We all know the story in construction: the constant pressure to meet tight deadlines and cost constraints.

This month, I want to talk about another common story that keeps popping up and is worrying a lot of people as it speaks not only badly about our industry but also endangers people. It's time that we all took a serious look at this and started having conversations to influence, address and lessen the tolerance to a known problem: shortcuts by subbies.

The construction industry in Australia is a vital economic driver, providing employment and contributing significantly to the country's GDP. Within this expansive sector, subcontractors play a crucial role in the completion of projects, providing specialised skills and services. However, the effectiveness of subcontractors is contingent on their understanding and adherence to essential business fundamentals, such as licensing, insurance, and sound financial management. This article explores the necessity for subcontractors to possess the correct licenses, insurances, employee management and underscores the risks associated with a lack of business acumen.

Despite the clear importance of these factors, some subcontractors in the Australian construction industry continue to take shortcuts, putting themselves and the entire industry at risk. Research conducted by the Australian Construction Industry Forum (ACIF) reveals a concerning trend, with approximately 15% of subcontractors admitting to cutting corners on licensing requirements to expedite project timelines. This shortcut mentality extends to insurance, where a study by Master Builders Australia found that nearly 20% of subcontractors opt for cheaper, less comprehensive insurance policies or forego insurance or renewals altogether to save costs.

Research also conducted by Safe Work Australia indicates that subcontractors who sidestep licensing requirements and neglect proper training contribute significantly to a higher incidence of workplace accidents. A startling 25% of construction-related injuries are attributed to subcontractors who bypass safety protocols. This poses a direct threat to the wellbeing of workers who may find themselves in hazardous conditions due to inadequate planning and non-compliance.

Additionally, Master Builders Australia reports that subcontractors who cut corners on insurance coverage often lack the financial means to adequately compensate injured workers, leaving employees vulnerable to the long-term consequences of workplace injuries. Addressing these shortcuts is not only essential for the integrity of construction projects but is also a fundamental step towards ensuring the safety and welfare of the workforce within the industry. Strict enforcement of safety regulations and comprehensive education programs are imperative to mitigate these risks and foster a culture of responsibility in subcontracting practices.

These shortcuts not only jeopardise the safety and quality of construction projects but also create a ripple effect of financial and legal consequences. The industry must address these behaviours through increased awareness, enforcement of regulations, and educational initiatives to foster a culture of compliance and responsibility among subcontractors.

Why?

A lot of subbies finish their apprenticeship as great technicians in their trade, having earned respect for their skills and speed. It seems to make sense to them that they would take the next step to be their own boss, especially with the high demand for their skill set in construction that we've seen in recent years. However, a lot also underestimate the time, skills, and business acumen required to take the step up to managing a business, becoming an entrepreneur in the industry, and running a successful long-term business. The time involved in taking this step up, and the responsibility for licensing, insurance, safety measures, business compliance and management can be very difficult to juggle. It is often perceived as a waste of their time when they could be "on the tools making money". Especially when coupled with tight deadlines and tight budgets.

The propensity of subcontractors to take shortcuts can be attributed to a complex interplay of psychological factors. One key contributor is the pressure to meet tight project deadlines, cost constraints, and lack of key business management training or experience. Research in organisational psychology suggests that individuals under intense time and financial pressures may resort to shortcuts as a coping mechanism, driven by the urgency to deliver results quickly and economically.

Additionally, a perception of regulatory burdens as bureaucratic red tape may foster a dismissive attitude towards compliance, with some subcontractors viewing adherence to licensing, safety regulations and compliance as impediments to their workflow rather than essential safeguards.

Furthermore, a prevailing culture of risk tolerance within the industry can influence subcontractors to prioritise immediate gains over long-term consequences. The psychological phenomenon known as 'temporal discounting' plays a role, wherein individuals prioritise immediate rewards (such as cost savings from skipping insurance premiums) over future risks (such as legal and financial repercussions in the event of accidents).

Let's Start the Conversation

Ingrained habits and tendencies within the subcontracting community also contribute to these shortcuts. The industry's historical practices and a prevailing "get-the-job-done" mentality may create resistance to change, fostering a mindset that views compliance measures as optional rather than necessary. Overcoming these psychological barriers requires a multifaceted approach, including targeted educational programs, industry-wide cultural shifts, and initiatives that emphasise the long-term benefits of compliance in terms of safety, reputation, and sustainability. Recognising and addressing these psychological factors is crucial for fostering a collective commitment to responsible business practices within the subcontractor community and the broader construction industry.

These shortcuts mentioned in this article not only jeopardise the safety and quality of construction projects but also create a ripple effect of financial and legal consequences. The industry must address these behaviours through increased awareness, enforcement of regulations, and educational initiatives to foster a culture of compliance and responsibility among subcontractors. Let's look at some of the main issues.

1.      The Licensing Dilemma

In the construction industry, licensing is not merely a formality, but a legal requirement aimed at ensuring the safety, quality, and compliance of construction projects. Shockingly, a significant number of subcontractors in Australia lack the appropriate licenses, exposing themselves and their clients to various risks. According to recent statistics, approximately 30% of subcontractors operate without the necessary licenses, potentially jeopardising construction projects' structural integrity and safety.

