The final report on the national Review of Security of Payment Laws undertaken by John Murray AM has been released and recommends harmonising security of payment laws in order to achieve a consistent and effective set of national legislation.
What is the Review?
First announced in December 2016, the Review was commissioned to identify legislative best practice across the States, with a view to improving consistency in security of payment legislation and the protections afforded to subcontractors.
Currently, there are two distinct security of payment models, commonly known as the East Coast and West Coast Models. While the legislation varies slightly from State to State (with more significant changes recently introduced in Queensland), the East Coast Model generally applies in Queensland, New South Wales, the Australian Capital Territory, Victoria and South Australia. The West Coast Model applies in Western Australia and the Northern Territory with little difference between the relevant legislation.
Significantly, the Murray Report recommends the use of a national legislative model based broadly on the East Coast model of security of payment laws (but predominantly the NSW Act). A total of 86 recommendations have been made, many of which a particularise Murray’s preferred legislative model.
The Murray Report also makes recommendations aimed at addressing a number of ‘hot topics’ in the construction industry, which are likely to generate further debate. A summary of key recommendations from the Murray Report is set out below.
- Reference Dates: The Murray Report recommends removing the concept of “reference dates” as a trigger for payment entitlement, which is a fundamental feature of the East Coast Model. Murray recommends replacing “reference dates” with an entitlement to payment no less than monthly and on achievement of milestones and completion. (Recommendations 14-16)
- Two Tier System of Standard and Complex Claims: Murray concludes that the legislation should be drafted and structured as simply as possible and not provide for a two-tier system of ‘standard’ and ‘complex’ claims, which is a recent introduction to the security of payment regime in Queensland. Instead, Murray recommends that adjudicators should be allowed to extend the time for providing an adjudication response, in appropriate circumstances. (Recommendation 2)
- Mining Exclusion: At present, both the East Coast and West Coast Models contain some form of ‘mining exclusion’ from the definition of ‘construction work’. Having considered both legislative models, Murray recommends that the definition of ‘construction work’ should be drafted in the broadest terms in any national legislation. Time will tell if more mining, oil and gas projects will be brought within the ambit of this legislation as a result of any national changes. (Recommendation 4)
- Statutory Trusts: The Murray Report adopts certain recommendations from the previous Collins’ report and recommends implementing a system of statutory trusts to apply throughout the contractual payment chain for construction projects over $1 million. (Recommendation 85- 86)
- Time Bars: Notably, the Murray Report recommends legislation that voids contractual terms where a right to claim or receive payment or an extension of time is conditional upon giving notice in certain circumstances. In seeking to strike an appropriate balance on this issue, Murray considers that the relevant test to be applied should be whether the preconditions relating to giving notice associated with any claim serves a legitimate commercial purpose and whether compliance with the prescribed time requirements are reasonably possible and not unduly onerous. (Recommendation 84) The final recommendation noted above is somewhat unrelated to security of payment legislation and more a recommendation concerning a fundamental change to a longstanding practice in the world of construction contracts. A change of this kind would strike at the heart of many of the countries’ largest contractual disputes and is likely to be a ripe topic for debate throughout the industry. Recommendation 84 will be of particular interest to both contractors and principals and a hot new topic to monitor as the recommendations of the Murray Report are considered for implementation.
The next step for the Australian Government is to work with the States and Territories through the Building Ministers’ Forum to consider and respond to the findings and recommendations of the Review.