RCR Tomlinson collapse highlights subcontractor crisis

The Australian Subcontractors Association (ASA) has called on the federal government to provide greater protection for subcontractors in the wake of recent administration woes of engineering firm RCR Tomlinson.

Last week, the storied contractor delivered a surprising news that it was appointing voluntary administrators due to financial troubles. In August, RCR raised $84 million on an intended $100 million and boasted a $1.1 billion order book.

RCR’s share price fell from $2.12 at the end of July to $1.05 by the start of September. The drop was largely related to issues with RCR’s solar farm investments in Queensland, which have suffered from a write-down of around $57 million.

By the time RCR was announcing its administration last week, its share price hovered around 85–87 cents.

The ASA called on the Minister for Small Business Michael McCormack to take action to protect shareholders in the event of insolvency.

RCR had received criticism from some commentators for its perceived issues with not paying workers properly. ASA spokesperson Louise Stewart said that such issues of non-payment “have long plagued the industry – as evidenced by the subcontractor to RCR Tomlinson that has lost $9 million due to the company not paying for work done.”

Stewart added, “We have been advised by subbies that RCR has been delaying payments as far back as 12 months in order to prop up its own cash flow. And it’s unlikely any of these subcontractors will see their money.”

According to the ASA, subcontractors in Australia are at risk of insolvency due to companies that fail to pay their bills.

A 2015 Senate inquiry into insolvency found that the construction industry in particular saw nearly $3 billion in unpaid debts annually.

The Senate also found a prevalence of ‘phoenix activity’, which is when a new company continues the business of another company that has been liquidated to avoid paying its debts.

“When it comes to the collapse of companies that rely on subcontractors to undertake the work, the domino effect can be devastating. Unfortunately, the subbies are often left to fend for themselves,” Stewart said.

“When companies fail to pay subcontractors for work done, the subbies still have to pay employee entitlements and taxes.”