Subbies duped: Payment promises turn to denials
SENIOR Department of Education officials gave repeated assurances that subcontractors owed money would be paid as part of a deal to transfer contracts it held with a failing builder to another within the same central Queensland group of companies.
The subcontractors who had done work for JM Kelly Project Builders on Palaszczuk Government infrastructure projects were never paid.
Following the 2016 collapse of JM Kelly Project Builders, the JM Kelly Group of Companies went into liquidation late last year having never settled the debts.
No one within the government departments involved in the transfer of contracts from JM Kelly Project Builders to JM Kelly Builders has ever explained why the necessary deeds were signed without implicit guarantees that the subbies would be paid.
Instead the language of those involved was to change from strong assurances to limp denial in a matter of months.
A series of emails from and copied to senior bureaucrats in the Department of Education and Training and the Department of Housing and Public Works have revealed a complete failure to ensure that suppliers and trades who helped deliver key school projects would be paid for the materials and labour they supplied.
On August 1, 2016, a Department of Education and Training senior staffer sent an email copied to other senior managers in his own department and the Department of Housing and Public Works stating: "John Murphy has assured us that all subcontractors will be paid as soon as the deed is signed".
John Murphy was both the general manager of the failed JM Kelly Project Builders and the director and manager of JM Kelly Builders to whom the Department of Education contracts were being transferred.
Three months later the bureaucrat wrote to contractor Wayne Harris, the central Queensland manager of electrical contractor John Goss Projects, who was owed nearly $200,000.
"The Deed of Novation doesn't contain conditions for payment to subcontractors as those conditions are in the contract between contractor and subcontractor," he wrote.
"DET is not aware of whether subcontractors have met obligations within their contract to enable payment for contracts that they have with J M Kelly (Project Builders) Pty Ltd or now the liquidator. Likewise, DET is also not aware of whether subcontract conditions for payment have been met in contracts that may have been entered into with J M Kelly Builders Pty Ltd.
"Payments to subcontractors are a matter between the contractor and subcontractor and the Deed of Novation has no impact in this regard."
That advice was not only at complete odds with that given on August 1 to the contract supervisor for the Biloela State School airconditioning replacement on which John Goss Projects had worked, it differed also to that provided by others within the Palaszczuk government.
On September 1, 2016, in another email a senior Department of Education official said:
"Please note the attached Deed of Novation (agreed with liquidator after their appointment) which includes the Biloela project. The Deed has JM Kelly assume all the rights, liabilities and obligations of the original JM Kelly Project Builders contract.
"This includes payment of subcontractors (due and payable under the contract) and 4 service visits that are required in the 1 year defects period. Suggest that you follow up with JMKB. What evidence do you have that contractors have not been paid for works on the Biloela project?"
Confusion among various arms of government about what exactly had been agreed was apparent in an urgent email from a Department of Housing and Public Works executive copied to both Department of Education officials on August 31, 2016.
"Our Minister's office has asked what the following statement means: 'DET has received assurance from JM Kelly Builders that all suppliers and subcontractors will receive payment in due course'.
"This statement was made by DET in regard to the Biloela State School. I urgently seek your advice."
The statement that had concerned Housing Minister Mick de Brenni's office was also contained in advice given a constituent by the office of Member for Keppel, Britttany Lauga.
"DET is aware of several concerns from suppliers and sub-contractors who have not been paid on JM Kelly Project Builders' projects," the advice said.
"DET's project teams have been working with DHPW (Department of Housing and Public Works) to address these matters. DET has received assurances from JM Kelly Builders that all suppliers and sub-contractors will receive payment in due course.
"It is considered that the Deed of Novation provides a more equitable outcome for creditors who remain contracted to JM Kelly Builders rather than becoming unsecured creditors of an entity in liquidation. DET will continue to liaise with JM Kelly Builders to ensure contractual obligations including payment to sub-contractors is completed."
Mr Harris continued to chase the money owed to John Goss Projects receiving offers of payment plans from a JM Kelly construction manager conditional on him releasing a charge the electrical contractor had placed over the debt.
Releasing the charge would have cost Mr Harris what protection the original contract and the law afforded the business.
The construction manager ultimately on October 17, 2016 made JM Kelly's position clear pointing out the only reason the company was paying was because a commitment had been given to settle legitimate debts.
"There is no contractual arrangement entered into whereby the outstanding Project Builders debts would all be immediately paid," he wrote.
"In this regard I have personally attended several meetings with DET and govt reps who report at a Ministerial level and the only undertaking that JM Kelly Builders has given is that it will use reasonable endeavours to negotiate and resolve any legitimate subcontractor's claim.
"Govt are fully aware of the current situation and are supportive of the fact that this is an extraordinary liquidation where people owed money are actually being paid."
They weren't. And the liquidator of JM Kelly Builders was to later determine the company had been trading insolvent from at least January 2017, just two months' after the construction manager sent his email.
A series of detailed questions put to Education Minister Grace Grace went unanswered.
A spokesperson said it was their understanding the matter has been referred to the Australian Securities and Investment Commission for investigation.
"As such, it would be inappropriate for the Minister to comment at this time."