❓ Mrs. Godfrey questions the Minister for Finance regarding the establishment of an ex gratia fund for construction subcontractors affected by non-payment issues related to the Building the Education Revolution program. The Minister explains the rationale behind the fund and its operational details, including the implementation of project bank accounts.
AnsweredQoN 330Legislative Assembly
QuestionView source ↗
SMALL BUSINESS COMMISSIONER — BUILDING
MANAGEMENT AND WORKS — CONSTRUCTION SUBCONTRACTOR INVESTIGATION
330. Mrs G.J. GODFREY to the Minister for Finance:
I note that
today the minister tabled a report by the Small Business Commissioner about
construction subcontractor investigation. I am aware that as a result of this
report the government has established an ex gratia fund for those
subcontractors affected. Can the minister please inform the house why this
decision was made and how the scheme works?
MANAGEMENT AND WORKS — CONSTRUCTION SUBCONTRACTOR INVESTIGATION
330. Mrs G.J. GODFREY to the Minister for Finance:
I note that
today the minister tabled a report by the Small Business Commissioner about
construction subcontractor investigation. I am aware that as a result of this
report the government has established an ex gratia fund for those
subcontractors affected. Can the minister please inform the house why this
decision was made and how the scheme works?
AnswerView source ↗
I thank the
member for the question; it is important. Members in this house know that
previously the government made a submission to the Small Business Commissioner
to look into claims about non-payment of subcontractors between October 2008
and October 2012 relating to the Building the Education Revolution program. The
Small Business Commissioner completed the work and I released that report to
Parliament today and I encourage everybody to look at it. The Small Business
Commissioner found a number of things. First, he found that about 110
subcontractors to Building Management and Works are awaiting payment. Those
cases arose from seven head contractors to BMW going into insolvency. They
related to about 300 individual claims for those 110 contracts. The Small
Business Commissioner estimated that the outstanding amount of subcontractor
money due was in the vicinity of $8.1 million. The report recommended 17
changes, largely to procedures of BMW. We accept them and will implement them
all in full. As the Small Business Commissioner identified, BMW does not have a
formal or informal relationship with the subcontractors. BMW's
contracts are with the head contractors and not with the subcontractors. In
fact, in most cases BMW does not even know who the subcontractors were. As the
Small Business Commissioner's report indicated, BMW had inadequate
information gathering procedures in place to find out who the subcontractors
were and when they complained to be able to collate them across BMW. Generally,
BMW's systems worked quite well, but it got hit with a double whammy.
First, the BER program doubled the workload of BMW—it not only doubled
it, the work was required to be done within 12 months or the money would be
lost. Second, when the BER program came to an end, there was slowness in the
market and clearly, some head contractors underbid on projects, which led to
seven contractors going insolvent. As I said, there were 110 subbies out of pay
and that is worth $8.1 million. We have decided on a range of things, not only
to change BMW's processes, but we have also committed to a hardship
fund of up to $5 million through which subcontractors identified by the Small
Business Commissioner will get 50 per cent back on eligible claims. Those
claims will be vetted by RiskCover and will require the subcontractors to bring
forward their receipts and indicate whether they have received moneys for
compensation from some other source such as an insurance company or insolvency.
That is what will be put in place. Importantly, the issue is not about
contractual disputes but about insolvencies. This has been an ongoing issue.
Unfortunately, subbies take most of the risks and provide most of the working
capital in contracts, and when a firm goes insolvent they are at the bad end of
the pecking order. We will also implement project bank accounts, which is a
reform that has been used many times. It was implemented in the United Kingdom
more recently and New South Wales is now trialling it, where money for a
project goes into a bank account and there is a restriction on the use of that
account, which protects the subbies. This is an important issue.
Mr
W.J. Johnston : This is why we have ministerial statement time.
Dr
M.D. NAHAN : I have already made one. The project bank account is a major
reform that does three things. First, it makes sure the money paid for a
project stays in the project and is paid to those who undertake work on that
project. Secondly, it makes the transactions, including the payments to
subbies, transparent. Thirdly, and most importantly, it gets the subbies a
claim for moneys due over and above others involved in insolvency. Although BMW
does not have a liability to the subbies who have not been paid, we are helping
the subbies out with this hardship package.
member for the question; it is important. Members in this house know that
previously the government made a submission to the Small Business Commissioner
to look into claims about non-payment of subcontractors between October 2008
and October 2012 relating to the Building the Education Revolution program. The
Small Business Commissioner completed the work and I released that report to
Parliament today and I encourage everybody to look at it. The Small Business
Commissioner found a number of things. First, he found that about 110
subcontractors to Building Management and Works are awaiting payment. Those
cases arose from seven head contractors to BMW going into insolvency. They
related to about 300 individual claims for those 110 contracts. The Small
Business Commissioner estimated that the outstanding amount of subcontractor
money due was in the vicinity of $8.1 million. The report recommended 17
changes, largely to procedures of BMW. We accept them and will implement them
all in full. As the Small Business Commissioner identified, BMW does not have a
formal or informal relationship with the subcontractors. BMW's
contracts are with the head contractors and not with the subcontractors. In
fact, in most cases BMW does not even know who the subcontractors were. As the
Small Business Commissioner's report indicated, BMW had inadequate
information gathering procedures in place to find out who the subcontractors
were and when they complained to be able to collate them across BMW. Generally,
BMW's systems worked quite well, but it got hit with a double whammy.
First, the BER program doubled the workload of BMW—it not only doubled
it, the work was required to be done within 12 months or the money would be
lost. Second, when the BER program came to an end, there was slowness in the
market and clearly, some head contractors underbid on projects, which led to
seven contractors going insolvent. As I said, there were 110 subbies out of pay
and that is worth $8.1 million. We have decided on a range of things, not only
to change BMW's processes, but we have also committed to a hardship
fund of up to $5 million through which subcontractors identified by the Small
Business Commissioner will get 50 per cent back on eligible claims. Those
claims will be vetted by RiskCover and will require the subcontractors to bring
forward their receipts and indicate whether they have received moneys for
compensation from some other source such as an insurance company or insolvency.
That is what will be put in place. Importantly, the issue is not about
contractual disputes but about insolvencies. This has been an ongoing issue.
Unfortunately, subbies take most of the risks and provide most of the working
capital in contracts, and when a firm goes insolvent they are at the bad end of
the pecking order. We will also implement project bank accounts, which is a
reform that has been used many times. It was implemented in the United Kingdom
more recently and New South Wales is now trialling it, where money for a
project goes into a bank account and there is a restriction on the use of that
account, which protects the subbies. This is an important issue.
Mr
W.J. Johnston : This is why we have ministerial statement time.
Dr
M.D. NAHAN : I have already made one. The project bank account is a major
reform that does three things. First, it makes sure the money paid for a
project stays in the project and is paid to those who undertake work on that
project. Secondly, it makes the transactions, including the payments to
subbies, transparent. Thirdly, and most importantly, it gets the subbies a
claim for moneys due over and above others involved in insolvency. Although BMW
does not have a liability to the subbies who have not been paid, we are helping
the subbies out with this hardship package.
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