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PUBLIC ACCOUNTS COMMITTEE

INQUIRY INTO CONTRACTS ENTERED INTO BETWEENCONSOLIDATED CONSTRUCTIONS PTY LTD AND MAIN ROADS WA

AND THE PUBLIC TRANSPORT AUTHORITY

TRANSCRIPT OF EVIDENCE TAKENAT PERTH

ON WEDNESDAY, 12 MAY 2004

Members

Mr J.B. D’Orazio (Chairman)Mr M.G. House (Deputy Chairman)

Mr J.L. BradshawMr A.J. Dean

Ms J.A. Radisich

Public Accounts Wednesday, 12 May 2004 Page 1

Committee met at 9.40 am

BELL, MR ALFRED JOHNGroup Managing Director, Consolidated Constructions Pty Ltd, examined:

BADMAN, MR MICHAEL JOHNDirector, Consolidated Constructions Pty Ltd, examined:

YOVICH, MR VINCENTDirector, Consolidated Constructions Pty Ltd, examined:

YOVICH, MR STEVENDirector, Consolidated Constructions Pty Ltd, examined:

POTTER, MR RAYMOND ANTHONYDirector, Consolidated Constructions Pty Ltd, examined:

The CHAIRMAN: I need to read the procedure for the examination of witnesses before wecommence. The committee hearing is a proceeding of the Parliament and warrants the same respectthat the proceedings in the House itself demand. Even though you are not required to give evidenceon oath, any deliberate misleading of the committee may be regarded as a contempt of Parliament.Have you completed “Details of Witness” forms?The Witnesses: Yes.The CHAIRMAN: Did you understand the notes attached to the forms?The Witnesses: Yes.The CHAIRMAN: Did you receive and read an information for witnesses briefing sheet regardinggiving evidence before the committee?The Witnesses: Yes.The CHAIRMAN: Have you made a written submission to the committee?The Witnesses: Yes.The CHAIRMAN: Do you wish to propose any amendment to it?The Witnesses: No.The CHAIRMAN: Do you wish the submission to be incorporated as part of the transcript ofevidence?The Witnesses: Yes.The CHAIRMAN: Before I ask any questions, do you want to make any statements to thecommittee?The Witnesses: No.


The CHAIRMAN: I am not sure who wants to lead.Mr V. Yovich: What do you want me to lead off on?The CHAIRMAN: Just give us a brief history of Consolidated Constructions Pty Ltd and itsbackground.Mr V. Yovich: Consolidated Constructions was incorporated in 1961 and it has been operating for43 years. It has done extensive work for the Government amounting to hundreds of millions ofdollars. In the last 12 months we have had some disasters on contracts, people have let us down andhave forced us to go into administration. That is basically what it is.The CHAIRMAN: We are investigating the Marble Bar road and also the contracts with theGovernment. Can you give us a bit of background on how the tenders to Main Roads and thePublic Transport Authority were initiated, who controlled them and your involvement with them?Mr S. Yovich: I can answer that, if you like.Mr V. Yovich: I was not involved. I have been a non-executive director for probably 10 years.My knowledge of the tendering basis was very limited.Mr S. Yovich: I suppose with all future work that was coming up in the company we had atendering department that was headed by a business development manager. The businessdevelopment manager used various marketing techniques, kept in contact with governmentdepartments, architects and whatnot looking for future work. Looking forward into the future, theywould create a schedule of projects that would be appropriate for Consolidated to tender on andthen at the appropriate time they would go and get those documents, tender on the project and see ifwe won the project.The CHAIRMAN: Specifically in relation to the Marble Bar road, it was a $7.6 million contract.From documentation we have seen, $6 million of that was subcontracted out to Carr Constructions.Can you tell us what that relationship was? Did Consolidated get the job and then hand it tosomeone else?Mr S. Yovich: I do not think that is a fair description of the process, because it indicates thatConsolidated abrogated its responsibility. Consolidated always undertook its contracts on asubcontract basis. Depending on the particular contract, a variety of subcontractors may be used, orvery few subcontractors may be used, but Consolidated always involved its own supervisory staffworking in with those subcontractors.The CHAIRMAN: It seems strange that one company gets a $6 million part of a project and thenproceeds to do most of the work. To us it seems as though you got the contract but did not actuallydo anything other than supervise it.Mr Bell: That is quite a normal process. If you take Kenwick link, which we did for Main Roads,the vast majority of the roadworks were carried out by Goldfields Contractors. It is quite normal.Every trade that was involved in Carr Civil Contractors was related to roadworks. They had soldthemselves to us as specialist contractors in civil engineering.Mr M.G. HOUSE: As I understand the process, you tendered, you got the job for $7.6 million;you then sought subcontractors to perform the work?Mr Bell: We had already got prices when we tendered. We go out to the market. You will see theadvertisements in the newspapers saying to please tender for us on various projects. We wouldhave had two or three prices on the earthworks and roadworks for that project.Mr M.G. HOUSE: You then, as a consequence, gave the tender to go to the next stage, if they arethe correct words, to Carr Civil?Mr Bell: Yes.


Mr M.G. HOUSE: Who then also had subcontractors to perform the next level of work; is thatcorrect?Mr Bell: That is correct.Mr M.G. HOUSE: What I understand Mr Yovich to have said is that you played a supervisoryrole in all of that contractual arrangement?Mr Bell: We managed the project. We provided a team of supervisors, engineers, surveyors,testing specialists to test the earthworks for density, and the finish levels were all set out and put inplace by our surveyors.Mr M.G. HOUSE: You actually had people on site?Mr Bell: Yes, we actually had staff on site.The CHAIRMAN: Those works were not done by Carr Civil, they were done by your people?Mr Bell: All the testing and surveying work was carried out by our other subcontractors.Mr M.G. HOUSE: What looks like a $1.6 million difference in the actual cost of the work and thetender is not factual. That $1.6 million was allocated towards the things that you are indicatingwere done on site, such as supervision?Mr Bell: And others, such as we provided accommodation and the prelims. I cannot think of quitethe breakdown on it, but quite a large slice of that $1.6 million is for support processes to that work.The CHAIRMAN: Who were these other contractors other than Carr Civil that were at that level?As far as we can see, Consolidated Constructions was at the top, then there was Carr Civil and thenall these other subcontractors working for Carr Civil. Who were these other contractors at the samelevel as Carr Civil?Mr Bell: Without checking the files I could not give you names, but Western Geo were doing thetesting. I cannot think of the surveying firm that was involved.Mr Badman: Two companies were looking after the land surveying. Like John, I could not quotethe number of companies involved. Obviously Carr Civil was the major contractor. The majorworks were being carried out by them and the support workers John has mentioned.Mr M.G. HOUSE: How many road construction jobs has your company done for Main Roads inthe past?Mr Bell: I would have to check the files, but a very large number.Mr M.G. HOUSE: When was the one prior to this?Mr Bell: Kenwick link. When did we finish Kenwick?Mr Badman: That was $30 million-worth of work.Mr Bell: In 2001.Mr M.G. HOUSE: The contract was awarded in 1998, is that correct?Mr Bell: For Kenwick; that is probably correct.Mr Badman: It was two and a half years of work.Mr M.G. HOUSE: Was that not actually road construction; was it bridge and tunnel construction?[9.50 am]Mr Bell: No, it was road construction - 1.8 kilometres of road.Mr M.G. HOUSE: Had you done any work in rural Western Australia for Main Roads?Mr Bell: Yes.


