Suddenly, the best and most interesting story about the recent collapse of the German-owned Walter Construction group. Not in the financial pages of The Fin Review but on the top of page 12 in yesterday’s Daily Telegraph.
It’s an exclusive story by the paper’s Joe Hildebrand and claims (in an exclusive) that $3 million is missing from trusts supposed to have been set up on three sites alone that Walter was running before it collapsed about six week ago.
The story, which doesn’t seem to be anywhere on the News Ltd website, starts:
“The Water Construction Group failed to lodge millions of dollars in trust that would have used the burden on sub-contractors left unpaid after the group’s collapse.”
“At least $3 million on three sites alone was supposed to be held in trust for sub-contractors but was instead used in Walter’s general operating revenue.”
The story said funds were called ‘retention funds’ and were supposed to be 10% of subcontractors payments, and were supposed to be held in trust for a fixed period of time to be a form of insurance against their work (and to give subbies assurance that they would be paid in full should the contractor fail or drop the project).
“Administrators have found $600,000 and $1.4 million missing from Walter’s water projects near Wollongong and George’s River” (which is in Sydney).”About $1 million is missing from the Gosford and Wyong Hospital projects,” the story added.
This would chime with this story Crikey published about the Parramatta rail interchange project in Sydney’s west, another Walter project, where sub-contractors had claimed that $3 million was not paid to them for work. Crikey reported last month that the $3 million had been paid to Walter Constructions but had not been paid on to the subbies.
There was a lot of argy bargy over the missing money that held up the transfer of the project, but it would seem that something similar to these projects had gone on there. The shortfall at Parramatta was from money the contractor (Walter) had to hold and pay subbies sometime after their work was finished. It was a sort of final payment.
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This is one of a number of situations festering in the construction and contracting industry.
A subscriber has written to say that the common habit in the industry is not to follow the supposed practice and pay subbies after 30 days (which is supposed to happen) but to length the payment period up to 120 days.
Effectively the contractors are borrowing the subbies payments, forcing them to raise more working capital and depriving them of much needed income. And not paying any interest for the 90 day period!
The contractors use the subbies money to bolster their working capital, and in the case of Walter Constructions, would seem to be mixing the ‘retention funds with day to day revenues, a big ‘no no’ and a breach of the various contracts with the NSW Government.
Do these ‘retention fund’ get paid to subbies in a timely and correct manner? From what this source says there are a lot more problems in the construction industry that need uncovering, and the Federal Government is ignoring them instead by bashing the unions, who in many cased do deserve a touch up.
But the contractors and their actions are escaping scrutiny! Walter Constructions could be the perfect opportunity for the NSW Government to launch an inquiry of its own!
Certainly the Australian Securities and Investment Commission needs to have a look at the collapse and the actions of the German parent which refused to repay $38 million sent to Germany by the Australian subsidiary.