Report 9

Payment of Construction Subcontractors – Perth Children’s Hospital

Auditor General’s overview

The Government has dozens of major infrastructure expansion and replacement projects underway across the state. Competitive tendering processes invariably see large national and international firms winning these tenders and then engaging local subcontractors to deliver much of the project.

One such project is the design and construction of the Perth Children’s Hospital. As this is a major strategic project, the Department of Treasury has responsibility on behalf of the State for monitoring the Contractor’s performance and ensuring the project is delivered in accordance with the contractual terms.

Serious allegations have arisen during construction of the hospital about non-payment for work done by subcontractors, which in turn has raised questions about the obligations on the State.

The State is not a party to arrangements between Contractors and their subcontractors. Any disputes are a matter for resolution under their contracts and/or the state’s regulatory safeguards. In the case of payment dispute, options include negotiations between the parties, adjudication under the Construction Contracts Act 2004 or going to court.

While the Government recognises that it has some obligation to subcontractors working on State projects, the solution is not simple. Any misdirected intervention may inadvertently expose the State to liability. The remedy chosen in the case of the Perth Children’s Hospital, is to include specific contractual conditions to protect subcontractors.

My review of these conditions found that for the most part, they are suitable for purpose, though I have recommended strengthening of some aspects.

Page last updated: June 8, 2016

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