Mr M.G. HOUSE: Can you give me a couple of examples and the dates?Mr Bell: Not off the top of my head. We did Moorine Rock. Was that for Main Roads? It was,was it not?Mr S. Yovich: Moorine Rock - that rings a bell.Mr M.G. HOUSE: Can you remember what year that was?The CHAIRMAN: Can you tell us where that is? I am not -Mr A.J. DEAN: Southern Cross.Mr Bell: It was about $2.2 million, I think.Mr M.G. HOUSE: Do you remember what year that was?Mr Bell: I could not tell you off the top of my head.Mr M.G. HOUSE: What percentage of your work was done for Main Roads, roughly? I just wantto get an understanding of how you -Mr Bell: Quite a small percentage for Main Roads.Mr M.G. HOUSE: So road construction was actually a small percentage of your business?Mr Bell: Yes. We were mainly commercial builders for the last few years.The CHAIRMAN: You were required to sign statutory declarations for Main Roads prior to beingpaid the final $1.2 million instalment for the Marble Bar road. Can you tell me who signed thestatutory declarations?Mr S. Yovich: I think Bob Lyons, our chief civil engineer, signed those statutory declarations.The CHAIRMAN: If our information is right, those statutory declarations stated that thesubcontractors had all been paid. They have not been paid. Please explain the difference. Mr A.J. DEAN: Why would an engineer sign off on a statutory declaration to say that somethinghad been paid? Should not your chief accounting officer or someone - Mr S. Yovich: Firstly, the chief engineer is the person who prepared the payment forms. He waslike the project manager for that project, so he would have been the person determining what wasfair and reasonable to be paid in proportion to what Main Roads had certified. Therefore, followingthe process to the nth degree, he would prepare a payment form and certify it. It would go to theaccounts department and be prepared. The payment would have been released at the appropriatetime by him, so he would have been the appropriate person to make the declaration whether or notpeople had been paid. The CHAIRMAN: My point is that they had not been paid.Mr V. Yovich: No, that is not true.Mr S. Yovich: Excuse me; I will answer this. Let us look at it in this scenario, as a hypotheticalexample. Main Roads would have certified work done to the end of December, and ConsolidatedConstructions would have received payment for that work done some time near the end of January -the normal payment cycle. Bob Lyons would have then submitted a claim for the end of January,saying that all work that Consolidated had received money for previously had been paid out. Theproblem was, of course, that he put in a claim for work done to the end of January. Consolidatedreceived payment for that - for works done to the end of January - but of course the monthlyaccounts did not go out before Consolidated went into administration.Mr M.G. HOUSE: When you on-let the tender to Carr, did you take a bond from it?Mr S. Yovich: Consolidated would have taken either a bank guarantee or a cash retention. WithCarr, I think we took a cash retention.


Mr M.G. HOUSE: Do you know how much it was, by any chance?Mr S. Yovich: It would have been perhaps 10 per cent of its contract - no, I do not know.Mr M.G. HOUSE: What happened to that?Mr Badman: It would be five per cent of the contract sum.Mr Bell: That is the normal situation.Mr M.G. HOUSE: In cash?Mr Bell: In cash. That would be released on practical completion - 50 per cent on practicalcompletion - and the balance of 50 per cent would be at the end of the defects and liability period.Mr M.G. HOUSE: What happened to that money? Did any of that finish up with thesubcontractors? When you went into administration, what happened to that cash?Mr Bell: Can I explain? Bear in mind we would have only just received practical completion.That money would not have been paid to us in terms of our release of retention until after the datehe was entitled to payment.Mr M.G. HOUSE: So that would still be in the system somewhere?Mr Bell: That would still be in the system.Mr M.G. HOUSE: Is five per cent normal practice?Mr Bell: Yes. We normally stop 10 per cent up to a maximum of five per cent. It was very muchparallel with whatever the client required of us in terms of guarantees or retentions. The CHAIRMAN: I want to go back to the $1.2 million that was paid. That was the finalinstalment that Main Roads had to pay you people. Main Roads gave some undertakings to thecontractors that they would be looked after. You guys signed statutory declarations to say that allthe contractors had been paid. If that was a final instalment, why were the contractors not paid?Mr S. Yovich: I think this is an important situation to understand. A construction business is acash-flow business, like any other, and you cannot possibly pay somebody until you have been paidyourself. The statutory declarations that are signed are basically declaring that the money that youhave previously received has been paid out to the subcontractors in full. That entitles you to receivethe next payment. Then you pay your subcontractors, and then next time you are in a position tocertify that those subcontractors have been paid the money. Consolidated Constructions wouldhave received some money near the end of February, just before it went into administration.Consolidated prepared all its cheques and payments for the end of February to go out, and at thattime realised it had to go into administration. Therefore, none of those moneys was paid out. I donot think the statutory declaration process, as I understand it - I have not seen the actual documents- was false, in that the statutory declaration that was signed would have been certifying that allworks completed to the end of December, for which payment was received near the end of January,had been paid out to subcontractors.The CHAIRMAN: You say that, but some of the subcontractors claim that they had not been paidfor months.Mr S. Yovich: For example?The CHAIRMAN: We need to follow that up, but at this stage that is the indication.Mr S. Yovich: Are these Consolidated subcontractors or Carr subcontractors?The CHAIRMAN: They would be Carr subcontractors, of course. We need to follow that throughthe chain of command. That is why we are asking you about the processes.


