More and more, governments and regulatory agencies are relying on businesses to make sure other businesses are following the rules or implementing a so-called ‘social imperative’. 

This is particularly relevant for the residential building industry. At any time, several businesses will be working at the same time, on the same site. Despite not all these businesses having a commercial relationship with each other, the fact they are in the same workplace gives rise to various obligations. 

While this has historically been typical under work, health and safety laws, we are seeing this approach creep into other regulatory frameworks, becoming the method of choice concerning compliance and enforcement. 

Modern slavery, payment time reporting obligations, and climate-related disclosures along supply chains represent more recent ‘business to business’ regulations. Not only does this increase the red tape on larger businesses, but smaller ones that are not the target of these regulations. 

These small businesses find themselves embroiled in regulatory regimes due to their involvement in the supply chains of much larger organisations. This results in dumping a huge amount of what some have called ‘white tape’ on their doorstep.

Who is regulating the supply chain?

In short, you are! 

The Australian Small Business and Family Enterprise Ombudsman has termed it ‘white tape’ when smaller businesses want to work with larger organisations who then place a raft of compliance obligations down the contracting chain. 

Is this reasonable? Well, yes and no. On the one hand, these larger businesses have significant amounts of red tape to comply with, some requiring them to collect information from across their supply chain. The trouble is that small businesses often don’t have the resources or capacity to meet those obligations. This results in either getting buried in both their own red tape and this imposed white tape or counting themselves out of doing the business – none of which represents a good economic or social outcome. 

Take modern slavery, for example. There is an obligation on large entities (or reporting entities) with an annual revenue of at least $100 million to publish an annual Modern Slavery Statement describing their actions to assess and address modern slavery risks in their supply chain. 

A key element of these statements is to describe the risks of modern slavery practices in the operations and supply chains and the actions taken by the reporting entity to assess and address these risks, including due diligence and remediation processes. This absolutely requires engagement with supply chain businesses and potentially places obligations on those businesses for which the reporting entity is responsible. 

While the activities encapsulated by the term ‘modern slavery’ are without question reprehensible, what we’ve seen is reporting entities issuing extensive surveys, imposing contractual obligations, and using other ‘reporting tools’ in an attempt to collect this information from supply chain participants to ensure their Modern Slavery Statements comply. 

Climate-related disclosures

This approach doesn’t end there. Over the next few years, very large businesses will be required to make climate-related disclosures by preparing an audited Sustainability Report in line with the Australian Accounting Standards Board Sustainability Reporting requirements.

The reporting requirements are to be phased in from 1 July 2024 to 1 July 2027. 

Among other things, starting in July 2025, this Sustainability Report must include Scope 3 emissions. Scope 3 includes indirect emissions associated with the production of inputs (upstream) and the use of a product (downstream), for example, emissions from the transportation of goods, product usage, or disposal. It is understood that these are the hardest to measure and reduce. There are currently no guidelines or standardised reporting framework for these Scope 3 emissions, so it’s difficult for entities to calculate and report on these. 

The risk of incomplete or inaccurate reporting of Scope 3 emissions represents a considerable risk to businesses and places enormous pressure on the supply chain. 

Businesses are also at the coalface of influencing payment times and terms. Larger businesses must disclose their payment times and terms with small businesses. While a noble pursuit, a recent review has found that the regime failed to influence any actors’ behaviour in the supply chain. 

Larger businesses are required to submit payment times reports to the Payment Times Reporting Regulator (the regulator) every six months. This includes information on their standard payment terms, actual payment performance, and the use of supply chain financing arrangements. The regulator maintains these reports on a publicly available Payment Times Reports Register. 

A 2023 review of the regime found that while the scheme had merit, certain requirements imposed ‘unwieldy legislative requirements’, compromising its effectiveness. 

The review also found that the scheme: 

• did not appear to have reduced the payment terms or times of large businesses to their small business suppliers 
• offered no persuasive evidence that small businesses reject a potential large-business customer because of its payment performance. 

In response, the government has ‘upped the ante’. There will be penalties for failing to lodge reports, and slow payers will be ‘named and shamed’. This means that the slowest 20 per cent of small business payers in each industry can be forced to publish that they are a ‘slow small business payer’ on their website, financial statements and other documentation. 

‘Fast small business payers’ – who have a payment time of 20 days or less – will be ‘rewarded’ by being published publicly by the Regulator. 

It seems the government wants to ‘parent’ businesses, rewarding so-called ‘good behaviour’ and punishing so-called ‘bad behaviour’. 

What’s next? 

HIA continues to fight against both red tape and white tape. However, reviews of competition laws, privacy laws, the implementation of a range of industrial relations reforms and the ever-expanding remit of work health and safety laws to workplace behaviours including, for example, sexual harassment and mental health, means businesses will bear the brunt both in terms of their own compliance but also making sure businesses they interact with comply. 

In practice, it seems the only way through it is to work together to practically manage and respond to this approach.

First published 9 December 2024