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Review into security of payment arrangements – Making sure everyone gets paid


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Security of payment has been a long-running issue in the construction industry – even though as Minister for Employment Senator Michaelia Cash has said, it’s a fairly fundamental principle that everyone should get paid promptly for the work they do.

The latest deep dive into the issues around payment of contractors and subcontractors, the Review of Security of Payments Laws, headed by industry veteran John Murray, is due to make its preliminary report to the minister this month.

Unlike the 2015 Senate Inquiry into Insolvency in the Construction Industry, the review has undertaken targeted consultations with stakeholders and experts, rather than calling for written public submissions.

Security of payment has been a long-running issue in the construction industry...  

The terms of reference for the review include looking at existing security of payment legislation across all states and territories to identify areas of best practice. It is also to take into account the recommendations of any other reviews and inquiries, including the 2015 inquiry’s recommendations, and draft legislation developed by the Cole Royal Commission into the Building and Construction Industry.

One of the challenges is that all the states have different legislation in terms of security of payment arrangements and different rules around arbitrating claims. In Western Australia, the use of Project Bank Accounts for public projects was trialled, and the scheme extended in November 2016.

Queensland is currently considering PBAs as part of its building code reforms and New South Wales’ legislation requires head contractors to use a retention trust account for projects with values of $20 million or more. NSW is, however, currently reviewing its rules, and South Australia currently has new legislation tabled in Parliament.

Legal experts from Corrs Chambers Westgarth, in an analysis of the 2015 “I just want to be paid” final report from the insolvency inquiry, noted that the risk allocation under head contracts is “often onerous”.

The result is risk gets transferred down the project supply chain to subcontractors who may not be in the position to manage it from a financial perspective.

And when head contractors or major subcontractors face cash flow issues, those further down the line are affected, despite existing security of payment rules in every state and territory.

The Senate Committee said a fundamental challenge is, “the completely unacceptable culture of non-payment of subcontractors for work completed on construction projects”. The 2015 Inquiry recommended the use of PBAs and national harmonisation of security of payments legislation.

The result is risk gets transferred down the project supply chain to subcontractors who may not be in the position to manage it from a financial perspective. 

The current Murray Review is part of looking at this possibility.

Another piece of the payment puzzle is the newly established Security of Payments Working Group. The group has been established under the Commonwealth Building and Construction Industry (Improving Productivity) Act 2016 (BCIIP Act).

Group Manager in the Commonwealth Department of Employment Steve Kibble has been appointed Chair of the group, and Justine Ross, a senior executive officer in the Department of Employment, has also been appointed to the group and will act as Chair when necessary.

Other members include Sophie Ismail from the Australian Council of Trade Unions, Vasuki Paul from Australian Industry group, Shaun Schmitke from Master Builders Australia, Melissa Adler from the Housing Industry Association, Ken Phillips from Self Employed Australia, Suresh Manickam from National Electrical and Communications Association, Chris Melham from the Civil Contractors Federation, Ms Juanita Gibson from the Subcontractors Alliance and Lorraine Djuricin from Adjudicate Today.

Minister for Employment, Michaelia Cash, said the appointments reflect a broad representation of industry stakeholders and will bring a diversity of skills and experience to the Working Group.

“It is a fundamental right of subcontractors to be paid in a timely manner for their work,” Ms Cash said. “Under the Australian Government’s new Building Code, builders must comply with state and territory security of payments laws or risk losing access to Commonwealth-funded building work.”

A key function of the Working Group will be monitoring the impact the Australian Building and Construction Commission has on improving compliance with security of payments obligations. 

“It is a fundamental right of subcontractors to be paid in a timely manner for their work,” Ms Cash said. 

These obligations include a requirement that contractors and suppliers get paid on time and abide by any adjudication of payment disputes. The group will meet four times a year, and had its inaugural meeting in early July this year.

The Terms of Reference for the Group and the Forward Work Plan were discussed and the ABCC Commissioner gave a presentation on the role and functions of the ABCC regarding security of payments. Among those functions is overseeing the payment requirements set out in the Code for Tendering and Performance of Building Work 2016 (Building Code).

Legal firm Minter Ellison, in its comprehensive report on all security of payment-related legal cases and adjudications in 2016 said that, “The process and outcomes of the review by the Security of Payments Working Group will be keenly awaited as we consider this to be the next steps in the development of the [NSW] security of payment legislation.”

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