Mr M.G. HOUSE: Did you have more than one subcontractor? I am sorry; I just picked up onyour comment then. I thought Carr picked up the whole of the job. That is not what you are saying,Steven. Mr J.L. BRADSHAW: They said earlier on they had other contractors.Mr M.G. HOUSE: I see. Mr S. Yovich: I know Consolidated paid the geotechnical people directly. I know we were payingthe surveyor directly, and I know we were paying various accommodation people directly. If Icould be a little cynical in this, you saw that there was a $6 million subcontract for, I think, a$7.6 million contract. Did Consolidated make a profit of $1.6 million there and just handball thecontract on? No, there is no suggestion of that whatsoever. Consolidated incurred substantial costsover and above the $6 million Carr Civil subcontract. If that is the actual value of that contract, I donot know. The CHAIRMAN: The next query is that we understand that approximately $6 million worth ofcheques were sent out to the contractors, yet they were all dishonoured. Can you confirm that?Mr S. Yovich: When Consolidated Constructions went into administration, I know that our bank,the ANZ Bank, immediately took action and dishonoured a large number of cheques.The CHAIRMAN: Those cheques were dishonoured. Were these some of the payments that weremade to Carr and, therefore, to its subcontractors? Are you aware of that?Mr S. Yovich: Look, the cheques were prepared in Consolidated’s normal month-end cheque run.They would be released. I could not give you details of what particular cheques were in thosepayments, but there is a probability that that was the case.Mr M.G. HOUSE: Were you surprised about that, Steven? Did you expect that Consolidatedmight go into administration, or was it something that hit you without your suspecting it?Mr S. Yovich: It hit us without expecting it.Mr M.G. HOUSE: So your view was that the company had been trading solvently, that it couldmeet its commitments and that there were not any problems. Is that what you are saying?Mr S. Yovich: Yes.Mr M.G. HOUSE: What do you reckon went wrong?Mr S. Yovich: I do not know if that is really appropriate to be answering at this committee. Thatis a matter of a separate investigation by the administrator. All I can say is that we received ouraccounts for the end of December. We received them in our normal accounting cycle near the endof February, and we realised that some unexpected events had occurred. We called in someprofessional advice, and they advised that we go into administration, and we did.Mr M.G. HOUSE: I accept your statement that it might not be appropriate for this committee toask you that question. I will not follow that up, except to say that some serious accusations havebeen made under parliamentary privilege about your company. You can read those in the transcriptof the Parliament, and I suggest you should probably do so. Then you might understand why Iasked the question. [10.00 am]Mr V. Yovich: That question is being asked now. There are investigations. The accountants Ernstand Young have done a complete investigation. I do not know what the results are, but that will allbe answered. There is one point I want to make. There seems to be some confusion. Carr CivilContracting Pty Ltd subcontractors had no connection with Consolidated Constructions Pty Ltd. The CHAIRMAN: Except it was doing work for you. Mr V. Yovich: No. That was a separate contract.


The CHAIRMAN: It had a contractual arrangement with you.Mr V. Yovich: I also noticed that Carr went into administration with a deficiency of $3.6 million,which is a lot more than the $1 million that Consolidated was affected by. The CHAIRMAN: We will need to find that out. We will be talking to them as well. Mr V. Yovich: That was in the paper. The CHAIRMAN: I understand that. We need to understand the chain of events. Mr V. Yovich: There was all that business about us not having paid people in Marble Bar. Theywere Carr’s responsibility. He got paid for all the work he did up to the end of December. The CHAIRMAN: How much money is outstanding? How much does Consolidated owe Carr? Mr V. Yovich: I do not know. John Bell might know. Mr Bell: Yes, I ran through it the other day. It is about $987 000. The CHAIRMAN: Are you saying that there is only $900 000 owed by Consolidated to Carr, andthat Carr’s liabilities are far higher than that? Mr V. Yovich: That is what I read in the paper. It was $3.6 million. Carr Civil has gone intoadministration. The CHAIRMAN: We will have Carr in here as well and we will ask the obvious questions.Mr J.L. BRADSHAW: Does that $900 000 take it up to $6 million? It was a $6 million contractbetween you and Carr. Mr Bell: No, because we had to make some deductions from Carr for late performance and for theextra cost of accommodation that we had to pay out. The CHAIRMAN: How much money does that involve? What are we talking about? Mr Bell: Mike would probably know better than I what the counterclaim was. Mr Badman: It was substantial. It is in the order of $200 000. The CHAIRMAN: So $1.1 million would be the total amount, out of $6 million, that you did notactually pay Carr. Mr Bell: No, we did not actually pay Carr. The amount of $980 000 - I cannot remember the exactfigure - The CHAIRMAN: I am just talking about ballpark figures. Mr Bell: In ballpark figures, say $1 million.The CHAIRMAN: $900 000 plus $200 000 makes $1.1 million.Mr Bell: Yes. That is about right. The CHAIRMAN: The amount outstanding was $900 000.Mr V. Yovich: What we are saying is that we owe Carr $900 000. The CHAIRMAN: Yes, but $200 000 was not paid out of the $6 million. Mr V. Yovich: No.Mr J.L. BRADSHAW: That would bring it up to the ballpark figure. Mr V. Yovich: Carr owed us $200 000 for things that we had provided to him. The CHAIRMAN: That is what I am saying.Mr V. Yovich: The net figure is $900 000.


Mr Bell: There is an even bigger complication in that we had not been fully paid by Main Roads.It had withheld a certain amount of money. That likewise affected Carr’s work, because it waswithheld from him. Mr M.G. HOUSE: Why did it withhold money? Mr Bell: I do not know. Do you recollect why, Steven?Mr S. Yovich: No. All I know is that Bob Lyons told me that in the payment we received fromMain Roads, it had withheld some money from Consolidated. He could not understand why. Giventhat it was the Christmas period, he had to wait for the particular officer from Main Roads to comeback from holidays for it to be sorted out. Bob did not think much of it. He just thought he hadmade an addition error or something. Mr Bell: I think that is probably what it was. It was about $138 000. The CHAIRMAN: In the background notes that we have it appears that Civil is saying that youowe it $1.5 million from the $6 million contract. Mr Bell: They may well say that but that is not what we owe it. Mr V. Yovich: They have to prove their debt to the administrator. The CHAIRMAN: I understand that. We need to get a handle on the background for this wholeexercise. We need to get a handle on some of those numbers. I understand that you disagree withthat number, but I want to make sure that it is in the ballpark. Mr Bell: In fact, we owe them more than the $980 000 because of the $138 000 that Main Roadsowes us and because of retentions. If you ask me what we should have paid Carr Civil at the end ofFebruary-beginning of March, it was $980 000, not $1.5 million. The CHAIRMAN: But the balance of all those other things totals $1.5 million. Mr Bell: No, they total about $1.3 million, because we had contra charges against him of about$200 000. Mr Badman: That $200 000 might be light. It could be a little more. I am just going frommemory. Mr Bell: It is somewhere between $1.2 million and $1.3 million that we altogether owe Carr, butwe would not owe all of it to him until 12 months from 19 January, when the project wascompleted. Mr Badman: Those contra charges were calculated by Bob Lyons. Steven says he was in chargeof the job as project manager. Carr Civil would have been advised of the build up of that sum ofmoney. The CHAIRMAN: Who was your company’s business development manager who did all thesethings? Was it Bob Lyons? Mr Bell: Who did the tenders?The CHAIRMAN: Who was the company’s business manager who actually signed the statutorydeclaration and all the rest of it? Mr S. Yovich: I will answer the question for you. The business development manager was aperson by the name of Chris Spooner. He had a person reporting to him by the name of Alf Petrig,who was our senior estimator. Involved with that team was Bob Lyons as senior civil engineer.What used to happen was that Bob used to work with the team to build up the price and win aproject, and then go on to actually project manage that project. That would happen quite often withBob. The CHAIRMAN: He would act and be paid as a consultant?


