Just how the Federal scheme will interface with the State and Territory SOP legislation will be a critical element of whatever proposal emerges. 

Last week the Federal Government agreed with independent senators to implement a national security of payment (SOP) scheme as part of a package exchanged for their support for the restoration of the Australian Building and Construction Commission (ABCC).

While some parts of the scheme still have to be developed, there are parts of the scheme already in place which mean that participants in the construction industry should be reviewing their payment arrangements with contractors, subcontractors and consultants.

Until the ABCC negotiations, there has been little visible attention given to security of payment by the Federal Government since the Senate Economics References Committee report in late 2015 recommended a two-year trial use of project bank accounts as a method of securing payment for subcontractors before the government tackles the acknowledged industry desire for a harmonised national approach to security of payment. The ABCC negotiation prompted swifter action.

What has been put in place immediately as a result of the passage of the ABCC Act is:

  1. The issue of the Building Code 2016 which contains expanded obligations relating to security of payment;
  2. The ABC Commissioner must monitor and act to ensure the compliance by building employers and building contractors of their obligations under the Building Code 2016.
  3. The establishment of a SOP working group, comprising the ABC Commissioner and government and industry representatives. The functions of the working group include monitoring the impact of the ABCC on SOP compliance and making recommendations in response to tasks set by the Minister.

The new Building Code contains the previous code's general requirement that building contractors and building industry participants make timely payment and comply with Commonwealth, State and Territory laws and other requirements relating to the security of payment, but adds the following specific obligations:

  • there must be a documented dispute settlement process that details how disputes about payments to subcontractors will be resolved, and the participant must comply with that process. That process must include a referral process to an independent adjudicator if the dispute cannot be resolved between the parties;
  • a participant must comply with any requirements relating to the operation of any project bank account or trust arrangement that apply to the code covered entity in relation to Commonwealth funded building work. These have not been developed yet and will likely be one of the early tasks given to the SOP working group; and
  • a participant must report any disputed or delayed progress payment to the ABC Commissioner and the relevant funding entity as soon as practicable after the date on which the payment falls due.

The Building Code also outlaws any undue influence or coercion against a contractor, subcontractor or consultant to exercise or not exercise rights they might have under State or Territory SOP laws.

Industry participants who are subject to the Building Code must ensure that their contractual arrangements comply with the first of these additional requirements (dispute settlement) and also do not contain provisions which might be interpreted as measures directed at dissuading the use of SOP rights. Participants should also stay alert for the development of the flagged project bank account or trust arrangements. A failure to comply with the Building Code may attract the attention of the ABCC and could potentially result in exclusion from participation in Commonwealth funded projects.