Processes are generally better
- The key processes that help ensure security of payments to contractors have improved, particularly within BMW. Treasury and Housing, which were not the focus of the SBDC review, have also reviewed and improved their processes though not to the same extent as BMW.
- BMW adequately assess the financial capability and business risk associated with the tenderers who contract for their construction projects and use weighted assessment criteria in their contract award process. However, Treasury and Housing do not have a standard tender assessment process for financial information and financial capacity assessments.
- Improvements are needed in how Housing and Treasury assess and document risk mitigation strategies when business risks associated with engaging a contractor were identified.
Housing could not show that it implemented strategies to mitigate the risk of appointing a contractor. Treasury has risk mitigation strategies for each contract, but there needs to be a clearer mapping of a specific strategy to the specific business risk of each contractor.
We acknowledge that for projects delivered through public-private partnerships, the private party bears significant financial risk and management responsibility. However, as a matter of good practice, there should be a clear trail between risks identified in early documents and strategies to address overall risks to the project.
- All 3 agencies have processes that help ensure security of payment to contractors, including requiring contractors to provide a statutory declaration that payments to subcontractors have been made. All 3 agencies undertake spot checks of payments and follow up concerns. Mostly, these processes were reasonable, though Treasury and Housing need to be more transparent about their processes.
- The Government has mandated the use of project bank accounts for all BMW projects valued between $1.5 million and $100 million, and introduced a Code of Conduct for contractors on State contracts worth more than $10 million. The Code aims to stamp out inappropriate behaviour on construction sites and will apply from 1 January 2017.
Dispute resolution processes are more robust
- Government has historically not accepted that it has a payment obligation to a subcontractor in the event of non-payment by a contractor. However, it has recognised the need to facilitate dispute resolution procedures. More recently, each agency has required contractors to keep them informed of payment disputes between a contractor and its subcontractors.
- All agencies have an adequate system and process in place to manage subcontractor claims of non-payment. BMW and Housing provide this information on their websites. The number of concerns raised at the agencies varies from 102 at BMW to 2 each at Treasury and Housing, although Treasury’s information only includes complaints since March 2016. The complaints we reviewed were assessed within the prescribed time and against each agency’s policy and closed.
- In November 2016, Parliament passed legislative changes that strengthened dispute resolution processes. These changes arose from the SBDC recommendation that the Building Commission review the CCA. A key finding of the review was that subcontractors were not given sufficient time to lodge payment dispute claims. The legislative changes increased the time to lodge from 28 elapsed days to 90 working days and excluded the period between 24 December and 7 January from the calculation of working days.
- The Building Commission plans to push for a second set of legislative amendments in 2017 that will include continuing professional development for adjudicators of payment disputes, penalties for failure to comply with the CCA, and reducing overlap in the CCA.
Three recommendations were not assigned to a specific agency
- Work had commenced on 14 of the 17 recommendations, but the progress varied across recommendations and agencies. We found 3 of the recommendations had not been assigned to a specific agency. However, the Building Commission is progressing one of the three unassigned recommendations, a review of the Inquiry into Construction Industry Insolvency in NSW (Collins report).
- The other 2 unassigned recommendations relate to a study of commercial best practice for assessing risk and awarding contracts, and a role for BMW to positively lead standards and behaviours in the WA construction industry. However, given the range of reforms in the last few years, clear direction from government is required on whether it wishes to implement these recommendations.
Building and Construction Training Levy payment gap
- There is a real risk that the levy payable by contractors on government projects is not paid or not paid in full. The BCITF relies on BMW, Housing and Treasury to provide information to it on government construction contracts but it has not established arrangements with all agencies to access this information directly. There is also a need to determine more closely the nature of Government contracts and if the contract as issued includes elements and services to which the BCITF levy would not apply. Testing of 41 BMW, Housing and Treasury construction contracts to the BCITF system showed a potential net underpayment for 13 contracts or variations, but these were not material.