Mr S. Yovich: No, he was a full-time employee of Consolidated Constructions. He was thebusiness development manager. The senior estimator, Alf Petrig, was employed as a consultant toConsolidated Constructions. I will just go back to one thing that may be of benefit to thecommittee. The appointment and use of Carr Civil on this project was, from my understanding ofconversations I have had with Bob Lyons, completely understood and known by Main Roads. It isnot as though we hid anything from Main Roads. Before you win a project I understand that it doesintensive investigations. It is my understanding that Main Roads was well aware that Carr Civilwould be doing the majority of the works. In reality in a project like this, only one or two trades areused. Therefore, you will use only one or two subcontractors. If it were a multistorey building, youwould probably use 50 trades, but with a road there is not all that much you can do. Mr M.G. HOUSE: I am still struggling to work out what went wrong. Just fill in the gaps for me.The contract was awarded to you guys. Mr S. Yovich: Yes. Mr M.G. HOUSE: You on-contracted parts of it. Mr S. Yovich: We subcontracted it out to various people, including Carr. Mr M.G. HOUSE: What we finish up with at the end is a whole lot of people being owed money.From the evidence we have taken in this short time, you guys are saying that you ran your side ofthe business correctly and properly. You told me that you did not know there were any problemswith the roads and you could not identify any areas in which anything was going wrong. Mr S. Yovich: Yes.Mr M.G. HOUSE: I understand from what you have just said that Main Roads approved of the oncontracting, so it was aware of who would be contracted. Carr must have had some approval fromMain Roads. What went wrong? Mr S. Yovich: Let us just go back one step. The project was finished. A series of events suddenlyoccurred at the end of February that prevented Consolidated Constructions from meeting itscommitments. Mr V. Yovich: There is one point that I would like to make; you are all assuming that Carr will notget any of the roughly $1 million that it is owed. Mr M.G. HOUSE: I am not assuming anything; be clear about that. I am here to understand whatyou are telling the committee, so that the factual information can be presented and we can thenmake some decisions about what went wrong. I am not assuming anything. Mr A.J. DEAN: Is it correct to say that this road probably had nothing to do with you going intoadministration and that there were other, far greater factors that forced your liquidity problems andso forth, and that really this road investigation is irrelevant to your situation? Mr S. Yovich: The road job, the two rail jobs and the forward works rail job did not contribute toConsolidated going into administration. They were not problem projects or defaulting debtors. The CHAIRMAN: In other words, this project, standing alone, was in budget and made a profit. Mr S. Yovich: Yes, a small profit. It did all right.The CHAIRMAN: In other words, this did not actually cause your problems. Mr S. Yovich: No.The CHAIRMAN: It was your other problems that compounded the problem. Mr S. Yovich: The problem was this: when a company goes into administration the administratortakes control of the company and stops paying everybody immediately, to let the dust settle and seewhat happens. Therefore, people who probably would have been paid in the normal course ofevents were not paid. The administrator’s hands were also tied because on the day that we went


into administration the administrator went to see the ANZ bank. The ANZ bank then took all thecash off the administrator and paid out bank guarantees to various parties to whom Consolidatedhad issued bank guarantees, which meant that the administrator was left with very little cash. WhenConsolidated went into administration it had substantial cash in its books. Mr M.G. HOUSE: Given that, do you think that once the administrator has worked through theissues there is a reasonable possibility that all these people may then be paid out. Mr S. Yovich: I think that the problem is this - I will explain in these terms - when we do a projectfor the Government, the Government gets a bank guarantee. Half of that bank guarantee comesback at practical completion and half of the bank guarantee comes back a year later after the end ofthe defect liability period. From the ANZ bank’s point of view it is a debt that it will never pay outbecause Consolidated does the right thing - the bank guarantee goes out and then comes back.Because of the nature of the bank’s security requirements, when Consolidated went intoadministration the ANZ bank seized all of the cash that Consolidated Construction had in its variousaccounts and immediately wrote out cheques, for example, to the Government and anybody whohad been given bank guarantees, even though they had no right to call those guarantees and had notasked to be paid those guarantees. That cash outflow - The CHAIRMAN: How much did that total? Mr S. Yovich: $3.5 million. That is how much was written out in cheques on the first day. Mr A.J. DEAN: Is that common practice by the ANZ bank? Mr M.G. HOUSE: It is common practice by all banks. Mr S. Yovich: I cannot comment on that. I was led to believe that it was. The problem was thatnobody had called upon guarantees or had a right to receive those funds. The problem theadministrator now has is that people have hundreds of thousands, if not millions, of dollars sitting intheir bank accounts that he will have to try to recover. I have also noticed that with ConsolidatedConstructions - the administrator has informed me of this - all of a sudden if we believed thatConsolidated genuinely owed someone $100 000, claims for $400 000, $500 000 and $600 000were miraculously coming in to the administrator. He must work out what is a fair amount to paythose people. The only thing I will say is that his job has now been made very difficult because theANZ bank has given people cash to which they were not otherwise entitled. It will be very hard anda long and arduous process for him to recover the money from those people. Mr M.G. HOUSE: I understand what you have said. I will now make a presumption, Mr Yovich.The presumption is that some of the small contractors may not get paid. Mr S. Yovich: That is up to the administrator. He is already forecasting a dividend in the dollar. Iam personally hopeful that it will increase significantly, as long as all parties involved do the rightthing by the administrator and the company. The CHAIRMAN: What is he predicting? Mr S. Yovich: He is currently predicting 15c in the dollar. My personal belief is that it will besubstantially more than that. The CHAIRMAN: Carr Civil will be expecting 15c in the dollar for its $1.1 million. The othersubcontractors that were affected will obviously have to see what they will get out of that. Mr V. Yovich: That is Carr’s responsibility. The CHAIRMAN: I understand that.Mr V. Yovich: There is one point I want to make. You are saying that the gap between $6 millionand $7.6 million is $1.6 million. Our profit allowance on that job would probably have been$150 000.


The CHAIRMAN: Are you telling me that you were working on a five per cent margin? Mr V. Yovich: Yes. Of course. Mr S. Yovich: Five per cent is good.The CHAIRMAN: On that sort of job?Mr V. Yovich: When you are turning over about $100 million a year, if you make five per cent, itis pretty good money. The CHAIRMAN: What about contingencies for something going wrong? They always do onthose sorts of projects. Mr V. Yovich: Let us be fair. We have been in business for 43 years. We have a track record.People have let us down. We have had bad debts of $8 million in Sydney. We have had disasterson our side. Litigation has been instituted against us that people must prove is incorrect. We havebeen taken to the cleaners by a lot of strange people. We have acted with honesty with everyone. The CHAIRMAN: The information we also have is that one month before you got the Marble Barroad contract, a Supreme Court writ was issued by Odin Central Services Pty Ltd for non-paymentof $2.28 million.Mr V. Yovich: That claim was nonsensical. Even the administrator has not put that in hisstatement of affairs as a liability. The CHAIRMAN: Just for the sake of the committee, because this was one month before theMarble Bar road contract, can you give us a bit of background, because that in itself looks alarming.

Mr Bell: Is that relevant to this? The CHAIRMAN: It is relevant in our opinion, because it goes to the heart of whetherConsolidated was in a position to take on this contract. Mr S. Yovich: I will give you a short answer to that. We received that writ from Odin CentralServices. We passed it on to our lawyers and our lawyers advised us that we had no case to answer.

