Labour is pushing for a new system to protect sub-contractors from collapses such as Mainzeal - 26 years after a Labour government axed laws that gave that very protection.
David Shearer says he wants to create a system where a trust holds payments owed to subbies, which would be ringfenced if a company shut down. At the moment big construction companies hold all money themselves and if they go belly up, the money is lost.
The opposition leader said the system could be modelled on one being mooted in New South Wales where progress payments are made into a trust that pays out subcontractors.
Alternatively New Zealand could go back to the old system of "liens" - each person in the building chain having to hold reserve payments for the next person.
A lien system was in use here from 1939 to 1987 but was repealed by the then-Labour government.
Mainzeal was put into receivership with millions of dollars owed to subcontractors throughout the country.
"This is not the first company and probably won't be the last, and each time it's the subbies who are wearing the cost of these companies going belly up," Shearer said.
Insurance was available for subcontractors but that added a cost to the system. He said New South Wales had recommended a state construction trust where money was "quarantined".
Labour commerce and small business spokesman Clayton Cosgrove said Public Trust was one option for holding payments with funding from the interest. "It should not be the case that lead contractors are using money for subcontractors to fund new projects. That's high-risk behaviour."
Shearer said Labour only wanted to target large companies and suggested the system apply only to projects of over $1 million. While some would see it as red tape, Shearer said it was about ensuring subcontractors were paid for the work they had already done.
He said arguments that it would disadvantage lead contractors ignored the fact the money they were using for projects actually belonged to subcontractors. A trust system would also mean subcontractors being paid promptly.
Shearer's proposed policy was last night backed by one of the many sub-contractors who have taken a sizeable financial hit from the Mainzeal collapse.
Joe Gilmartin, of Wellington's Shearer Contracting, described the repercussions of the Mainzeal downfall as a "horrible situation".
Shearer Contracting is owed approximately $55,000 to cover services provided, materials and time lost, with work equipment impounded on a Mainzeal site.
"It's a huge amount . . . we feel pretty small and isolated at the bottom of a heap [of creditors]," he said. "This is the second time we have been nailed [by a collapse] in two years. It is so wrong . . . it seems the IRD get their money first, the receivers come in and they pay themselves before they do anything else.
"It seems to be the wrong way around. We are the guys who have done all the work, yet we are the ones who get shafted. Out of all that, probably about half of it is on material for the site that we have to pay for still. These are the things that get us . . . it is more than just the time we put in, it is the material that we haven't paid for, but we have to pay for it otherwise we don't get supplied it."
- © Fairfax NZ News
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