Late Payment of Government Debts (Interest) (Review) Amendment Bill

Second Reading

Adjourned debate on second reading.

(Continued from 15 May 2024.)

Mr HUGHES (Giles) (12:28): The Late Payment of Government Debts (Interest) (Review) Amendment Bill 2024 is the next step in delivering the Malinauskas Labor government's election commitment of making the public dollar work for South Australians. The bill delivers on our promise to support businesses by providing fair and timely payments for those that trade with the South Australian government. Businesses across the state understand the cashflow challenge that occurs when government departments are late paying invoices. The bill will help address this challenge by:

reducing the standard payment timeline from 30 days to 15 days, seeing businesses paid for their work sooner. That is always a good thing. It is never a good look to use small businesses as a piggy bank. I only wish some elements of the private sector, especially some of our bigger companies, would take a leaf out of the book for this approach;

formally extending the reduced payment timeline to not-for-profit entities that do business with the South Australian government, providing not-for-profits with the same level of protections;

incentivising the prompt payment of invoices, and allow for greater flexibility and adaptability across the various government payment systems by moving the method for calculating interest from the act to regulations; and

amending the time frame for the resolution of interest on late payments from 48 hours to two business days. This change will allow for weekends and public holidays, enabling those government departments without automated systems to meet their obligations under this act.

These changes build on the strong results that South Australian businesses are already seeing under the Malinauskas government.

In 2022-23, more than $12.2 billion worth of economic benefit was delivered through state government contracts to South Australian companies and workers. That represented a 59 per cent increase on the previous year. It is interesting to reflect that it does build on the work that was commenced under the Weatherill government, where there was a real change in relation to assisting small businesses, medium businesses and even large businesses in this state when it came to procurement.

Sometimes, as a backbencher, it can be a little bit frustrating. I remember back to that first term as a backbencher, and there was one area of procurement in particular that did bother me. Prior to getting here, there were a number of major builds on the part of the state government, including the Greater Adelaide stadium, the Royal Adelaide Hospital and a number of other initiatives, which were good initiatives.

An issue with those initiatives is that they certainly did not maximise the use of Australian steel when it came to those particular developments. It was my view that that was a weakness, especially coming from Whyalla—the only integrated steelworks in the country that does long products, that does structural steel, that does rail. I put it to Jay that it was a priority of mine, when it came to the Australian steel industry in Australia, to see those procurement policies change.

Being a simple creature, I thought we could just do a straightforward mandate but there were some complications around a straightforward mandate. In a sense, we did get a mandate in all but name through the use of a combination of two elements: an accredited, standards-based approach for local fabricators and producers, and that was allied to an industry participation plan where companies were scored. It did result in a significant uptake of Australian steel in South Australian government projects, so that was a real plus.

At the time, the peak body of the steel industry—BlueScope (obviously it was Arrium back then), fabricators and others—the peak body representing those companies, indicated that of all the states South Australia now had the lead procurement policy when it came to using Australian steel. I do remember at the time advocating that the national government should follow a similar policy, given that the national government and the scale of their investments in infrastructure, often in combination with the states, could make a significant difference to the Australian steel industry.

The national government did not take that on board. There were various other things it would do, especially in the area of tariffs, when sometimes there was dumping from a number of companies, so some action was taken in that regard and that was a plus. I still believe, especially when we are now talking about 'made in Australia', that we need a stronger policy at a national level when it comes to the steel industry.

This bill continues the Malinauskas government's commitment to utilising South Australian government procurement money to support local businesses and jobs, and complements major changes the government has already made to give local businesses a competitive edge. The government has set a target to increase the amount spent with South Australian businesses by 5 per cent, injecting an extra $425 million into the state's economy.

This government has already implemented commitments to support South Australian businesses, such as adopting principles for government procurement: elements such as value for money; creating South Australian jobs; increasing the number of apprentices and trainees in South Australia, an incredibly important initiative; stimulating innovation and new businesses; and achieving environmentally sensitive, low carbon, socially just outcomes.

