Thousands of contractors who performed work for construction and engineering firms which have collapsed in recent months are suffering a severe cash flow crisis, media reports say.
According to a report on the ABC News web site, debt recovery specialist Glen Bower says that thousands of sub-contractors – many of them small, family run businesses that depend on cash flow – are vulnerable to the collapse of groups such as Reed Constructions, St Hilliers, Hastie Group and Aegis Consortium.
Bower told the ABC’s Background Briefing program that the industry is increasingly moving away from traditional employment towards a sub-contractor model, and that sub-contractors, as unsecured creditors, are at the end of the line when things go wrong.
“There are less and less employees and more subcontractors and lot of those subcontractors go from one day being an employee to being a subcontractor” Bower says.
“Their homes (are) on the line, the banks have got them stitched up, the bank may have provided an overdraft for working capital for these small family businesses, so cash flow is imperative”.
In Victoria, for instance, Peter Berlyn’s Able Earth Movers in Ballarat is owed around $1.3 billion for the Ararat prison project in the west of the state. The primary builder on that project, St Hilliers, went into administration in May.
“This is not profit. We owe all this money to our suppliers all around the place” Berlyn says, according to the ABC.
“I’m sure that their patience is running out.”
Bower says that whilst every state has security of payment laws designed to keep the cash flow for sub-contractors, there are problems in enforcing the laws as companies give sub-contractors the run-around, even going into voluntary administration or liquidation to get out of meeting obligations.
Anger boiling over
Anger is now boiling over at both corporate management and the government (Reed, St. Hilliers and Aegis were all working on government contracts).
One subcontractor, referred to only in the ABC’s report as ‘Laurie’ says he has still not been paid for work done last year on public road building projects for Reed Constructions, and that he is ropeable with both the government and with Reed Management.
“We take on big government projects thinking that we can always go back to the Government” Laurie says.
“We’re going nowhere.”
Bower thinks tight budgetary pressures amongst government departments has contributed to the problem, leading to governments accepting low price tenders.
He says government departments have a responsibility to ensure that companies to whom they award contracts are sufficiently sound from a financial perspective so as to complete the projects and fulfil all obligations to suppliers.