Building industry payments firm shelves Aussie ambitions, heads to UK

Late payments by owners can mean head contractors are often juggling what cash flow they have between different projects – or even just using it as working capital. That leaves subcontractors at risk of going bust, which happens with apparent frequency.

And this, in turn, means banks can be reluctant to lend to the industry, leaving many subcontractors running their business from a personal credit card.

ProjectPay creates what is in effect a merchant platform: a project account, with embedded finance from a pool of lenders. This is meant to ensure subcontractors are reimbursed, and to discipline the payments process.

“The platform takes over the administration of those payment flows, removing that fundamental risk of payments being misused, or payments being lost to builder collapse or insolvency,” Ms Stewart said.

“And in doing that, the lender then has addressed those fundamental payment risks, the reasons why they have traditionally not wanted to provide low-cost working capital to the sector.”

Ms Stewart said Innovate UK’s support was partly to help prepare for potential legal reforms being considered by the British government, aimed at helping to guarantee that subcontractors get paid.

The problem, she said – as the Queensland government had also found – was that changing the rules without changing the underlying system could actually make things worse, as contractors would not have the financial wherewithal to comply.

That same regulatory impetus has attracted ProjectPay to the US, where the law already makes directors of building companies personally liable for the debts of subcontractors.

“There’s still a problem in the US of slow payments, because project owners pay late. So they [head contractors] are looking for this solution to protect their position,” she said.

Australian ‘resistance’

Ms Stewart said the company had less chance of making headway in Australia than in Britain or the US, because building companies were resisting government moves to restructure the industry’s payments system.

Ms Stewart said both sides of politics had pledged reform but not delivered – a situation that prompted her to run as an independent in the 2019 federal election.

“It requires leadership from the commonwealth government. They know what the fix is. But I’m just seeing government policy that is still really ill-considered and really puts homeowners and subcontractors at risk,” she said.

The Australian Constructors Association argued in a recent report that insolvencies in its industry were lower than in other industries, and that these reforms would tie up cash flow in a low-margin industry.

They want the onus to be on the clients, or project owners, to pay upfront and more often. The report said project bank accounts would “distort normal market mechanisms” and turn a builder’s funds into “trust money”.

Ms Stewart acknowledged that head contractors in Australia did not like the reforms nor ProjectPay’s offering.

“I think the resistance in Australia has really come from a misunderstanding of what the platform does,” she said.

She argued that ProjectPay could solve the Queensland problem, in which head contractors were forced to come up with the working capital to top up the project trust account.

She said it was still possible for Australian subcontractors to use the ProjectPay platform to manage payment processes and streamline paperwork, but without head contractor buy-in, the platform could not guarantee payments.