It is incredibly reasonable, through our procurement policies, that we entail those particular elements, that it is not just a straightforward financial transaction. We want to see other positive outcomes that are good for the state and the nation. We also mandated that South Australian workers deliver a minimum 90 per cent of labour hours on major infrastructure projects and imposed penalties on lead contractors for not achieving these targets.

Once again, I have had some direct experience when it comes to some projects that I happened to get involved in up in my part of the world. The first utility-scale solar plant built in South Australia was actually built in Whyalla. In some ways it is a reflection of how far we have come since then, given that was a five-megawatt project, which would be seen as a baby today. The Melbourne-based company, which was going to build in Mildura, I had some discussions with and managed to convince them to come over to Whyalla. One of the things I said to them—and I think this is an important element, especially for some country communities—was, 'Do not go out there tomorrow and promise this project; get all your ducks lined up, get the yellow gear there and, when you're ready to start the next day, we'll make the announcement then.' It was simpler to do that because of the nature of the zoning of the land.

The other thing I said was, 'Make sure you use Whyalla-based contractors'. So 90 per cent of the contractors on site at Whyalla, 90 per cent of the labour, were local contractors from the Whyalla community. I would have to say that they had to do some innovative stuff. The Melbourne-based company was more than impressed with the quality of the work they did get, and it saved them a significant amount of money by not having to draw upon contractors from elsewhere. Stuff like that is important when we look at procurement and maximising state and local advantage.

Another element is to require the use of South Australian manufactured products on public housing construction and maintenance programs where available; require departmental procurement staff to undertake regular training on the industry participation policies of government and education of local industry participants and providers; and require chief executives to sign off on procurements where the successful tender is not South Australian.

It is not always possible to have a South Australian company for a whole range of reasons. We will see, with the hydrogen project, that elements of that project we cannot fulfil from within South Australia; elements of that project, such as turbines, we will not be able to fulfil within Australia—we will have to go overseas to source some of the equipment that is needed. It is great to see a big company like General Electric taking a real interest in this project when it comes to turbines.

A broad market assessment has been undertaken to identify South Australian businesses that can deliver projects, goods or services to government and advise departmental procurement staff of industry capability. There is one project that came to light, and it is a bit complicated, with a dog fence. There were a number of contracts for the wiring. A number of companies claimed to use Australian wire, but the steel that came over, the semifinished steel that was turned into wire, actually came from overseas. There was only one company at the time, and that was Waratah, that actually used Australian semifinished steel to produce wire.

In the process that we introduced at the state level we did miss out on wire. That might change. There are some things going on when it comes to semifinished steel for wire in this country that might be a move in a bad direction, but we will have to see what happens. It is a bit of an evolving process.

There is a commitment for an independent complaints process for tenderers who feel they have unreasonably missed out on government work. Furthermore, there is a requirement that apprentices, trainees, Aboriginal workers and the long-term unemployed deliver 20 per cent of all labour hours on major projects. Some of us who have been involved in some of this stuff in the past know that it is not always possible to, in an immediate sense, employ some people. There often needs to be investment into getting people job ready. There have been some good programs around the state over the years where, if you like, that job hardening or that job preparation was done but done in a way that, unlike training for training's sake, guaranteed a job at the end of it.

Some of those programs even involved not getting rid of people who had positive drug or alcohol tests and also working on those particular issues to get them clean and employable. We actually need more of that approach because we still have some communities, despite the demand for labour and the incredibly low unemployment rate in South Australia, where the unemployment rate is two to three times higher than the state average—and indeed in some places it is significantly higher than that.

The government assists our local businesses to become tender ready, holding regular industry-specific workshops conducted by the Industry Participation Advocate, and helping more local businesses to win work. Especially for small businesses, and some of the medium businesses, there can be some complexity around tendering processes and what needs to be done, so any assistance in that area can be gratefully received.

Another commitment is that only local project managers, architects, designers, engineers, surveyors, planners and other professional service providers are used on government contracts and government projects. That can also can be a challenge. We know we have a shortage in a number of areas when it comes to some of the professionals that we need on infrastructure projects and on construction projects. It can be challenging, and we do need to do more as a state and in the tertiary education sector here, and indeed in the education sector, especially around STEM, to prepare as many people as possible to go into both professional employment and trade employment.

