JM Kelly, the State Government and the unpaid subbies
THE Queensland Government issued contracts to an insolvent builder which went into liquidation just six months later in 2016, leaving debts totalling millions of dollars.
It then allowed 21 contracts it had with the builder to be transferred to a related company leaving unpaid subcontractors stranded.
That related company, JM Kelly Builders, has now gone into liquidation leaving stranded projects and unpaid subcontractors across central Queensland.
Since 2016 it has continued to tender for and win Queensland Government and Rockhampton City Council contracts including schools, hospitals and parks.
In 2016 the Palaszczuk Government not only failed to fully consider the subcontractors' interests in drafting the Deed of Novation that transferred the contracts from JM Kelly Project Builders, it subsequently failed to exercise the provisions of its Pre-Qualified Contractor Policy which should have ensured the obligation to pay subcontractors transferred with the contracts.
The contracts were transferred from JM Kelly Project Builders in liquidation to JM Kelly Builders.
The licensee of JM Kelly Builders, John Geoffrey Murphy, had been general manager of the liquidated company of which his father, Geoffrey John Murphy, had been the licenced builder.
The industry regulator, the Queensland Building and Construction Commission, later admitted in an email to one subcontractor owed $214,000 its initial opinion was wrong that the Deed of Novation which authorised the contracts' transfer guaranteed outstanding payments to subbies.
It said it only discovered this when it attempted to remove JM Kelly Builders' licence for failure to pay outstanding JM Kelly Project Builders' debts to the subbies.
Despite his position of influence in JM Kelly Project Builders, John Murphy retained his licence for JM Kelly Builders allowing the contract transfers.
The Deed of Novation was signed by David Sullivan on behalf of the Department of Education and Training witnessed by department manager of portfolio business Bruce Duncan, John Murphy, and Kelly-Anne Trenfield, and John Park for the liquidator FTI Consulting.
The decision by the department to transfer the contracts to John Murphy's JM Kelly Builders, was made despite it having been informed since at least April, 2016, that in his position as general manager of JM Kelly Project Builders he had issued invalid statutory declarations that subcontractors had been paid.
On April 26, Alan Belamywells of Raneys who managed the contract on behalf of the government wrote to Mr Murphy stating:
"JGP (John Goss Projects) have notified me yesterday that they have again not been paid on time this month. Your accounts department have written to JGP advising them they will paid by end of the month, whereas Subcontract payment terms calculate to middle of the month (JGP calculate payment should have been on 14-Apr-16), in accordance with Conditions of Subcontract.
"I have reminded you last month that your Statutory Declaration, at end of month, that Subcontractors have been paid what is due and payable to them, means that they have been paid in accordance with their Subcontract, not that they have been paid by the date of your Statutory Declaration. I can remind you also that invalid Statutory Declarations in the past have become a matter for the Police.
"Subcontractor claims are made under BCIPA (Building and Construction Industry Payments Act and I have reminded JGP that they are able to pursue this action.
"As indicated last month, if this matter was not rectified I would inform PQC Registrar. I have now contacted the PQC Registrar and my Performance Report on JM Kelly for Biloela (Contract 77111) will include my concerns about your late payment of Subcontractors."
What transpired after that email was sent has raised serious questions about the Palaszczuk Government's ability to administer its electorally-popular Queensland Procurement Strategy and Policy that allows a 30 per cent tender price bias in favour of contractors within a 125km radius of a new project.
An industry insider who has seen the process both from inside and outside government said the rules and regulations to deal with operators in breach existed but there was an enforcement void.
JM Kelly Project Builders was a favoured government pre-qualified contractor (PQC) which continued to be awarded work across Queensland right up until its collapse in June, 2016, despite its 2011 conviction for serious breaches of the Competition and Consumer Act for "bid rigging" with two other contractors.
Liquidator FTI Consulting subsequently found JM Kelly Project Builders had been trading insolvent since June, 2013, with its primary asset source being loans and receivables from related JM Kelly Group entities.
Workers for many of those entities were told today they were out of a job.
Such arrangements are specifically excluded under the government's financial assessment of companies awarded PQC status.
Subcontractors Alliance head Les Williams of Coolum said 223 small businesses had been left unpaid more than $2.7m despite government assurances a Deed of Novation it signed to transfer the contracts to JM Kelly Builders ensured that would happen.
