Construction industry ‘culture’ prevents companies from getting help, says VSBC

Source: Mick Tsikas / AAP Image

Disputes between small businesses in the construction sector are under-represented as a share of complaints to the Victorian Small Business Commission (VSBC), according to statutory authority, suggesting hard-hit businesses are picking up unpaid bills or pursue expensive legal options instead of accessing cheaper mediation services first.

Speaking at the Melbourne SmallBizWeek conference on Wednesday, Victorian Small Business Commissioner Lynda McAlary-Smith said her mediators had worked on more than 2,000 business disputes so far this year.

Hundreds of small businesses seek advice every week, she said, with the service helping businesses resolve their disputes before they snowball into legal action.

A large portion are hotel businesses, McAlary-Smith said, with the bulk of their disputes related to rental agreements or the financial impact of COVID-19 closures.

But the construction sector – which is struggling to meet strong demand, rising material costs and labor shortages – is underrepresented in VSBC’s figures, she said. declared.

“I don’t think the numbers we’re seeing really reflect the scale of the problem,” she told the conference.

Construction industry grappling with rising costs and time rashes

Insolvencies in the construction sector have grabbed the headlines, thanks to the collapse of major developers like Condev and Probuild.

Smaller players across Australia are also bearing the brunt of unfavorable trading conditions.

Despite massive demand for housing development, spurred by low interest rates and the Morrison government’s homebuilder subsidy program, soaring material costs are hurting businesses locked in fixed-price contracts.

The lack of suitable labor in many regions and disruptions to schedules caused by past COVID-19 restrictions are also weighing on many businesses.

Payment terms are extended accordingly. Credit monitoring firm CreditorWatch said 11.7% of businesses in the construction industry were in arrears of 60 days or more in April, “still by far the worst performer” of all business sectors.

“We expect arrears to begin to increase as credit becomes more expensive,” CreditorWatch added.

However, late payments and trade disputes in the construction industry are not accurately reflected by the number of calls to VSBC, McAlary-Smith said.

“So as a percentage, the number we’re seeing for building and construction is really quite low, but I don’t think that’s an accurate reflection of what’s actually going on there,” McAlary-Smith said.

Construction culture potentially preventing businesses from getting help: VSBC

The disparity may be down to the ‘culture’ of Victoria’s building industry, she claimed.

“We know that culturally, in building and construction, small contractors can sometimes be reluctant to report some of the non-payment behaviors,” she said.

“They’re worried about, ‘Well, if I’m seen as the person going to the ministry or exercising my rights, I won’t get the next job’ or ‘They’ll withhold money from another job, or all of a sudden they will start rejecting my variants”.

Similarly, the appeal mechanisms provided for by the Payment Security Act are “underutilized” by Victorian builders, she added.

McAlary-Smith said the VSBC is working with Rebecca Casson, chief executive of the Master Builders Association of Victoria, to raise awareness of the dispute resolution avenues available to builders before they embark on costly and time-consuming legal options.

Calls to VSBC are free, with VSBC mediators conducting half-day sessions between disputing parties for $195 per party.

“Think there’s definitely an opportunity to dive into that,” she said.

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