A further commitment is that government procurement opportunities are broadly publicised three months in advance so people do have the opportunity to get their tenders together. Also, another commitment is to publish an annual project pipeline of coming infrastructure projects over $10 million over the next three years to enable lead contractors to prepare thoroughly. I think it is important, when it comes to lead contractors, because there can be a tendency of lead contractors to use already established teams, and they go from one state to the other state. It is a case of asking: how do we address that in a way that does not disadvantage us, but does advantage that capacity to use local businesses?

A further commitment is to ensure that public projects above $500 million are broken into smaller stages/components to allow multiple South Australian companies the opportunity to participate in projects, unless the nature of that project makes it unfeasible. Another point is that tenders for major projects will be released within 90 days of funding being available for the project.

There are a lot of initiatives there that, taken together, will enhance the capacity of South Australian businesses to maximise their opportunities, but it is something that always requires oversight. It is something that requires auditing to see if we are failing in any areas and to look at which areas we can improve in and things can evolve from there.

In addition, the government has commenced work to implement additional commitments, including to ensure the Auditor-General audits spending procurement and annually reports how much is spent on South Australian and non-South Australian goods and services. That is a worthwhile initiative. It is always good to get the data. Another commitment is to set aside 1 per cent of government funding into a subcontractor support fund to enable the state to directly pay subcontractors on government projects where lead contractors are unnecessarily delaying payment of invoices or are unable to pay invoices. I think that can be an important issue with subcontractors.

There have been some examples, and these are private sector examples. Despite changes at the federal level, there is a voluntary code of conduct that big companies—I am not sure if it is just publicly listed big companies—can sign up to. I know that in my neck of the woods that whole issue of timely payment is an incredibly big issue. A lot of companies, a lot of family businesses and subcontractors, were caught out when Arrium went into administration. Arrium often took 90 days or more to pay what was owed.

When it went into administration, suddenly you had all these companies at the time with major cash flow issues to the point where family businesses that had been built up over the years faced the prospect of going to the wall. As a result of the meeting we organised in Whyalla with the contractors, we put $10 million on the table to assist a lot of those companies. From memory, 19 companies were assisted. A lot of those companies, without that assistance, would have gone to the wall. That was ultimately provided as a loan, and there were some soft conditions around the repayment of the loan, but nearly all of those loans were, in time, paid back.

But we need to be doing more not just at a government level. When it comes to the big companies that use small companies as their piggy bank we need to be doing a lot more, and that is essentially federal legislation. I did think they were going to mandate some practices for publicly listed companies. Someone can correct me if I am wrong, but it looks like it is a voluntary code of practice that you can sign up to, and there can be consequences if you do sign up, but we should make it across the board. If big companies are not treating small companies right, that is not acceptable. I see that I am out of time.

The Hon. D.G. PISONI (Unley) (12:49): I rise to speak in support of the bill. There is a lot more below the surface, of course, than just the headline of the bill about invoices being paid within 15 days. We certainly saw an example of the devastating impact it has had on public housing tenants and on the tradespeople who have been contracted to maintain those public houses that are their homes.

It reminded me of my very early days when I started my business at the age of 21. I was lucky enough to get some free advice from a kitchen manufacturer. As a matter of fact, they are still in business today and doing a great job: Farquhar Kitchens. The key advice from the father who started that business was, 'David, make sure you get paid because if you don't get paid, you won't have a business.' It is the number one issue for any business but small business in particular, particularly fledgling businesses, and South Australia is a small business state.

I took that advice and was always paid on delivery. That was an agreement that I had with clients. In 22 years of business, I do not believe I had a single bad debt from a customer. I think there was even one story when I was doing some work for someone who had just moved into the 'Toaster' in Sydney Harbour who had a notorious reputation I was not aware of, of not paying people. He engaged interior designers and architects and painters and so forth. He ordered a wardrobe in a French armoire style that had to be able to come apart because they had no goods lift in this poorly designed building, and so the furniture had to be able to come apart to actually get up to his level.

