Save the Subbies: Rogernomics left the little guys defenceless

Monday, 9 September 2019

Building company Stanley Group has been liquidated.

New Zealand was a subbies' paradise until Rogernomics swept away the law that made sure they were paid.

Ten companies associated with Waikato-based Stanley Group and Auckland's Tallwood were liquidated on September 5 leaving sub-contractors on its Housing New Zealand (HNZ) projects in Auckland, Hamilton and Whakātane, facing losses of around $5 million.

Numerous out-of-pocket subbies, including plumbers, sparkies and labour hire companies, have spoken to Stuff about their fury at being left as unsecured creditors despite all the work they've done.

Could New Zealand give subbies a fairer go by learning from the US construction industry?

In the New Zealand construction industry the big developers 'pass the risk down to the guys least able to take it', said construction industry veteran Albert Smith speaking from the United States, where subbies get a lot more protection than their Kiwi counterparts.

* Construction companies Tallwood, Stanley Group in liquidation

* Ebert contractors get some retention money after collapse, but not full amount

Finance Minister Roger Douglas, about to deliver his first Budget in 1984. The reforms he oversaw were so dramatic they became known as 'Rogernomics'.

* One third of companies not complying with sub-contractor retention laws

* The Ebert subcontractors left out of retentions fund**

The guys 'least able to take it' in the New Zealand construction industry are the subbies, who made big losses in the collapses of construction giants like Mainzeal and Ebert.

Auckland mayoral candidate John Tamihere said he would champion law-change to give subbies more protection.

Smith is part-owner of the Smithbridge group of companies, including Auckland Cranes, and brother to National Party grandee Nick Smith.

He's calling for a return of the law that once let sub-contractors put a lien on the properties they worked, which then could not be sold until they were paid.

The Wages Protection and Contractors' Liens Act was repealed in 1987 during the Rogernomics era in which many laws and regulations were swept away to create free markets.

'The major problem for New Zealand is that there is currently no recourse for the contractor to the real property to secure debts for construction work,' Smith told a recent meeting of the New Zealand Construction Industry Strategy Group.

Mat Alexander's company Plumbuilt is owed over $600,000 after the collapse of Stanley Group.

Bringing back the liens act would eliminate the unfair wealth redistribution created by the regular business failures of the bad contractors and developers, Smith said, and produce a moral shake-up of the construction industry.

Lockout at the Mangere Housing New Zealand development after Stanley Group companies were put into liquidation.

His idea appears to be gaining political support, with Auckland mayoral candidate John Tamihere saying if won office, he would advocate for the act to be reinstated by Parliament to protect subbies.

'They lose their houses. They lose their relationships. The big guy never does,' Tamihere said.

'When I am given the mandate by the people of Auckland, I will also be championing a new piece of legislation that will protect sub contractors.'

The repeal of the liens act had benefited the big end of the construction industry, said Smith, but it had led to sub-contractors, including Smithbridge writing off large losses from time to time.

Giving subbies their power back would cause a redistribution of risk, and the owners of the land and buildings would be incentivised to ensure that subbies were paid by the main contractor they hired to build for them.

Some Stanley Group subbies, who have been building a legal fighting fund to investigate whether they have legal claims against directors, have been speaking of the impact on their businesses of the liquidation.

'It's making me look at what I'm doing, and making me ask if it's worth it,' said Mat Alexander, whose Plumbuilt is owed over $600,000 after the collapse of Stanley Group.

Karl McGhee, whose Wall2Wall is owed around $250,000, said: 'Do you think it's fair that my 8 and 5 year-olds need to be asking their mother/my wife, is Dad okay?'

'The American system is much better,' Smith said.

In the United States, the law required main contractors on government projects to provide performance and payment bonds, which were effectively insurance bonds that would pay to complete projects, should the contractor go bust.

The insurers charged premiums based on how financially stable main contractors were, which had led to a more stable, more efficient, and better capitalised construction industry in which sub-contractors like Smithbridge companies were certain to get paid.

Smith says contractors paid premiums of between 0.3 and 3 per cent of the value of a project, depending on how financially strong they were.

Smith tried to get the New Zealand government to adopt a similar model 10 years ago, but he said: 'The view was there weren't enough insolvencies to justify the cost to the industry.'

The unfair allocation of risk was on the government's radar.

Minister for Building and Construction Jenny Salesa said: 'This Government is working together with construction industry leaders to transform the building sector through the Construction Sector Accord. This accord is working to meet the key challenges the sector is facing, including poor risk management and a culture of shifting risk.'