Construction industry “culture” is keeping small businesses from stepping forward with complaints: Victorian Small Business Commission

Disputes between small businesses in the construction sector are under-represented as a share of complaints raised to the Victorian Small Business Commission (VSBC), the statutory authority says, suggesting hard-hit firms are shouldering unpaid invoices or pursuing pricey 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 its mediators have worked on more than 2000 business disputes so far this year.

Hundreds of small businesses are seeking advice each week, she said, with the service helping firms resolve their disputes before they snowball into court action.

A large proportion are hospitality businesses, McAlary-Smith said, with the bulk of their disputes relating to rental agreements or the financial impact of COVID-19 lockdowns.

But the construction sector — which is struggling to keep up with high demand, rising material costs, and a lack of labour — is under-represented in VSBC figures, she said.

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

Construction sector struggling under rising costs and timeline blowouts

Construction sector insolvencies have become headline news, thanks to the collapse of major developers like Condev and Probuild. 

Smaller players across Australia are also bearing the brunt of adverse business conditions.

Despite a massive demand for housing development, spurred by low interest rates and the Morrison government’s Homebuilder grant scheme, skyrocketing material costs are harming businesses locked into fixed price contracts.

A lack of suitable labour in many regions and schedule blow-outs caused by past COVID-19 restrictions are also weighing on many firms.

Payment times are mounting as a result. Credit monitoring firm CreditorWatch said 11.7% of firms in the construction sector bore payment arrears of 60 days or more in April, “still easily the worst performer” of any business sector.

“We would expect that payment arrears may start to increase as credit becomes more expensive,” CreditorWatch added.

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

“So, percentage-wise, the number we see for building and construction is really quite low, but I don’t think that’s a true reflection of what’s actually happening out there,” McAlary-Smith said.

Culture of construction potentially keeping firms from help: VSBC

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

“We know that culturally, within building and construction, there can sometimes be a reluctance for small contractors to actually call out some of the conduct of not getting paid,” she said.

“They’re worried about, ‘Well, if I’m seen to be that person who goes to the government department or exercise my rights, I won’t get the next job’, or, ‘They’ll hold over money on another job, or all of the sudden, they’ll start rejecting my variations’.”

Likewise, the redress mechanisms under the Security of Payments Act are “underutilised” 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 go under or launch into expensive, lengthy legal options.

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

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