Mr Bell: You would obviously be aware that we have a counterclaim of $2.7 million against OdinCentral Services. [10.15 am]The CHAIRMAN: No, that is not in our notes. Mr Bell: That is a fact. The CHAIRMAN: You are claiming $2.7 million off it.Mr Bell: Yes.Mr Badman: I think it was $1.7 million.Mr Bell: No, it was not. We checked that out the other day.Mr M.G. HOUSE: I ask this question without prejudice so that you can make your point clearly.There was a suggestion, I think, in the Press that you had been trading while you were insolvent. Mr V. Yovich: That is a suggestion. That will be resolved by the administrator. We maintain thatwe were not trading insolvently. The CHAIRMAN: As directors, you clearly say that, to the best of your belief, you were nottrading insolvently.Mr V. Yovich: When we got into a situation in which we found it difficult to carry on, we gotadvice, and the advice was to go into administration. We acted prudently very quickly.


The CHAIRMAN: There is some action against the unions as well. Is that ongoing or has thatbeen terminated? Mr V. Yovich: I have no idea. Mr Bell: I think that is in the hands of the administrator.Mr S. Yovich: You are asking us some questions that we do not know the answers to, becausewhat happened after we went into administration is in the hands of the administrator.The CHAIRMAN: Are you saying that these claims for $2.8 million and $2.4 million are now inlimbo? Mr S. Yovich: Throughout Consolidated’s history, claims have been made against Consolidatedand Consolidated has made claims against other parties. When that situation occurs, you get legaladvice as to the strength of those claims both ways, and then you take the appropriate action. Mr M.G. HOUSE: John, I want to go back to your experience with Main Roads and contracting.Is it possible for you to provide to the committee at some later date the summary of the work thatyou have done for Main Roads and the dates of those jobs? Mr Bell: We can endeavour to do so. Access to information now is a little restricted, but I thinkthat would be possible, Steven, would it not? Mr S. Yovich: I think we can ask the administrator; he would probably help in thesecircumstances. Mr V. Yovich: Surely he -Mr S. Yovich: No, excuse me. The answer is that, as I understood it, we went through a ratingprocess with Main Roads every so often. Surely it would have all that information on its files, andit would be easier for you to get it that way. I am sure that we would have had to put in submissionsand detail our track record. Mr M.G. HOUSE: I asked the question because I am interested in Main Roads’ process and thegovernment process of letting tenders. You are only a consequential partner in that issue. I want toknow how government departments issue those contracts, what sort of guarantees they take, howthey undertake that process, how they arrange their financial guarantees and that sort of thing. I canget it from Main Roads, but, obviously, it would be helpful if I can cross-reference that with you. Mr Bell: You must be aware that, with Main Roads, you have to prequalify in a number of aspects,not the least of which is accounts. Mr M.G. HOUSE: John, I know what Main Roads says and what it tells us. I want to see with myown eyes factually how it goes about it. Mr Badman: This is one of the contract documents and it is “Prequalification Level R3 orHigher”. We have to prequalify. In my written statement to the committee I said that it took us aconsiderable period to get that qualification. We incurred considerable costs etc. Mr M.G. HOUSE: Is that the document?Mr Badman: This is part of the document. Mr M.G. HOUSE: Can you table that for the committee so that we can examine it? Mr Badman: It is from head office. Obviously there is a signed copy of this with Main Roads. The CHAIRMAN: We will get that from Main Roads. Mr M.G. HOUSE: Can you tell me the contract number? Mr Badman: Contract 706/02.


The CHAIRMAN: Main Roads went into this project and gave some indication to thesubcontractors that they would be paid. That is the information we have. Do you know whetherthat was based on the statutory declarations that your people signed that the contractors would bepaid? Mr S. Yovich: I will answer it as I have before. Consolidated would have received a paymentfrom Main Roads in January. I believe that that payment would have been disbursed at theappropriate level to the various suppliers and subcontractors. The payments that Consolidatedreceived last February would have been prepared for the various subcontractors and suppliers but,first, they were not released and, secondly, cheques were bounced by the ANZ at the end ofFebruary, early March. The CHAIRMAN: I understand that. However, were you aware whether Main Roads asked youas the main contractor to make sure that Carr Civil’s subcontractors were paid as part of thisprocess? Mr S. Yovich: I would not know. The CHAIRMAN: There appears to be some indication that Main Roads said that they would bepaid. I am trying to figure out whether that was in the statutory declarations it got you to sign toguarantee that these people would be paid, or was there some other arrangement? Mr Bell: Basically, the statutory declaration we sign is for only our own subcontractors; it is notfor the subcontractors’ subcontractors. I do not think we had a process whereby the subcontractorhad to give us a release on that project, did we, Mike? Mr Badman: I do not believe so, but I would have to check that. It can happen when subbies haveto provide a statutory declaration that they have in turn paid their suppliers and workers. The CHAIRMAN: You did not have that arrangement with Carr Civil.Mr Badman: I do not believe that that was a contractual arrangement.Mr Bell: On some projects we are required to provide that, and we require it ourselves, but onsome we are not. I do not think we had that arrangement at Marble Bar whereby Carr had to give usa statutory declaration. I would have to check that.The CHAIRMAN: Can you find out, because that is critical? Is there some way through yourprocesses that you could find that out? Mr Badman: The contract documents would state that. There would be a section dealing withstatutory declarations. This is only part of it. This is not the full document. The CHAIRMAN: That would be the contract between you and Main Roads, but what about thecontract between you and Carr Civil?Mr Badman: We always tie our subcontractors back to back to the head contract provisions. The CHAIRMAN: If there was a requirement for that disclosure, the head contract would haveoccurred with -Mr Badman: It should have been. If it is not, it is an error on our part. Normally that is oursystem and procedure. The CHAIRMAN: It was definitely Main Roads’ requirement for you to give a statutorydeclaration, otherwise you would not have given it one. You are saying that normally you would tiethat to the subcontractors as well. Mr Badman: No. The head contract document that we sign with Main Roads talks about ourhaving to provide this information to Main Roads in relation to us and payment to oursubcontractors. It goes on to state that, likewise, those subcontractors are to obtain the sameinformation. It is that sort of scenario.


