Basetec Services specialises in designing chemical plants, water pipelines and desalination work, as well as oil and gas work requiring significant technical expertise. It sub-contracts out to provide these services to larger contractors.
The large projects are commonly government-listed, sometimes by private companies. Multinational firms can bid on the major civil engineering projects, anything from petroleum, oil and gas energy, as well as water and recycling plants and maintenance.
Once a large company has won the contract, they look for smaller sub-contractors to do the work.
“Smaller contractors only get given a certain area of work to handle,” explains Managing Director Charles Figallo. “So we work as what we call a Bottom Tier contractor, about four levels down [from Tier 1 companies].”
“The large companies go out on the market to find people that can do certain work on the jobs. They go to three or four companies and they look for the cheapest which is often the most vulnerable, not aware of what’s going on. They build up a trust with you.”
Main contractors are initially very supportive, praising infrastructure, technical know-how and finances. They make big promises about how much money will be involved in a project, all designed to get you to commit.
“Then they ask you to sign their thick contract full of fine print, giving them lots of rights and you very few, which you need lawyers to go through, for tens of thousands of dollars to hopefully protect you, to help you to try to understand and write up what you’re getting into. What they do is say ‘don’t worry about it, just sign it’. If you try to bargain too much, you risk losing out on the work opportunity. It’s a very fine line you have to walk and they don’t give you much time.”
“We need the work. When you’re in meetings with them to go through the work, all they talk about is how much more work and money they’re going to give you, how much they’re going to support you, everything like that, just to get your technical expertise.”
After signing the contract you start getting variation requests, and they don’t give you much time. These can change the scope of the original contract completely. Usually you get a very small deposit from the main contractor, and are expected to organise supplies and organise to complete the job.
“You start buying the materials, getting your manpower. You start spending hundreds of thousands of dollars. Then, in thirty days you’re supposed to put your first invoice in. Then in another thirty days they’re supposed to pay you.”
“What’s happening is you’re building your debts up like mad. You’ve got taxes to pay, you’ve got GST to pay, you have got a phenomenal amount of costs to cover. You have to pay them. You can’t delay them.”
“You’re not allowed to walk off the job. At that stage they’ve got all your technical know-how. You’re not even allowed to pick up your materials if you haven’t been paid. You’re not allowed to take anything off site.”
“[It’s] the small to medium-sized contractors that actually do all the technical work, all the planning for the main contractor. The main contractor leads you on until if you don’t agree to all their demands and contract variations, you get into a position where they can legally kick you off and take over the job.”
The law allows for clauses to be inserted into contracts preventing sub-contractors from stopping work if there’s a dispute, and lets main contractors and large companies take advantage of smaller companies.And this is where the law is wrong and it needs to be fixed. The main contractor is now very aware of this legal conundrum which tends to work in their favour.
“I’ve been fighting this for a long time, to protect our industry and to protect our country.”
“We need an enquiry into the way the law handles these things, allowing these powerful people to get rich by walking all over the guys who actually do all the work and just trying to make a living.”
“There are people out there committing suicide because they’ve had their whole lives ruined,” Mr Figallo says, “and their families. There are people that are basically totally ruined.”
“We’re not alone in what we’ve had to put up with, lots of people have been through what we have been through and we are lucky we are not bankrupt, we’re still going.”
These contracts put most of the risk on the sub-contractor’s shoulders.The big problem here lies in the way the law is set up to make it tough for smaller firms to fight back. Many legal people are realising the damage this is doing to small to medium enterprises and our country.
Large companies are able to manipulate the legal system so expertly that it becomes very difficult for smaller sub-contractors to receive payment due—firstly through the unfair contracts, and secondly through the legal system.
Charles Figallo is the Managing Director of Basetec Services.