Both the New South Wales and Queensland Governments have each released a Security of Payment Discussion Paper seeking submissions regarding their respective Security of Payment legislation.
NEW SOUTH WALES
Significant changes were made to the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act) following the Inquiry into Insolvency in the Construction Industry by Bruce Collins QC in 2012. Changes included establishing prompt payment provisions, requiring a head contractor to give a principal a written statement that all subcontractors have been paid when making a claim for payment and the creation of a retention scheme for projects valued at more than $20 million (see our publications here).
The NSW Government is committed to undertaking a full review of the SOP Act in 2016. To start that review process, NSW Fair Trading has released a Discussion Paper (found here), which outlines the key provisions of the SOP Act and raises a number of issues and potential options for consideration by the construction industry.
These options include:
Residential sector: removing the current exemptions for the residential sector (either for all projects or projects worth $1 million or more) or extending the exemptions for all residential sector projects.
Penalties: introducing specific penalties for attempts to obstruct the use of the statutory regime implemented by the SOP Act.
Offence Provisions: introducing offence provisions to address unconscionable conduct and predatory claims.
Dual System: introducing a dual system for complex and simple claims, differentiated by a dollar value, where more complex claims are afforded more flexibility in terms of timing (similar to the Queensland model under BCIPA).
Reference dates: providing greater clarity of reference dates.
Supporting Statement: providing an exemption for supporting statements where a head contractor is insolvent, in receivership, in liquidation or in administration.
Prompt Payment: reintroducing the previous minimum time for payment to subcontractors within 10 business days.
Welcoming back the statutory endorsement: considering the reversal of a previous amendment which removed the requirement for a statutory endorsement on claims and replacing it with a requirement for all progress claims to include an endorsement and warning statements with respect to the time for responding possible timing warnings.
Retention Monies Trust Account: extending the trust account structure and reporting requirements to cover the entire contractual chain.
Adjudicators: regulating the qualification requirements of adjudicators.
Alternative dispute resolution: introducing a mandatory mediation process before an adjudication application can be made.
Industry groups and members should take up this opportunity to be heard on the current security of payment laws, its operation in practice and the potential reform options.
Submissions on the Discussion Paper can be made via the NSW Fair Trading website, by email or post (see further details here) and close at 5.00pm on 26 February 2016.
The Queensland Government is committed to improving security of payment for subcontractors and their workforce in the Queensland building and construction industry, following the recent Senate inquiry on Insolvency in the Australian Construction Industry. The Department of Housing and Public Works has released a Discussion Paper (found here) seeking industry input for the review of the security of payment framework in Queensland.
The Discussion Paper raises potential options for consideration:
Project Bank Accounts: introducing a Project Bank Account (PBA), which facilitates simultaneous payments of a project’s head contractor and all participating subcontractors through a trust account set up by the principal and the head contractor. This option is proposed as a trial on government projects and pending the outcome of the trial, could be used on private projects. PBAs have been trialed in NSW during 2014-2015 and are also used in Victoria (including for some private projects).
Retention Trust Fund Scheme: using a Retention Trust Fund Scheme (RTFS) to hold a subcontractor's retention money in a separate trust account with the head contractor only permitted to withdraw money from the account as set out in the terms of the contract, otherwise financial penalties apply.
Insurance Scheme: considering different insurance schemes to either replace the concept and function of retention money or to protect subcontractors from the risk of losing retention money due to the insolvency of the contractor.
Federal Legislative Changes: pursuing a collaborative approach with all states and territories to lobby the Commonwealth Government for a review of Commonwealth legislation including the Corporations Act 2001 (Cth) and the Bankruptcy Act 1966 (Cth) to grant subcontractors a priority payment in the event that a head contractor becomes insolvent.
Education: introducing an education program (either voluntary or mandatory) to increase financial and contract management skills of industry members.
In addition to seeking submissions on the options outlined above, the Discussion Paper also seeks feedback on recent amendments to the Building and Construction Industry Payments Act 2004 (Qld) (BCIPA), the Minimum Financial Requirements policy under theQueensland Building and Construction Commission Act 1991 (Qld) (QBCC Act) and the operation of the Subcontractors' Charges'Act 1974 (see our publications here).
Submissions can be made via the Get Involved website, by email or post (see further details here) and close at 5.00pm on 31 March 2016.