Discussion paper a threat to industry - HIA

Posted April 27, 2016

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The Queensland branch of the Housing Industry Association (HIA) has attacked a State Government discussion paper aimed at addressing shortcomings in the security of payment system for subcontractors and suppliers to the construction industry.

The 71-page submission is scathing declaring: “Some of the options proposed in the discussion paper will not only impose significant further red tape and costs on the industry but will precipitate the unnecessary exit of a number of businesses from the building industry.”

The submission, under the auspices of the HIA’s executive director in Queensland, Warwick Temby, systematically dismantles almost every proposal contained in the discussion paper.

“The lack of analysis of the options in the discussion paper is a serious shortcoming, especially when it has been used as the basis of the ‘consultation’,” the submission stated.

“Although the discussion paper attempts to summarise the advantages and disadvantages of various options proposed, it makes no assessment of the impacts on cash flow, capital requirements, administrative costs and complexity of the ultimate flow-on to project costs, housing affordability and project viability.”

The submission argued that many of the options posed in the discussion paper reflect an ‘anti-builder’ bias.

HIA comments on the various topics raised in the discussion paper included:

Project Bank Accounts

The use of PBAs in the private sector would not be fair, practical or cost effective due to the different contracting requirements applicable to different types of construction such as civil, commercial, residential and domestic.

Principals and head contractors have the option to use PBAs at their own commercial discretion. Introducing regulated PBAs will present unnecessary legislative interference, adding costs and practical challenges to industry as to determining which parties in the supply chain are entitled to a release of funds.

Retention Trust Fund Scheme

Where is the security or support for the builder when a homeowner becomes uncooperative or emotional throughout the building process and refuses to make contractual payments?

Insurance Schemes

The HIA is opposed to the use of mandated insurance schemes to secure retention funds. By failing to assess the potential availability and cost for the type of insurance in the global marketplace the discussion of the merits of an insurance scheme is hypothetical at best.

Moreover it is bizarre that the parties (subcontractors) who will benefit from the insurance policy are not the parties proposed to pay the insurance premium. This is like asking the health care industry to pay the medical insurance costs for the public.

Federal legislation changes

Giving subcontractors the same status as secured creditors in an insolvency event would simply dilute the potential payouts to the pool of secured creditors.

It would also be peculiar for governments to consider that subcontractors and suppliers are worthy of protection and priority over and above employees of the building company, the Australian Tax Office and other creditors.

The lack of consideration given to this option in the discussion paper appears to be an acknowledgement of its impracticality.

Conclusion

If the government is serious in its commitment to evidence-based policy then the discussion paper fails to meet that commitment.

The HIA would strongly urge the government to undertake a thorough investigation of the nature and scope of security of payment issues in the building industry and an evaluation of the current measures prior to any further regulatory responses.

Housing and Public Works Minister Mick de Brenni expects to announce the findings of the discussion paper later in the year.

A full copy of the HIA submission can be viewed here: Security of Payment Discussion Paper - QLD

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