The CHAIRMAN: Therefore, if you sign a statutory declaration saying that subcontractors werepaid, you are really saying that your subcontractors were paid. Mr Badman: No; quite the opposite. We are making a statutory declaration about our payment toour own domestic subcontractors. Payments by those subcontractors to their own specialistcontractors, suppliers and employees would be subject to a separate declaration, and the contractwould state that either that is the requirement or it is not. The CHAIRMAN: A declaration to you or to Main Roads? Mr Bell: To us, but the contract does not call for it; that is what we are saying. The Main Roadscontract for that project - I do not know of any other ones that do - does not require us to receivefrom our subcontractors statutory declarations that they have paid their subcontractors. The CHAIRMAN: Why, then, did you give a statutory declaration to Main Roads if you were notrequired to? Mr Bell: No, we were required to. We are getting confused. A contract requires us to provide astatutory declaration that we have paid our subbies. The contract from Main Roads with us does notrequire us to have statutory declarations from our subcontractors that they have paid theirsubcontractors. The CHAIRMAN: You told me before that if there was a clause between you and the maincontractor, Main Roads, you would insist on being with your subbies as well. Mr Bell: I beg to differ. Mike said that. The CHAIRMAN: By “you” I mean Consolidated. Mr Bell: The point I am trying to make is that Mike was making the case that we have a back-to-back contract. In our subcontract conditions to our subcontractors, we say that they are locked intothe head contract. The head contract says that we have to provide a statutory declaration. It doesnot say that they have to provide it. The CHAIRMAN: However, they have to provide it to you if you have this special arrangement. Mr Badman: No, not necessarily.Mr Bell: No. Unless it was in our subcontract contract, they would have no obligation to provideit to us. In this particular case, we did not have that in our subcontract contract; therefore, they didnot have to provide us with statutory declarations. The CHAIRMAN: However, you can understand Main Roads saying that it did the right thing byasking Consolidated to give it a statutory declaration that all the contractors would be paid, and thenCarr Civil saying that it did not have to give it anything. The poor buggers who will pay are thelittle people who will get screwed, because they will not get paid. Mr S. Yovich: Who from Main Roads asked somebody from Consolidated that question and gotthat answer? The CHAIRMAN: In relation to not getting a statutory declaration?Mr S. Yovich: No, saying that the subcontractors would be paid. Who would ask that question? The CHAIRMAN: That is what we are asking you to find out. Who was given that commitment?Some of the small contractors said that Main Roads gave them a commitment that they would bepaid. We are trying to work out how that happened. Mr V. Yovich: I do not think that happened. Mr S. Yovich: I do not know whether that happened at all. The only thing I can tell you is thatMain Roads had full-time personnel on the Marble Bar road contract at all times, and Marble Bar isa small place. I wonder what conversations occurred between Main Roads employees in Marble


Bar who were supervising the project and various subcontractors in the town. We hear those sortsof things sometimes. They could be absolute hearsay or they could be factual. The CHAIRMAN: That is what we need to find out. That is why we are asking you. We will goup there and speak to the subcontractors ourselves as part of this process, and obviously we will getto the bottom of the truth - or a lot of it. Mr S. Yovich: This has happened before. I want to restress this situation regarding statutorydeclarations. You can give a statutory declaration that amounts have been paid only after you haveactually received the payment pertaining to that payment. Therefore, we do work in December, weget paid at the end of January, and we pay those people at the end of January. Therefore, in themiddle of February we can give a statutory declaration saying that the previous amounts receivedhave been paid out. When it came to the end of February, we did not get around to giving thatstatutory declaration because we went into administration. Unfortunately - it is not something thatdirectors of this company are happy about - a number of people who were owed money at the endof February did not receive that money. Prior to that, Consolidated had always been in a position tomeet its commitments. The CHAIRMAN: The Public Transport Authority is claiming $2.4 million in liquidated damagesagainst Consolidated for failing to complete work at Claisebrook, Gosnells and Armadale. Is thatpart of the process owed to us by the administrator or is that some other process? Mr S. Yovich: That is purely the fact that once Consolidated went into administration and theANZ Bank took all the cash, the administrator was not in a position to continue those contracts andsee them to completion. I believe we had to disavow those contracts and therefore those costs - I donot know whether they are valid costs - have been claimed against the administrator. They did notexist and could not have been conceived of before Consolidated went into administration. The CHAIRMAN: That is $2.4 million that the Public Transport Authority needs to complete theprojects and is claiming against Consolidated. Is that a summary of where it is at?Mr S. Yovich: It seems a large amount of money to me, given that it has found replacementcontractors to finish the projects. The CHAIRMAN: That money had not been paid out to Consolidated as part of the process.Mr S. Yovich: Absolutely not. I understood that the Claisebrook contract had been 100 per centcompleted to the Public Transport Authority’s satisfaction. The Gosnells project and the Armadaleproject were in their infancy. I think we would have done only five or 10 per cent of the work onthose projects.. Mr Bell: That is true, but Claisebrook was the second job. Mr S. Yovich: The simulator project. I take that back. The Claisebrook simulator is a differentproject.Mr Bell: However, we have carried out works on those projects and have not been paid for them.Gosnells and Claisebrook are two classic examples in which we had been paid a small amount ofprelims and no actual work payment, yet work had been carried out. I understood that thesubcontractors on those projects would be paid as part of the deal with a new contractor to take onthe work. A number of them have phoned me to say that they are having real trouble trying to getpaid for that. We have never received any payment for it and the work has been done. The CHAIRMAN: How much is the outstanding claim by Consolidated for the works that weredone? Mr Bell: We have not claimed anything because basically the administration position came aboutbefore we put in an additional claim. There is money there for work in progress that should be paidto those subcontractors through the new contracts with the new builder.


Mr M.G. HOUSE: You sort of lose control of your own destiny once there is an administrator.You cannot manage that situation very well. It is difficult. Mr S. Yovich: All we can do as directors is look at the position we were in just before weappointed the administrator, and you would be very amazed by what happens after that. We are notactively involved with it. Now and again the administrator will ring us and, hypothetically, say thathe has a claim for $2.2 million from Bob Smith. We say that we settled with Bob Smith two yearsago and ask why he is reactivating that old claim for $2.4 million that we settled. These are theridiculous things that are occurring. [10.30 am]The other thing is that Consolidated had a number of claims against other people that were notbeing paid. That probably led to our unexpected downfall. For example, one week after we wentinto administration a Supreme Court decision in New South Wales ordering a client in New SouthWales to pay us $1.5 million came through. But it came through a little bit too late for the directorsof this company.Mr M.G. HOUSE: People like Dun and Bradstreet say that you were rated a high to severe riskbefore this contract. Priestleys say that the company was in decline. There are a number ofindicators, if you look at this from our perspective with the information we have in front of us, thatindicate that some of these problems have been a long time in the making and were starting to showup before this contract was awarded by Main Roads. Do you believe that to be factual?Mr S. Yovich: Look, I have never paid any attention personally to any independent rating agencyreports. I have never looked at Consolidated’s reports in that regard. All I know - this was in mywritten submission even though I was not actively involved in the process - is that Main Roads gothrough an exhaustive process to assess each company that they contract with.Mr M.G. HOUSE: I understand that you were the directors. Who was managing director and whowas the CEO?Mr Bell: I was the managing director and Steven was the CEO.Ms J.A. RADISICH: You just stole my question! I have been waiting. How often does the boardmeet?Mr Bell: About eight or nine times a year. Nearly monthly.Ms J.A. RADISICH: Have there ever been any other instances in the history of the companywhen the directors have been, as Steven described, “shocked” at the financial statements? Mr S. Yovich: Never.Ms J.A. RADISICH: Who is the financial controller?Mr S. Yovich: A person by the name of Blake Scanlan.Ms J.A. RADISICH: Has the board hauled that person over the coals?Mr S. Yovich: He is just a person who assembles all the information. I do not think you couldhaul that person over the coals. There are some people we could have hauled over the coals but wehad to go into administration straightaway. Therefore, we were not given that opportunity.Mr V. Yovich: The one point I would like to make while you are asking those questions is that ouraccounts had been audited every year by a professional firm of auditors. There is no question thatthe records are incorrect or that there has been some laxity there. The auditors have signed off onour accounts every year since we have been in business.Mr J.L. BRADSHAW: Were you showing a deficit in those times?Mr V. Yovich: No, we were not. We were showing a surplus.


