The security of payment provisions of the new Building Code 2016 (Code) introduced in December last year are emerging as an immediate concern for a fast growing number of building industry participants.

The Code applies to ‘code covered entities’, being any building industry participant which expresses an interest in or tenders for work to be carried out in a Territory or Commonwealth place. Once a building industry participant becomes a code covered entity they remain one in respect of all future works, including privately funded works. The Code’s reach over the industry therefore extends well beyond Commonwealth funded projects or work in the Territories and will continue to ratchet up.

The specific security of payment obligations in the Code that code covered entities are required to adhere to are detailed on the ABCC website. They include obligations to:

  1. comply with all applicable laws and other requirements relating to security of payment;
  2. formulate and comply with a documented dispute settlement process setting out how disputes about payments to subcontractors will be resolved. This process must include a referral process to an independent adjudicator for determination if the dispute cannot be resolved between the parties;
  3. ensure that due payments are made in a timely manner and, as far as practicable, that disputes about payments are resolved in a reasonable, timely and cooperative manner;
  4. 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. Importantly:

    1. disputed progress payments are those that are referred to adjudication. Code covered entities are required to report on (among other things) the amount claimed, the amount scheduled, the name of the adjudicator and the date when an adjudication determination/decision is expected. They may then have to report on any adjudication determination and the payment of any adjudicated amount;
    2. delayed payments are payments not made by the due date for payment determined in any adjudication determination. The fact and reasons for the delay will need to be reported.

    The reporting form can be accessed here.

  5. 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;
  6. not organise, take or threaten to organise or take action with intent to coerce, or apply or attempt to apply undue influence or pressure on a contractor, subcontractor or consultant to:
    1. exercise or not exercise, or propose to exercise or not exercise rights arising under state or territory laws relating to the security of payments; or
    2. exercise or propose to exercise rights arising under laws relating to the security of payments that are due to persons in a particular way; and
  7. not engage in illegal or fraudulent phoenix activities for the purpose of avoiding any payment due to another building contractor or building industry participant or other creditor.

The Code’s security of payment provisions may well have more ‘bite’ than their relatively unheralded introduction suggests. In addition to the reporting obligations in respect of disputed or delayed payments, code covered entities are required to report to the ABCC on any breaches of the Code. Such reports are to be made as soon as practicable but no later than 2 working days after becoming aware of the breach or suspected breach.

Alleged breaches might also be reported by subcontractors. A breach would include failing to report to the ABCC in relation to disputed or delayed payments (see 6 above) and/or any conduct that might be construed as coercion or undue influence or pressure in respect of security of payment legislation or phoenix activities.

The potential consequences of breaches include an exclusion sanction against the code covered entity disentitling them from tendering or being awarded work on Code covered sites for up to 12 months. Civil penalties may also apply in cases of payment disputes involving coercion or threatening behaviour.

Given its expanding reach, an ever increasing proportion of building industry participants will need to ensure that their payment systems comply with the Code’s security of payment provisions. Please contact us if you would like to discuss any issues in this regard.