Citing advice from the Department of Employment and Training, the Member for Keppel, Brittany Lauga wrote to electrical contractor Craig Barlow on August 16, 2016 saying it would continue to liaise with JM Kelly Builders to ensure its contractual obligations including payment to subcontractors were completed.
It said the department was aware of several concerns from suppliers and subbies who hadn't been paid on JM Kelly Project Builders' jobs and that it had received assurances from JM Kelly Builders those owed money would receive it in due course.
Any means of enforcing that intent however was not in the Deed of Novation signed by the Department of Works.
This was pointed out by JM Kelly Builders representative Mick Drew on October 16, 2016, in an email to Wayne Harris of John Goss Projects subcontracted to do $1.1m worth of electrical work on the Biloela State School air conditioning for which payments of more than $200,000 remain outstanding.
"In any potential negotiations it should be clearly noted that the only reason that JM Kelly Builders are paying is because a commitment has been given that where people who have a legitimate debt with Project Builders will actually receive what they are owed," he wrote.
"There is no contractual arrangement entered into whereby the outstanding (JM Kelly) Project Builders' debts would all be immediately paid. I have personally attended several meetings with DET and Government representatives who report at a ministerial level and the only undertakings that J M Kelly Builders has given is that it will use reasonable endeavours to negotiate and resolve any legitimate subcontractors claim."
The failure by the State Government to fully consider the plight of subcontractors who had not been paid for work done and materials supplied to its projects was underscored in an email exchange between Mr Harris and Department of Education and Training manager of portfolio delivery Bruce Duncan.
Mr Harris wrote on October 26, 2016, to Mr Duncan including a copy of the Deed of Novation and inquiring what assurance it gave his company would be paid the $214,000 it was owed.
He had secured an unsigned copy from the liquidator after a barrage of lobbying. In response Mr Duncan made clear the Deed of Novation contained no conditions for payment to subcontractors.
"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."
Late last month the Sunshine Coast Daily put a series of questions to the State Labor Government through the Premier Annastacia Palaszczuk:
1. Why did the government agencies who were party to the 2016 novation of JM Kelly Project Builders contracts with the Department of Education, Training and Employment to JM Kelly Builders, not ensure responsibility for debts owed subcontractors were also assumed by the new contractor?
2. Why were the provisions of the government's Pre-Qualified Contractor Policy not enforced, that should have ensured the obligation to pay existing subcontractors for work done and materials supplied transferred with the Pre-Qualified contractor status?
3. On April 1, 2016, Alan Bellamywells of Ranbury's copied William Skaines (HPW) and Mike Kitto and Bruce Duncan (DETE) into correspondence with John Goss Projects regarding late payment of the Biloela State School contract 77111 - A/C replacement electrical upgrade contract. What did those government representatives then do on receipt of that information?
4. What did the Pre-Qualified Contractor board do when informed by Mr Bellamywells that JM Kelly Project Builders had signed statutory declarations that subcontractors had been paid when they hadn't?
5. Why did the advice not trigger an immediate review given that "evidence of financial or managerial stress, or of non-compliance with financial requirements" is an automatic trigger for one to take place?
6. Why is JM Kelly Builders headed by John Murphy who was the former manager of JM Kelly Project Builders able - as a person of influence in JM Kelly Project Builders - to continue to retain a QBCC licence?
7. The liquidator for JM Kelly Project Builders (Collhart Investments) found it to have been insolvent from at least 30 June, 2013, on the basis its primary source of assets appeared to be loans and receivables from related entities within the JM Kelly Group. How had it then been able to satisfy the QBCC of its capacity to operate in the licence class it was granted.
9. The liquidator found "the balance sheet of the company also fails to disclose the joint and several liabilities the company has with the NAB. The NAB debt is a liability which is cross collateralised across all entities within the JM Kelly Group. As it is an obligation for all entities covered under the cross collateralisation to pay the entire amount outstanding when the need arises, this obligation should be recognised in the company's records accordingly. The omission of this liability from the company's balance sheet results in an understatement of the company's true liability position. It is apparent from the above statement ongoing funding from related parties within the group was required to enable the company to continue to operate".
a) Did JM Kelly Builders, as a member of the JM Kelly Group, declare the liability in its reporting of financial capacity to the QBCC and the Pre-Qualified Contractor board?
b) Given the inter-related nature of businesses within the JM Kelly Group, what factors prompted the government's decision to novate JM Kelly Project Builder contracts to JM Kelly Builders?
