The Australian Small Business and Family Enterprise Ombudsman is examining payment terms and conditions for subcontractors working on government projects.
Ombudsman Kate Carnell said small business “subbies” are vulnerable to delayed payments, which can have an adverse impact on their livelihoods and the broader economy.
“Most government departments pay their invoices within 30 days, but when a prime contractor is appointed to manage a project there are regularly delayed payments further down the chain,” Carnell said.
“Government agencies and prime contractors should ensure that payment terms and conditions throughout the supply chain are no worse than those in the head contract.
“It’s not good enough to leave responsibility with a head contractor and overlook small businesses who do much of the work.”
Carnell said cashflow was vital to small business success.
“Cashflow is king,” she said.
“A lack of cashflow is the leading cause of business insolvency and this underscores the importance of prompt payments.”
Carnell has written to seven government departments seeking information about their procurement and payment policies.
It follows her inquiry into payment times, which recommended the government pay invoices within 15 days. The inquiry also recommended:
The Australian Government require its head contractors to adopt the payment times and practices of the procurement policy through the supply chain;
The Australian Government extend its payment policies to all agencies and entities;
The Australian Government publish its payment times and policies, and for all its agencies and entities, with performance against best practice benchmarks;
The Australian Government procure from businesses which have supply-chain payment times and practices equal to or better than its practices.
The inquiry also recommended that all levels of government adopt the same prompt-payment policies.
At the same time the federal government is reviewing security of payment laws in the building and construction industry.
The Airconditioning and Mechanical Contractors Association (AMCA) has made a submission to the review highlighting the problem of different laws in each state across Australia which has a significant impact on the level of protection afforded to subcontractors.
In its submission the AMCA said the review is critically important for subcontractors because insolvency in the building and construction industry is unacceptably high.
AMCA executive director, Sumit Oberoi, said competition is fierce among contractors.
“The situation is made worse because tenders are often selected based on the lowest price,” he said.
“Security of payment is also a big concern because most subcontractors are small to medium sized enterprises, often they are family owned businesses.”
A final report is being prepared for the government to consider by December 31, 2017.