29 November 2019
The state government’s response to the review of the Building Industry Fairness legislation is finally in. It clears the way for a number of major changes to the PBA regime, many of which will be warmly welcomed by builders – the 41 who have been dealing with PBAs during 2018 and 2019, as well as those who are looking down the barrel of having to deal with them in 2020 and beyond (as subsequent phases are introduced).
While the response provides some clarity, there is still a big question mark over whether PBAs have played any meaningful role in ensuring that the 1,000+ subbies involved in the 100 PBA projects were paid “in full, on time, every time”.
As far as we can see, there is no concrete evidence of this either way.
However, what we do know from the Implementation and Evaluation Panel’s comprehensive report is that PBAs have cost the principals, builders and the subcontractors involved. In fact, 90% of head contractors have reported increased business administration costs for each project, with more than half of the head contractors reporting a cost increase of more than 3% of the project cost. In addition to this, half of the subcontractors and half of the principals reported an increase in their business administration costs.
For builders, the additional cost totalled $12 million (based on 3% of the $405 million value of PBA projects): a cost that ultimately Queensland’s taxpayers will wear.
This is a far cry from the Deloitte analysis commissioned by the government in 2016, which indicated that the PBA reforms over time would have a significant economic benefit, boosting the economy by $6.42bn in net present value terms, as well as increasing employment in Queensland by up to 1,089 full-time employees.
There has certainly been no sign of the regime delivering on those kinds of benefits yet.
Just as big a concern is the impact of PBAs on the confidence of these business owners. More than 60% of builders said that PBAs have shredded their confidence in investing in their businesses. Almost half of the principals and 20% of subcontractors shared that same view.
Which brings us to the appalling prospect of PBAs being introduced into the private sector. There is no doubt it will result in chaos, for a number of reasons. In the current government project-based trial, the government is the owner and has superintendents administering each and every project on their behalf.
Not to mention that head contractors have all passed through a rigorous prequalification assessment by the government, as well as having their performance assessed, during and after construction.
None of this process applies in the private sector. The state government we know will eventually pay its bills, but in the private sector the road is littered with developers and owners who have not paid builders. The government itself has acknowledged this problem and propose a narrow solution – it remains to be seen if and how that will work.
Add to this that many of the builders and subcontractors who will be caught up in the PBA regime in later phases, simply don’t have the accounting and admin resources to deal with PBAs – compounding the problems even further.
If PBAs are introduced in the private sector as the government proposes, despite the Minister’s assurance to the contrary, there will be an enormous cost on the community. As an example, if the PBA regime was introduced today there would be over 2,000 private sector projects caught, with an estimated value of around $13 billion. The cost to the builders and investors would be at least 3%, representing around $400 million.
The ramifications of this? Investors will most certainly vote with their feet.
The other important question is how will the banks deal with the sheer volume of accounts that will need to be established (even though it is less than currently required)?
The only comfort is that the first tranche of PBAs in the private sector is not proposed until mid-2021.
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