10. In correspondence with John Goss Projects, Bruce Duncan of the Department of Education, Training and Employment wrote:
1.50 pm 31 October 2016 - Bruce Duncan (DET) to Wayne Harris
From: "DUNCAN, Bruce" < Bruce.DUNCAN@det.qld.gov.au > Date: 31 October 2016 at 1:50:31 PM AEST To:
Wayne Harris < email@example.com > Cc: "KITTO, Mike" < Mike.KITTO@det.qld.gov.au >, "SULLIVAN,
Dave" < Dave.SULLIVAN@det.qld.gov.au > Subject: RE: Biloela AC Replacement Contract 77111 31
Apologies for the delay responding to your email -- The Principal, the original contractor (Collhart Investments Pty Ltd (In Liquidation) formerly JM Kelly (Project Builders) Pty Ltd) and the new contractor JM Kelly Builders Pty Ltd have entered into a Deed of Novation which requires the new contractor to assume all of the obligations and liabilities of the old contractor for projects undertaken for the state. These are obligations to the State. The deed is applicable only to those who are a party to the deed. -- The Deed of Novation does provide an ability if actioned by J M Kelly Builders Pty Ltd to complete projects with the same subcontractors engaged by J M Kelly (Project Builders). This is because J M Kelly Builders Pty Ltd is completing the works and not another contractor that may have used other subcontractors. From the State's perspective this has benefits for subcontractors that were engaged by J M Kelly (Project Builders) Pty Ltd as there are opportunities for them to continue with the work they had been undertaking, complete the works and be paid accordingly. -- There was a contract between the Principal and J M Kelly (Project Builders) Pty Ltd and now there is a contract between the Principal and J M Kelly Builders Pty Ltd instigated by the Deed of Novation. There were contracts between J M Kelly (Project Builders) Pty Ltd and subcontractors. The Principal is not a party and has no authority in those contracts. - There will now be contracts between J M Kelly Builders Pty Ltd and subcontractors. The Principal is not a party and has no authority in those contracts. These contracts will be administered between the contractor and subcontractor, presumably in accordance with the terms and conditions of their contract that they enter into. - The Deed of Novation hasn't changed the contractual relationships for subcontractors as they are not a party to the Deed of Novation. The Deed of Novation doesn't contain conditions for payment to subcontractors as those conditions are in the contract between contractor and subcontractor. -- 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.
Does the Palaszczuk Government concur with that assessment of its obligations and responsibilities as a client given that it had afforded JM Kelly Project Builders and JM Kelly Builders both QBCC licences and Pre-Qualified Contractor status?
These are the answers the Daily received:
Please attribute to a Queensland Building and Construction Commission spokesperson:
In July 2016, the Queensland Building and Construction Commission (QBCC) sought to exclude Mr John Murphy from the industry but Mr Murphy brought the matter to the Queensland Civil and Administrative Tribunal (QCAT) for review.
This review is ongoing.
Under Queensland law, Mr Murphy is allowed to continue to operate as a licensee during QCAT's review.
Building licensing laws which applied at the time permitted JM Kelly Project Builders (Colhart Investments) to report to the QBCC on a stand-alone basis and not as part of a consolidated group.
Financial information provided by the licensee to the QBCC showed the company was meeting requirements.
In the relevant audits undertaken by the QBCC, we identified the NAB finance facility and made enquiries to understand its valuation and operation in connection with this licensee.
Please attribute to a Department of Housing and Public Works spokesperson:
The department acts in accordance within the law and is aware of the matters raised, as well as others still pending the outcome of proceedings.
The deed of novation in 2016 transferred the obligations of contracts from JM Kelly Project Builder to JM Kelly Builders.
Under the law at the time, they were considered to be separate entities, registered and licenced and meeting PQC and QBCC requirements.
The novation included actions under the Subcontractors' Charges Act 1974 (Qld) to ensure subcontractors retained their rights.
There was insufficient evidence for the department to refer allegations of falsely signed declarations to the police.
The department referred these allegations to QBCC for investigation.