Key Points:

A Senate Economics References Committee has recommended that the Commonwealth enact uniform national security of payment legislation, albeit with a target of around 2018 for implementation.

Security of payment (SOP) reform discussion papers were released by the Queensland and New South Wales Governments in the run up to Christmas. That timing happened to coincide with the publication by the Senate Economics References Committee of its report "'I just want to be paid': Insolvency in the Australian Construction Industry".

The report is the culmination of an inquiry commenced in December 2014 to examine the scale and incidence of insolvency in the Australian construction industry, including the adequacy of the current law and regulatory framework, and to make recommendations aimed at reducing the level of insolvency.

The Committee acknowledges the contribution that the various SOP Acts around Australia are making towards improving the ability of contractors to get paid for their work, but it also notes that there is much less use of the statutory processes that are offered by those who are lower in the contractual chain. It highlights a number of significant concerns besetting the legislation, including:

  • false statutory declarations;
  • intimidation and retribution of those who use the SOP legislation;
  • lack of education about the Acts;
  • issues with the appointment of adjudicators;
  • the cost of enforcement of SOP rights; and
  • the problem of insolvency on rights given under the SOP Acts.

Significantly, it is the Committee's view that the effectiveness of statutory measures could be greatly improved by a harmonised national security of payment Act, recognising that there is widespread support for that from those who are involved in the construction industry. The Society of Construction Law Australia, for example, is particularly vocal in that space.

Frustratingly, for those impacted by the types of concerns identified by the Committee, this was the same conclusion reached by the Cole Royal Commission over a decade ago

A proposed Commonwealth trial

Despite the Committee stating that "the time is right to replace the fragmented approach to SOP legislation that currently exists", it has not recommended immediate reform. It proposes that an agenda for national uniformity be tackled only after the Commonwealth trials the use of project bank accounts on Commonwealth funded projects for a period of two years.

The trial would involve project bank accounts being established on no less than 20 projects with Commonwealth funding over $10 million. These project bank accounts would have trust status facilities that direct payment of moneys owed by a project principal to both the head contractor and subcontractors. There would then be a "timely" evaluation of the trial with a view to making project bank accounts compulsory on all Commonwealth funded projects and mandating an extension of the use of project bank accounts to private sector construction projects.

The Senate Committee's proposals in the national context

Interestingly, NSW has already trialled project bank accounts for government funded projects and identified extending these to the private sector as an option in its latest round of proposed reformsQueensland too has raised the prospect of a trial for project bank accounts on government funded projects in its latest options for reform.

The Senate Committee's rationale for mandating the discreet Commonwealth trial before more wide-ranging national reform is unclear. The Committee does not provide much detail about how the trial should be evaluated and what impact it might have on any broader national reform. Moreover, while the Committee has recommended Commonwealth enacted legislation relying on its various heads of constitutional power as the vehicle for harmonisation (as opposed to the States and Territories adopting uniform legislation or a referral of power from the States and Territories to the Commonwealth), the Committee has not provided detail about which powers should be used and the possible scope of such legislation.

Ultimately, if the recommendation for national uniform legislation (albeit after a separate two-year trial) is adopted by the Senate, this will set the issue on the national agenda for 2018 and is one that will be keenly anticipated by the construction industry. For many in the industry, though, this will not be soon enough.

The Senate is yet to respond to the report.