By KEVIN TAYLOR
The Contractors Federation wants a mandatory bond system to give contractors financial security under new legislation governing construction contracts.
But the Government says bonds will increase construction costs.
The issue is the latest to hit the troubled Construction Contracts Bill, which is already facing changes after industry submissions to a select committee.
Other industry concerns are the exclusion of building suppliers from the bill and of residential construction involving homeowners from some of the legislation's protection measures.
Contractors Federation president John Pfahlert told the Business Herald yesterday that mandatory bonds were critical and it would not support the bill unless the system was introduced.
The federation suggested a bond of 10-20 per cent of a project's value, to be lodged by the developer to give security to contractors and subcontractors.
The bill proposes that contractors secure their risk by a charge on a developers' land, but the industry says those provisions could easily be sidestepped.
The federation will make its submission next week to the finance and expenditure select committee, but other industry bodies supported the call for bonds in their submissions to the MPs' panel yesterday.
Registered Master Builders Federation chief executive Chris Preston told the committee the bill put significant added risks on head contractors, and a bond system would be an effective and simple solution.
Measures were needed to give head contractors security of payment.
The bill abolishes "pay-if-paid" and "pay-when-paid" clauses, which are common in the industry.
That move has been welcomed, but there is also fear that the bill pushes the risk up the contractual chain to head contractors.
Mr Preston said that without effective measures to give head contractors security of payment, building costs would rise and construction activity would decline.
Associate Commerce Minister Laila Harre said the major problem with bonds was the increased construction costs.
When the Queensland Government looked at payment bonding, it concluded that costs were likely to be 1 to 2 per cent of the total project sum.
She said the bond option was considered but rejected early in the policy process by a construction industry group working on the issue of big building firm collapses.
Among other problems identified were:
* Smaller head contractors would have more trouble getting bonds, and the system could drive them out of the industry or prevent their participating.
* By determining when and to whom bonds are given, bond givers - insurers or banks - would be de facto licensers of any construction and indirectly become industry participants.
The bill was introduced in May after concerns about the number of insolvencies among small contractors when large corporates failed.
The last big example was in February, when the Auckland firm Hartner Construction went into receivership, and later liquidation, with debts estimated at $28 million.
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