The Federal Labor Opposition has announced recently that, if elected, it will introduce a policy called the Tradie Pay Guarantee to ensure the security of payment of trades people working on government-funded construction projects. The policy announcement follows a number of proposed measures to address illegal ‘phoenixing’ activity. Illegal phoenixing activity is when a new company is created to continue the business of a company that has been deliberately liquidated to avoid paying its debts, including taxes, creditors and employee entitlements.

Other measures announced by the ALP include working with states and territories to cancel the building licenses of companies that have been caught phoenixing.

Master Builders Victoria (Master Builders) welcomes the increased focus of both major parties on improving the standard of commercial conduct within the construction industry. The need to ensure small and family businesses and subcontractors are paid in full and on time is crucial. Master Builders also recognises the few who deliberately do the wrong thing makes it harder for the overwhelming majority who do the right thing and comply with the law.

However, it is critically important to ensure that we do not end up with overly simple solutions to complex problems that cause duplication and unnecessary red tape. The focus should be on ensuring compliance with existing laws, with any new solutions adopted being evidence-based, effective and lasting.

There are five key policy elements of the Tradie Pay Guarantee. While little information is provided on how each policy element is administered, the expectations of what the five policy elements may entail is provided below:

  1. Project bank accounts for federal construction work

All federal government-funded construction work will use project bank accounts (PBAs). This is only restricted to federal government-funded work as PBAs are under the jurisdiction of states and territories. Master Builders notes that there has yet to be a reliable local assessment of whether such arrangements will represent a meaningful solution. There is an attendant risk that in practice such arrangements will have significant adverse outcomes for small business and subcontractors.

  1. Creation of an efficient process for handing disputes

Not much information has been revealed on what this might involve. However, there are indications that it may mean the introduction of a new process for handling payment disputes on federal government-funded work sites. Alternatively, it could also refer to a process that will be introduced in the proposed Federal Security of Payment legislation (see below).

  1. Establishment of a federal security of payment legislative regime

Although the Federal Government does not have jurisdiction over security of payment arrangements within states and territories, it can nevertheless employ methods to influence states and territories, as evidenced in other areas like workplace health and safety (WHS) and industrial relations (IR). This can be done either through:

  • The creation of a Model Federal Legislation by the Federal Parliament. Although such legislation may not have actual or practical impact, it can nevertheless act as a model for a harmonised scheme on which states and territories can base their legislation. An example of this is the Model WHS laws (although not all states and territories have signed up to this).
  • States and territories can vote to have the Federal Government take control over its security of payment arrangement, therefore effectively resulting in the said state or territory losing its control over it. An example of this is the referral of workplace relations laws in Victoria to the Federal Government.
  • Although considered an unlikely scenario, the other option is having the Federal Government, in limited circumstances, provide federal financial assistance or funding to states and territories on the basis that model laws are adopted.
  1. $7 million litigation fund for subcontractors

Not much information has been provided on what this means considering regulators already have the power and obligation to enforce the law.  But it is very likely intended to give the Australian Securities and Investments Commission (ASIC) the ability to run more difficult court cases relating to unlawful phoenixing activity without draining its resources.

  1. Providing relief to those affected by phoenix activity

The Federal Labor Opposition has alluded to the notion of providing financial relief to subcontractors that do not get paid as a result of a company becoming insolvent.