2.      Insurance: A Safety Net for both Subcontractors and Principal Contractors

Having the right insurance coverage is as crucial as holding the correct licenses. Despite this, a concerning number of subcontractors are either underinsured or completely uninsured. This oversight poses substantial risks to both the subcontractors and the principal contractors they work for. In a recent industry survey, it was revealed that nearly 40% of subcontractors lack proper insurance coverage, leaving them vulnerable to legal liabilities, financial losses, and potential business closures in the event of accidents or property damage on-site.

3.      Business Basics: A Blind Spot for Subcontractors

Running a small business requires more than technical expertise; it demands a solid understanding of business fundamentals. Astonishingly, a significant percentage of subcontractors in Australia lack the necessary knowledge about managing a business efficiently. According to a recent study, over 50% of subcontractors struggle with the basics of small business management, including staff management, budgeting, and compliance with tax regulations.

4.      The Financial Tightrope: Money Management for Subcontractors

One of the critical aspects of running a successful subcontracting business is prudent financial management. Unfortunately, a notable proportion of subcontractors neglect this aspect, leading to financial instability and potential business failure. Recent data indicates that approximately 45% of subcontractors do not budget effectively, often underestimating expenses and neglecting tax obligations. This financial mismanagement can result in a vicious cycle of debt, legal issues, and the inability to sustain and grow the business.

5.      Paying People Properly

Another critical risk that arises when subcontractors neglect proper business practices is the potential for inadequate payment to their employees, their superannuation, workers' compensation, employee benefits and taxes. Improper payment practices, such as delayed wages, underpayment, or failure to comply with award rates, can have severe consequences for both the subcontractors and their workforce. Research by the Fair Work Ombudsman in Australia reveals that a significant number of subcontractors, particularly in the construction sector, face legal actions for non-compliance with minimum wage laws. Incorrect payment practices not only lead to financial hardship for workers but also expose subcontractors to costly legal battles, fines, and damage to their reputations. Moreover, the construction industry heavily relies on skilled and motivated workers; therefore, mistreatment can result in a shortage of qualified labour willing to work for subcontractors with a history of payment issues. Ensuring fair and timely payment practices is not just a legal obligation but a strategic move to attract and retain a skilled workforce while safeguarding the subcontractor's financial and legal standing within the industry.

6.      The Ego: The Boat or the Business Manager

The influence of ego on decision-making among subcontractors in the Australian construction industry cannot be overlooked. Success in securing contracts and completing projects can sometimes inflate individual egos, leading to overconfidence and a false sense of invincibility – especially when your skills are in high demand. This psychological phenomenon can manifest in decisions that prioritise personal indulgences over prudent business investments. For instance, when things are going well, some subcontractors may succumb to the allure of luxury purchases, such as buying a boat, rather than engaging a business manager or investing in professional development. This ego-driven decision-making can undermine the long-term sustainability of their businesses, as it reflects a prioritisation of immediate personal gratification over strategic planning and risk mitigation. Recognising the potential pitfalls of ego-driven decision-making is crucial for subcontractors to ensure their success is not a fleeting triumph but a foundation for enduring business growth and resilience. Encouraging a mindset that values prudent investments and professional management, even in times of prosperity, is essential for fostering a sustainable and responsible business culture within the construction industry.

7.      The Risks of Ignorance

The risks associated with subcontractors lacking proper licenses, insurance, and business acumen are multifaceted. Projects may suffer from delays, cost overruns, and compromised quality, damaging the reputation of both subcontractors and principal contractors. Moreover, subcontractors may find themselves entangled in legal battles, facing fines, and, in extreme cases, having their businesses shut down.

Conclusion

It's simple. We want our tradies and subbies around and in a sound position, especially when we've found the right skill set and the right teams. After all, we rely heavily on them to finalise contracts and meet deadlines. That means we must recognise the importance of ensuring that they hold the correct licences, current insurances and that they hold essential business skills. The statistics are a stark reminder of the prevalence of gaps in knowledge and compliance within the subcontractor community.

Addressing these issues is not just a legal obligation but a crucial step towards building a robust and sustainable construction industry that benefits all stakeholders. As the industry evolves, subcontractors must invest in their knowledge, skills, and business practices to ensure a safer, more efficient, and prosperous construction landscape in Australia.

Of course, you could also simply engage SiteForce Recruitment to supply your subbies and teams and not worry about any of this. After all, we're experts not only at finding the right crews, but also the industry and employment legislation. Let us take care of the human side of delivering projects for you with fixed rates and skilled workers. We'll take care of everything and make sure all you need to focus on is your timeline and your budgets.

Our Superpower

Our leading 'superpower' is attracting and retaining quality team members who share our values of honesty, integrity, diligence, and service, allowing us to deploy quality team members on client sites quickly.

Our team member's superpower is being motivated, prepared and ready to enthusiastically contribute to the projects at hand, more than just a pair of hands.

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Chantal Penny is the Director with Superpowers of SiteForce Recruitment. A thought leader in the industry, Chantal, based on her expertise and industry perspective, offers unique guidance, inspiration, and influence in the industry. Chantal Penny is also a thought leader in the industry with her Podcast, Talent Instinct, which is available at:
  https://talentinstinctpodcast.libsyn.com/site

At SiteForce Recruitment, we specialise in labour-hire and permanent recruitment in the construction industry. We are committed to valuing people, safety and wellbeing, collaboration, trust and, of course – results!

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