Wednesday, 5 February 2025

Environment and Planning Committee

Employers and Contractors Who Refuse to Pay Their Subcontractors for Completed Works

Wayne FARNHAM (Narracan) (10:28): I am pleased to rise today on the Legislative Assembly Environment and Planning Committee and their inquiry into employers and contractors who refuse to pay their subcontractors for completed works. I am really pleased that I have now actually joined this committee, and we will next be doing an inquiry into building in regional Victoria, which I look forward to having input on. But today I want to talk about this report that has been tabled.

The premise of the inquiry was to figure out why subcontractors do not get paid. It is quoted quite a few times within the report that in the construction sector there is very much a pyramid-type system and everything filters down from the top. So when we talk about employers and contractors who refuse to pay their subcontractors, we also need to probably look at one the biggest builders in the state at the moment, and that is state government. I think if we are going to have inquiries like this, the state government needs to lead by example, and no more than that at the moment is the Victorian School Building Authority. The VSBA at the moment is not really playing fair with builders.

I have built many schools in my lifetime, and we had a claim process that used to work quite effectively, which was basically that I was a builder, the architect was there, I would do a claim. It would all be set out in different sections of the building and you would claim a percentage of that work was completed. The architect was the superintendent, and he would come onsite and would assess the claim. Yes, there was always a bit of argy-bargy and a bit of robust debate. He would say, ‘Well, you’ve over-claimed here,’ and I would say, ‘But I’ve under-claimed over here,’ and we generally came to an agreement. The architect would sign that off, it would go back to the department and I would get paid and my subcontractors would get paid.

What has come to my attention in recent months is that what is happening now is the architect is still in a sense the superintendent, but what happens is the VSBA will get in an independent quantity surveyor to look at the claim, and this is where things are going a little bit pear-shaped, because the quantity surveyors are coming in and knocking those claims down to 10 to 30 per cent. Now the builder has nowhere to go. When we are talking about the pyramid structure, government is at the top of the pyramid. If those claims are getting knocked back 10 to 30 per cent, you have also got to remember the builder has got a retention in there too of up to 5 per cent. So that gets passed down the line. The builder cannot wear the whole deduction of the claim, and that has to get passed down to the contractors.

We all know at the moment – and I do not think anyone in this chamber would deny it – that the construction industry as a whole is not in a very good place. It really is not. We need to look at this because in a 12-month period we have had over 700 builders go into liquidation and have lost over 21,000 tradies. That is a lot. There is on average about 300,000 tradies in Victoria, so that is about 8 per cent. That is a lot of trades leaving this state. If the government cannot get the payments right, how do they expect that people will want to work for the VSBA? I have had builders come up to me personally and say, ‘We’re done. We’re sick of working with this department. They’re cruel. They don’t listen. They knock down our claims.’

They are not over-claiming; they just want the original claim that is put in. What happens is that when you get to the end of the project, there are two forms of retention. You have a retention that gets paid back on practical completion of 2.5 per cent. There is also another retention of 2.5 per cent that is held for 12 months. So the builder cannot run away. He is stuck there, and most of those retentions are back guarantees offset against properties, so there is a fair bit of security there.

What needs to happen is the VSBA needs to be fair. If we are going to talk about subcontractors getting paid, then the government should really set the example through their departments. I know many in this chamber who have been subcontractors. I have. I think you have, Deputy Speaker. The member for Glen Waverley has. A lot of us have been in that situation where you have felt that pain of not getting paid the appropriate amount of money. So I think when we have these inquires we need to lead from the front. Let us have the VSBA set the standard.