Second Reading – Unfair Contract Terms Bill

Sunday, 16 August 2015

Mr PITT (Hinkler) (20:16): What a great contribution from the member for Dobell on the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill. I am one of many people on this side of the House who built a small business basically from the back of a ute. My wife and I took lots of risks and built up a relatively successful business over a very long time. We have heard lots of contributions about the bill but I would like to speak about some of the content—what is risk shifting, what are the risks that people come across, what are the unfair contract provisions? I have seen many of those unfair contract provisions—the take-it-or-leave-it contract option when you are out in the real world, when you have to provide services to big companies who know they have you over a barrel. They are simply unbelievable.

Many of us as we grow a business will start off with a one-person operation and we will work from home. We will hold enough insurance—we might have professional indemnity insurance for $5 million or $2 million and a public liability policy for $1 million; just enough to get by so that you do not knock your overheads too much. In small business, cash flow is king. If you cannot meet your commitments at the end of the month, you are simply out of business and you will most likely lose your assets. It is a very difficult thing to do every single month as you build a business. As that business grows, you tend to get bigger clients who have more stringent standards. Unfortunately when you get to the top end of the tree, when you are dealing with some of the biggest government-owned corporations and some of the biggest worldwide companies who have in-house legal teams that develop their vendor agreements and develop their contracts and then farm them out to another set of lawyers to determine how it is they can drive that risk down the food chain to the lowest possible provider, the person who might have one truck and two employees, with their home basically in hock and an overdraft, ends up carrying the can because they simply have no choice but to provide their product under the service arrangements that are given to them. When you look at a vendor agreement that says, for example, you must hold $50 million in public liability and take all risks on the premises in which you work regardless of the fact that the company that owns it has some $2 billion or $3 billion worth of capital invested and could quite simply cover those risks with their in-house insurance, it is absolutely unfair. I congratulate the Minister for Small Business on what he has done to put this development together.

I call those things the shotgun spread of risk shifting—effectively, it gets punched across every single subcontract provider, particularly the ones they think they can get to pay. Unfortunately, out in the real world, a lot of those are insured by the same people. There are only one of two major underwriters for major projects, and that is where things end up. Many people I have worked with and that I have spoken to, even in this role, and small businesses in my local electorate, tell me that on a major construction job they have quoted at 200 per cent of their usual rate and they have doubled the amount of time they think will be necessary, and it simply has not been enough—they needed three times as much time to develop it; the insurance costs and overheads were completely out of hand and they have literally signed their life away in the vendor agreement because that was where they were at and they had no other choice.

Some of these vendor systems are exceptionally complicated. If you are large enough to be able to push it up to your own lawyers to have a bit of a look at it, they will always recommend that you do not sign them because you have far too much risk. Unfortunately, when you have bills to pay, when you have employees to pay, wages to pay, you must take those risks or you quite simply are not in business. In our horticulture system there is the good example of the MO for the major duopoly, the major supermarkets. There are what I like to call the four Es of the process they use: the phase of excitement, the phase of expansion, the phase of extortion and then of course the phase of extinction. This is the standard way that they tackle their suppliers and the supply chain, and it is completely unfair in many circumstances. I admit that many providers have a good relationship with the large supermarkets but I could not count how many I have seen that have fallen over because of the predatory pricing factors of the major companies in Australia. It has been absolutely outrageous.

The excitement phase is when someone comes along and they have heard you have a good product, perhaps they have been buying it from the fresh market, they have identified that it is safe and that you know what you are doing, that you can produce a consistent product of the size they want, and they knock on your door and they offer you a wonderful agreement—they will take as much as you can provide. You have the opportunity and you have the spare land, you have the capacity, and you now have an offer which means you can go into the next phase, which of course is expansion. How do you do that? You borrow money. You borrow capital, you employ more people and you quite simply take more risk. You have a large growth phase—you get yourself into hock but that is not a problem because you are providing lots and lots of content, usually to the one supplier—the one big supermarket. Of course you then have extended risk.

Then comes the extortion. They will come back and negotiate with you, and you find you actually do not have a contract—you have a supply arrangement or a supply agreement or some other technical term put together by a team of lawyers to ensure that at any time they so choose the person buying your product no longer has to take it. This is when the price squeeze starts. Quite simply, there will be an offer that says: ‘Down the road we can source your product for $1 a box less; you must match that price or you will be out of business.’ So the options are very, very few indeed. This is the ‘take it or leave it’ offer. This is exactly what this bill is designed to knock over, for small suppliers in this country.

At the ‘take it or leave it’ point, you have two choices. You can take the option of extinction, which means you will shut up shop. You will sack your staff, you will leave and you will lose your money and pretty much everything you put in place—because the one thing I know about banks is that they always get paid. Wherever possible, they are first in line. They certainly ensure that they get every opportunity. Or you can take more risks and you can hobble on.

That is one of the issues right now in terms of the labour force in Australia. The government have set up Taskforce Cadena simply to make sure we can put some boxes around, and knock over, illegal labour hire contractors in this country. The primary reason they flourish is that the major supermarkets have forced a lot of suppliers to the point where they simply cannot supply at the right rate. So the options for smaller suppliers are to either lose your farm—lose your property, lose your investment, lose your children’s future—or take more risks.

We need to fix that. We need to level the playing field. We need to balance it out. Taskforce Cadena will do that. They have been actively pursuing these people for some weeks and they have had a lot of success. It is typically the labour hire contractors, the ones who do the wrong thing, who get paid, because the overwhelming majority of growers actually pay the right money. They pay their bills, the money goes across, but the labour hire firms keep the money. They do not pass it on to the people who do the work—and they put those people in some very unsavoury and unhygienic places. They make an awful lot of money from people who probably do not know any better. Taskforce Cadena and this government are getting on with the job.

I also congratulate my good friend and colleague the member for Page on his contribution. He spoke about the huge efforts that small business put in in Australia, because it is them that take the risk. They are the ones that put their house on the line. They are the ones that employ people. In Queensland, over 90 per cent of all employment is provided by small business. They are the absolute backbone of this economy, and we need to ensure that we look after them. This bill is about ensuring that they do not get the ‘take it or leave it’ offer which is currently in place all over this country and that they have the opportunity to sort that out.

Consumers have been protected from unfair contract terms since 2010. However, the former government decided not to offer similar protections to small business. Small business simply does not have the capacity to lawyer up with someone from Sydney or Melbourne, pay those bills and successfully run a case. It costs an absolute fortune to run something under this legislation. So, in many cases, they do not have the market power or the ability to vary that ‘take it or leave it’ offer. Out in the real world, there is what is called competition! And there is much competition. They will take every opportunity that you do not. If you are not in the game, you are out of the game. You need to be able to act fast. Arguing about a vendor statement usually puts you out of work. That is not a position small businesses should be in.

This legislation will extend the consumer unfair contract term protections to cover standard form, small business consumer-like contracts that are valued below the prescribed threshold. Under the new protections, a court will be able to strike out a term of a small-business contract that it considers unfair—and that is the key point: one that is unfair. The contract is a small-business contract if it has at least one party of fewer than 20 employees and its value is below the prescribed threshold of $100,000, or $250,000 for a multiyear contract. These protections will come into effect six months after the bill receives royal assent. The Competition and Consumer Commission—the government provided $1.4 million to it in the 2014-15 budget—will support businesses’ transition to the new protections.

I am very pleased that the minister has acted. This is something that needed to be addressed. Small business will continue to build the economy of this country. We need to ensure that they are protected. We need to ensure that their contract arrangements are fair and not prejudiced by the work that they need to do for major corporations in Australia. I commend the bill to the House.

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