It was a project that took several months to complete. When I completed it, I got paid. When I bumped into other contractors and interior designers on another job I was working on in Sydney a few months later, they asked me if I got paid for that job, and I said, 'I did, actually.' They said, 'Well, you are the only one. Everyone we have spoken to who worked for that particular client didn't get paid.' So it is very important and it is at front of mind of anyone who runs their own business, whether they are simply a contractor who does not have employees or whether they are a business that employs their own staff.

I remember how stressful every Christmas was because Christmas was also the time of annual leave in virtually every manufacturing industry—not so much in the retail industry, of course, because people are on holidays and they go out and spend. That is why we have the Boxing Day sales and New Year sales at that time. There is always plenty of work for extra casual staff in the retail area and the hospitality area, but, in traditional manufacturing areas, that was usually when people had two or three weeks, and, in some instances, all of their annual leave over that period.

As a small business, it is a very big outlay. It was all about timing of deliveries, payment on delivery, and furniture getting to people's homes undamaged because, of course, when you are making a high-end product and it has to travel 1,700 kilometres from Adelaide to Sydney, there is always a risk that there is going to be some damage. Of course, my clients at the time were very successful people themselves and if damage had occurred, there would be no payment until it was made good.

Fortunately, I had a trusty contractor in Sydney who was able to make sure the customer was happy so that those deliveries that happened before Christmas brought the cash in, and then they would need to pay those holiday salaries to my 20-odd staff at that time of the year. When I read that story, 'Tradies left high and dry', on the front page of The Advertiser on Monday, I was very outraged, and felt, 'How could that possibly happen? How can a government that is spruiking the benefits of job apprenticeships allow that to happen?'

It was a process that I started when I was a minister. People in this place would recall that TAFE was under two investigations. It had been barred by the national regulator from actually conducting some of its training because it did not meet the requirements, and it had had its staff reduced by about one-third over the previous six years.

At the same time, we saw the non-government sector pushed out of access to funding for training, which delivered a 66 per cent decline in commencements in apprenticeships and traineeships from 2012 to 2018. We vowed to turn that around and, indeed, we did turn it around. Coming into office there were just 15,000 apprentices in training in South Australia. When leaving office there were 35,000 apprentices and trainees in training.

The government is doing a lot of talking about apprenticeships and traineeships now, but actually in their first full financial year in office there was a drop of 60 per cent of commencements of apprentices and trainees. Their shift in policy, moving away from supporting employers, and then putting complications in contracts by—and the member for Giles raised this in his contribution—compelling employers to have a certain percentage of apprentices from different socio-economic areas made it too hard for many small businesses in particular, who just found it easier not to employ any apprentices.

We had the highest growth in Indigenous commencements in apprenticeships and traineeships, Indigenous people in training, and Indigenous completions of apprenticeships and traineeships in our time in office. We did that by supporting employers, not by having quotas, not by making it more complicated for employers to engage in the apprenticeship system. Eleven-hundred employers employed apprentices for the very first time when we rolled out our Skilling South Australia program, supporting them with their off-the-job training.

I think one of the things that is often missed in some of the crucial manufacturing and construction facets of our economy is that employers are often responsible for training their staff, but I cannot think of a hospital, a medical clinic, a law firm, an accounting firm, a pharmacy or any other professional business that has to train their own staff. They employ trained staff, and yet there is an obligation on employers in those key economic drive types of industries—in construction and manufacturing—to actually fund the training themselves.

Government has always been in partnership with businesses but, in the end, it is the employer that must pay for the on-the-job training. In many awards, employers also pay for the off-the-job training in an apprenticeship or traineeship, and then there is no guarantee that, when that training is completed, that particular business that has made that investment will in actual fact benefit from having that additional skilled person in their workforce.

So you can see why the Skilling South Australia was so successful. A big lift of the burden was removed for employers by supporting their on-the-job training with cash payments, directed and tailored for their own needs, whether that be for the needs of the apprentice or whether that be for the needs of the employer, or the people who were working with those apprentices on the factory floor. I seek leave to continue my remarks.

Leave granted; debate adjourned.

Sitting suspended from 12:59 to 14:00.