Who Decides If the Builder Gets Paid?
Australia's residential construction payment system creates collective dysfunction despite each participant acting rationally. Independent lender inspections and fragmented decisions compress cash flow and raise insolvency risk.
Why do builders keep missing out on progress payments even when the work is done?
Builders and subcontractors face cash flow gaps and insolvency risk due to misaligned payment systems. Day-to-day: invoices stall, businesses struggle to meet payroll and supplier costs.
Key takeaways
- Lenders use independent inspections to manage risk, but this delays progress payments to builders.
- Each party acts rationally, but the combined system creates cash flow compression across the industry.
- Persistent payment misalignment raises insolvency risk for residential builders and their subbies.
- The broken payment architecture is contributing to constrained housing supply across Australia.
Related
WA passes new payment protection laws for subcontractors
Western Australia's Parliament has passed new payment protection laws for subcontractors. The changes, made through an amendment to the Building and Construction Industry (Security of Payment) legislation, aim to give subcontractors stronger protection against insolvency.
Why it matters: Subcontractors in WA, including plumbers, electricians, carpenters and other trades, get stronger protection if a head contractor becomes insolvent. This could reduce the risk of unpaid work and cash flow problems.
ATO ramp up of small business debt collection
Master Builders Australia has published a news item saying the ATO is stepping up its debt collection against small businesses. The text provided gives no further detail on the measures, timing or amounts.
Why it matters: Builders and other trade businesses with outstanding tax debts may face firmer ATO collection action, which could strain cash flow. Details are not in the source text, so check the ATO or Master Builders directly.
Builders Oppose Proposed Jobs Framework and Supplier Code
Master Builders Australia opposes the proposed Secure Australian Jobs Framework and changes to the Commonwealth Supplier Code. The article excerpt gives no further detail on what the proposals contain.
Why it matters: Builders and contractors working on or seeking Commonwealth-funded projects could face new employment and supplier requirements. The practical impact is unclear until details of the proposals are released.