Mr Bell: We have always had a very good cash net asset.Mr V. Yovich: We have lost more money than other people. Really it is nothing to do with it, butwe have had a lot of bad luck with people we have been dealing with too. It is a long, long story.We have been to litigation on a contract in Sydney for two and half years. We spent $1.3 million inlegal costs and our lawyer tells us that we are on a certainty to win the case. It has not beenresolved. There are a lot of those things. We can indicate we have claims elsewhere that are worthmore than people have against us.Mr J.L. BRADSHAW: You would have had the money you were chasing shown as assets on yourbooks.Mr V. Yovich: No, they were not. I can tell you of one contract, which is a disaster. It is reallynothing to do with this inquiry, to be honest. It is part of the administration. Our downfall was theDavid Jones contract.Mr M.G. HOUSE: In Sydney?Mr V. Yovich: No, in Perth. We had struck asbestos and the owners would not pay us for it. Wehad a QC’s opinion that our case was gilt edged and we would win the case. We were claiming$6 million but we took a settlement of $2 million because we have liquidity problems and we wereforced into their corner.Mr S. Yovich: By the way, having said that, after we took up that loss to 30 June last year we werestill a solvent company and we still had substantial net assets. Events subsequent to that, which wefound out about at the end of February when we received our accounts, is when we found out aboutour downfall. We are getting a bit too specific. We are here to talk about ConsolidatedConstructions.Mr V. Yovich: Yes. It is not part of the terms of reference and why we came here. We had$4.5 million in the bank the day we went to the administrator. The bank had put out guarantees forabout $5 million on projects we were doing to our clients. They had security in freehold propertyand plant and equipment that covered their $5 million. Immediately we went into administrationthey paid out about $3.5 million to $4 million to clients throughout Australia on those guarantees.Now, the administrator has to go to those clients and try and get the money back and negotiate withthem.Mr J.L. BRADSHAW: Surely they would go to the administrator and ask what is owed to thosepeople as a bank guarantee.Mr V. Yovich: Nothing was owed to them.Mr J.L. BRADSHAW: The bank would not just dish out the money -Mr V. Yovich: They did. That is the action it has to take. On our balance sheet it was not aliability, it was a contingent liability in case any of our clients cashed the bank guarantees. Forinstance, we were doing a contract in Sydney. It was practically completed and there was a bondfor $770 000. Subject to us doing the maintenance, we would be released from it. The bank sentthem a cheque for $770 000.Mr J.L. BRADSHAW: Is that normal bank practice?Mr V. Yovich: Apparently it is. The legal advice was that they were entitled to do that. They dothat immediately.The CHAIRMAN: It is a guarantee because the bank is liable. Mr V. Yovich: We never owed the bank any money at all.


Mr M.G. HOUSE: Your story would be very similar to a lot of companies that go intoadministration if you trace back their history. I have had a bit to do with a few of them and,unfortunately, once the ball starts rolling it is almost impossible to stop.Mr V. Yovich: You can say that our Carr contract had not been paid and all that but there was$4.5 million in the bank ready to pay out $6 million. We had claims for $3 million or $4 millionfrom other people to come in as well at the time.Mr J.L. BRADSHAW: If you were in a reasonable financial position, why did you go intoadministration?Mr V. Yovich: Because we could not meet our accounts that month.Mr Bell: We had some cash flow projections for the year carried out by our financial controller,which indicated to us that by June we would be in a negative cash flow position. We went to anadministrator and manager to get advice as to our position. At that point in time we also had ashortfall in cash to pay out, which required us to push to get claims in. We really had no choice butto talk to somebody and get expert advice as to where we should go. His advice was that we go intoadministration. We managed the process but, unfortunately, the bank doing what it did did notallow us to manage the process.Ms J.A. RADISICH: Why did he not suggest you sell one of the freehold properties? Mr Bell: I think the idea was that to sell one would be only a stopgap measure.Ms J.A. RADISICH: If you had millions of dollars coming in -Mr V. Yovich: No, you have misunderstood what happened. The bank had a mortgage on ourfreehold properties to cover their contingent liability through the bank guarantees.Ms J.A. RADISICH: All the properties had mortgages?Mr V. Yovich: Yes. We had two properties worth $4 million and there was cash in a fixed depositthat covered their contingent liability for bank guarantees. We had $4.5 million in the bank. Theydecided to sell the properties on us. We had no liability to the bank so they had to get the money toexercise their legal -The CHAIRMAN: Are you saying that the $4.5 million was not enough to cover the accounts forthat month?Mr S. Yovich: No. Let us go back one step. The day we went into administration we believed wehad net positive assets. We believed that, because people owed us money that we had not received.We had to pay out other people in connection with those works. We had a shortfall of cash on thatday. We thought that we would appoint an administrator to help us claim back the money that hadnot been paid and resolve some of the other claims against us, manage the affairs, help us sort outand finish various projects and put the company back on the straight and narrow again. We hadsubstantial assets and substantial cash in the bank but not enough cash to pay all our commitmentson that particular day. We were given a month or two; yes, we could have sold some assets andconverted them to cash and met our commitments. They were all potential options. The problem isthat the ANZ bank, which we owed no money to but had issued bank guarantees on our behalf,decided not to wait. It immediately wrote out cheques for all those bank guarantees, sent them outto the various people who were holding those bank guarantees, and that left the administrator withno money to finish any works or pay any people.Mr V. Yovich: That is what I was going to say. The administrator believed he could have come toan agreement with the bank and that it was covered. However, it left him no cash. Some of thosegovernment contracts would have been worthwhile to finish if we still had that liquidity.Mr M.G. HOUSE: If another month had gone by before all this came to a head, I take it that thesmall contractors would have been paid because you said previously that the stand-alone job, the


road job, was a profitable exercise for the company. If all that had flowed as you would haveexpected, and the administrator had not been appointed at the time he was, in another 30 days Ipresume that everyone would have been paid. Is that a reasonable presumption?Mr S. Yovich: As long as people who owed us money paid us.Mr M.G. HOUSE: Which in this case was Main Roads.Mr S. Yovich: I think the amount we received from Main Roads was getting near to final contractvalue.Mr J.L. BRADSHAW: The money you say was owing, had that been owed for a substantial time?Mr S. Yovich: I will put it in these terms. Consolidated had prepared all its cheques for the end ofFebruary to pay various parties. Let us say that those cheques added to about $6 million, which isabout right for a company turning over $80 million a year. On that particular day at the end ofFebruary, Consolidated Constructions had only about $4.5 million in the bank. Therefore, therewas a shortfall of $1.5 million. As directors at the time we took advice because we did not want to -we are very conservative - be accused of trading insolvently or anything like that. Theadministrator advised us that we could not pay them and not pay someone else. We had to treateveryone the same. We followed his advice and put the company into administration. He wouldhave got the money back that we were owed and paid the various people we had to pay. We wereconfident that there were sufficient net assets in the company to meet those commitments in amanaged situation. The problem was that the ANZ bank paid that cash, which was required forthat, to all the clients we had been building for over a period of time. The clients did not want thecash paid; they just received a cheque from the bank. The administrator then had no money to payanybody. It is a long process for him to contact each of those clients, agree upon a final accountwith them and get the money back.Ms J.A. RADISICH: Why would an administrator tell you that you could not choose to pay onecreditor over another when you have different working relationships with different clients that youwould obviously give different priority to? You could make a board level decision about that.Mr V. Yovich: No. This is getting a bit out of hand. There are a lot of legalities; you cannot havepreferential payments. You should wait until you receive the administrator’s report. That willanswer all your queries.The CHAIRMAN: We will be bringing him here.Mr J.L. BRADSHAW: I cannot understand why you did not go to the bank rather than pull in anadministrator.Mr V. Yovich: We did go to the bank and we got a shock. Mr J.L. BRADSHAW: Before the administrator? If I were a businessman with cash flowproblems, I would go to the bank and talk to them. You said that you supposedly had enoughmoney coming in and $4.5 million sitting in the bank.Mr V. Yovich: The bank would not have given us any accommodation because it had $5 millionworth of guarantees.Mr S. Yovich: The bank may have given us accommodation but the truth of the matter was that,on a particular day, we could not meet our commitments. That leads to the suggestion that we weretrading insolvently. As directors, we take our responsibilities very seriously. We said, right, wecannot pay our debts today but this is the first time it has ever happened in the company. We werenot expecting that. We therefore decided we should go into administration, getting sorted outindependently, and then move on.Mr V. Yovich: This is all distorted. This is not the basis we came here today.Mr J.L. BRADSHAW: It is because you cannot pay the other contractors.


