, the group has called on the federal government to release the report of the senior officers requested by the Building Minister’s Forum (BMF) to prepare model legislation for the introduction of CSTs across the industry.
It has also urged the government to convene an emergency meeting of the BMF to consider and commit to model legislation, and to make all government payments owing to subcontractors directly to the subcontractors by CSTs and not to tier one contractors.
In 2018, the government-initiated Murray review recommended the introduction of deemed statutory trusts.
Responding to the review at the time, Kate Carnell pledged her support to small-business subcontractors.
“I support the Murray review recommendation that a deemed statutory trust model be applied to all parts of the contractual payment chain for construction projects over $1 million, plus a program of industry-wide education and training,” Ms Carnell said.
In the ASBFEO’s working paper on cascading statutory trusts, the ombudsman pointed out that subcontractors perform over 80 per cent of all work in the Australian construction industry, while businesses with fewer than five workers make up 64 per cent of all insolvencies in the area.