Senator Rex Patrick blasts CIMIC over supplier payments

Senator Rex Patrick has attacked Australia’s biggest construction company, CIMIC, over its supplier payday-lending scheme.

Senator Rex Patrick, during a Senate estimates hearing. Picture: AAP

Key crossbench senator Rex Patrick has attacked Australia’s biggest construction company, CIMIC, over its supplier payday-lending scheme and 65-day payment terms, labelling it a “material breach of their social licence” ­because they are using small businesses as banks.

Senator Patrick — who shares the balance of power in the Senate with Centre Alliance colleague Stirling Griff and four other crossbenchers — said he would move to fast-track legislation to ensure companies that did business with the government paid their own suppliers within 20 days.

CIMIC and its subsidiaries, ­including UGL and Thiess, have been awarded hundreds of millions of dollars in federal government contracts in the past decade, including the maintenance of Royal Australian Navy’s eight Anzac-Class frigates.

Senator Patrick’s comments come as federal Small Business Ombudsman Kate Carnell rel­eased the key findings of her Supply Chain Financing Review, which recommended the government legislate payment terms as early as this autumn.

CIMIC — which this week posted a writedown-marred $1bn loss in the year to the end of December — extended its payment terms from 45 to 65 days in September. At the same time it unleashed a payday-lending scheme — offered through controversial global financier, the Australian-born Lex Greensill — on suppliers who wanted to be paid earlier.

It is a similar scheme that Rio Tinto and Telstra dumped after The Australian revealed the two companies were urging suppliers to cut their bills in exchange for prompt payment, sparking community outrage and investigations from the competition regulator.

“They (CIMIC and its subsidiaries) should not be treating subcontractors and mum-and-dad families as banks,” Senator Patrick said.

“The government is dragging the chain on this, which is entirely unacceptable.

“I’m aware of the policy of 20-day payment terms and Centre Alliance will clearly support that.

“I don’t understand the delay and the government should be acting on this a lot sooner.

“But in the interim, noting CIMIC have defence contracts, the government ought to be putting pressure on this company to change its conduct.

“I will certainly be putting questions to secretaries of departments who have provided contracts to CIMIC or related entities. Corporate Australia needs to operate with a social licence and this sort of conduct is a material breach of such a licence.”

The government is planning to implement the 20-day payment policy in late 2021, according to internal government documents seen by The Australian.

A spokesman for Small Business Minister Michaelia Cash said the government was progressing with that policy, which Scott Morrison unveiled in November 2018.

Senator Patrick joins Kate Carnell and opposition employment and industry spokesman Brendan O’Connor in the push to bring forward such laws.

Mr O’Connor said supply-chain finance was hurting the ­national economy.

“Small businesses require prompt payments to help manage cash flow and to grow, particularly when access to finance is tight,” Mr O’Connor said. “The economy does not benefit from this type of financialisation that only benefits needless intermediaries.”

The Australian can reveal that, in the past decade, CIMIC’s subsidiaries Thiess and UGL have been awarded more than $314m in federal government contracts, many of them from the Department of Defence.

At state level, the company boasted on its website that another subsidiary, CPB Contractors, was set to reap $2.49bn from Victorian taxpayers after it won the contract to build the West Gate Tunnel in a 50:50 joint venture with John Holland.

In NSW, CIMIC won the tender to build the $3.9bn WestConnex M4-M5 Link Rozelle Interchange in another 50:50 joint venture with John Holland.

On Tuesday, the company, which declined to comment for this article, revealed its suppliers had financed $851m in money they were owed from CIMIC — up from $561m a year earlier.

Ms Carnell said while supply-chain financing — also known as supplier payday lending — could be an effective tool to free up cash flow for small businesses, too many big businesses were using it in conjunction with extending payment terms, which left their suppliers with little choice but to use such schemes.

“Our review has found that too many big businesses have extended payment times and then offered supply chain finance. This practice severely impacts small-business suppliers and is totally unacceptable,” Ms Carnell said.

“There are too many small businesses that have to wait too long to get paid.

“This is in part because the definition of small business is wide open to manipulation under the (Business Council of Australia’s) Supplier Payment Code.

“Even putting aside the issue of manipulation, the Supplier Payment Code is voluntary. There is no compliance monitoring and it’s actually unenforceable.”

The BCA grandfathered changes it made to its small business definition outlined in its voluntary code last year to existing signatories.

This meant companies that signed before 2019 were allowed to adhere to the former conditions, which stated a small business employed fewer than 20 staff, then use the conditions as a loophole to avoid paying their smaller suppliers on time.

In her review, Ms Carnell recommended the federal government ditch the code and instead legislate payment terms in its Payment Times Reporting Framework, which it expects to introduce to parliament in the autumn.

The Payment Times Reporting Framework is aimed at forcing Australian businesses with an annual turnover of $100m or more to report how and when they pay their small-business suppliers — effectively naming and shaming them if they are caught doing the wrong thing.

Telstra and Rio overturned their respective payday lending and so-called “dynamic discounting” schemes after The Australian revealed two companies had partnered with Taulia — a company registered in the low-tax US state of Delaware and which uses invoice and market data, as well as artificial intelligence, to calculate how much of a financial hit a supplier could take to their invoices.

Ms Carnell said Taulia had created a product that was variable, depending on how desperate a supplier was to protect cash flow.

“The fact is that all businesses, regardless of their size, should be paid in 30 days and supply-chain finance should be available to those small businesses that want to be paid faster,” Ms Carnell said.

“Rates should be set across markets and not through the use of technology aimed at targeting and squeezing small business suppliers, including those already in distress.

“The question of regulation remains live, and we’ve made a draft recommendation that further consideration be given to whether supply-chain finance should be a regulated financial product.”

A supplier of one of CIMIC’s subsidiaries rejected its effective payday-lending scheme after the engineering company sent a mass email — with all recipients disclosed to one another — notifying them of the extension to payment terms.

The email, seen by The Australian, began with “Der (sic) valued supplier …” and consisted of one more sentence and attachment outlining the changes.

One disgruntled supplier told The Australian: “It seems grossly unfair that we SMEs are expected to provide increasing amounts of finance to our much larger corporate customers, over lengthening periods.

“This is a particularly challenging issue for our sector, the engineering construction sector, where anecdotal evidence is that already protracted payment periods continue to get longer, particularly on major … infrastructure projects.”

CIMIC declined to comment.