Mr V. Yovich: The Press is here as well. A lot of things we say today will be -Mr J.L. BRADSHAW: It does not add up in my mind, what you are saying. One minute you aresaying that you had plenty of money coming in -Mr V. Yovich: Yes, but -Mr J.L. BRADSHAW: Let me finish and then you can answer the question. On one hand you sayyou had $4.5 million in the bank and money coming in and that, for one day, you had a shortfall of$1.5 million. Under those circumstances I would have thought that the bank would have been quitehappy to have covered you for that situation. To call in an administrator is pretty drastic in mymind. It does not add up that you had all those assets to cover you.Mr V. Yovich: Wait until you get the administrator’s report.The CHAIRMAN: I understand that. What does not add up in my mind is that the administratorsaid you would get 15 cents in the dollar. With all your assets, why is it only 15 cents in the dollar?Mr S. Yovich: Because he is assuming that all the money that was paid out by the ANZ bank willnot come back. That significantly adds to liabilities. Also, in my opinion, he is receivingsubstantial spurious claims that he is including in the total liabilities at this stage. [10.45 am]The CHAIRMAN: So you are confident that that 15c will be far higher than that.Mr S. Yovich: Put it this way, if the directors of Consolidated Constructions had continued tocarry on and resolve claims in the normal manner, it would have been a very high dividend in thedollar. That is what we were expecting. However, on the other hand, now that we are not incontrol, who knows what deals and arrangements the administrator will come to that would lessenthat return. Mr M.G. HOUSE: If Carr Civil declared itself bankrupt, you would not get that money back,would you?Mr V. Yovich: Carr never got any money from -Mr S. Yovich: Whoever. What we have read in the Press shows that Carr owed $3.6 million or$4 million. In my opinion, assuming that Consolidated owed them $1.5 million, and I thinkConsolidated did not owe them that much, clearly Consolidated Constructions was not -Mr M.G. HOUSE: Can I just return to the margin business? I just want to be sure in my mind thatI understand what you said. You were saying that five per cent was a reasonable margin. Does thatapply across all construction jobs? Would you expect that on the vast majority of jobs, whether therebuilding of David Jones or a bridge for Main Roads -Mr V. Yovich: In my experience, the main contractors would be lucky to be operating on a marginin excess of 2.5 per cent.The CHAIRMAN: Is it that tight?Mr V. Yovich: It is that tight. Five per cent is a very good margin. The CHAIRMAN: So if you have a problem with asbestos, you have blown your profit.Mr V. Yovich: Particularly when they will not pay you for it.Mr S. Yovich: Or they have deceived you.Mr V. Yovich: It is a question of law with these people. It was a question of interpretation of thecontract.Mr M.G. HOUSE: That is such a thin margin. You cannot afford to have too much go wrong atthat pace.Mr S. Yovich: Absolutely. It is a competitive market and that is what the market goes down to.


Mr V. Yovich: Of course, we have had industrial trouble, too. That does not help when you get acontract.Mr J.L. BRADSHAW: Are you in liquidation or administration?Mr S. Yovich: Liquidation.Mr V. Yovich: A lot of those questions you asked us are very complicated to explain. I thought Icame here to answer about the relationship between us and Main Roads.The CHAIRMAN: You did, but it gives us some background.Mr V. Yovich: I am a bit upset the Press is here as well.The CHAIRMAN: The Press is behind you; that is Hansard. Mr V. Yovich: All this is nonsensical. We have been through this 100 times with our creditors,with our administrator and we have an investigation going on.The CHAIRMAN: We appreciate what you are saying.Mr V. Yovich: The ANZ bank is now getting painted in the wrong position, but it had to act inaccordance with its charges as well. The CHAIRMAN: Absolutely. We appreciate your -Mr V. Yovich: They told me that this was the legal position they have got - when they have gotbank guarantees out and people go into administration - that they cashed a bond for $20 million thatthey paid out.The CHAIRMAN: I understand that. The committee needed the background so it understoodwhere it needed to go.Mr V. Yovich: Getting back to Carr, we are being painted as though we had not paid all those littlepeople at Marble Bar. We had no relationship with those people. Carr was paid up for all the workthat he did till the end of December. The CHAIRMAN: We will take that further with those contractors.Ms J.A. RADISICH: How many hours or minutes did the administrator spend analysing yourfinancial position?Mr V. Yovich: I do not know. They have been there full-time from the last week in February. Ms J.A. RADISICH: No. On the day that they decided to take you into administration.Mr S. Yovich: He probably spent four days.Ms J.A. RADISICH: You said you went there and that day you were in administration.Mr S. Yovich: No. We had a board meeting on 20 February when our accounts to the end ofDecember were presented to us, and that is our normal accounting cycle. We then saw that therehad been an unexpected turnaround on some of our construction projects and we decided we shouldtake independent advice. Early next week we approached Gary Anderson. He came in and did ananalysis of where he thought the company was at, and the following Tuesday after that herecommended that we go into administration. He came and saw the directors and we followed thatadvice.Mr V. Yovich: I point out that we have got excellent records, and the administrator will tell youthat. He did not have to do a lot of work.Ms J.A. RADISICH: I just got the impression it all happened on one day.Mr S. Yovich: No. We had unexpected losses in the December quarter that we found out about atthe end of February. Our net assets had fallen, even though we still believed we had positive netassets. Therefore, we called in the administrator for advice. He reviewed our position and, as it


was at the same time that we were preparing our cheques for the end of the month, come Tuesday Ithink 2 March, the day after the public holiday, he came in and said, “I believe that you should gointo administration to resolve your problems.”The CHAIRMAN: Thank you for your evidence. Thank you for being so forthright. If we needyou further we will ask you back.

Committee adjourned at 10. 54 am

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