Why the Inquiry?

The NSW Government has announced an independent Inquiry into Construction Industry Insolvency in NSW.  Announced by NSW Minister for Finance & Services the Hon. Greg Pearce, the Inquiry will examine the extent and causes of insolvency in the NSW construction industry and what reforms are needed to minimise the adverse effects of insolvency on sub-contractors.

The Inquiry has been announced in the wake of hundreds of companies in NSW collapsing between 2009 and 2011, owing billions of dollars and slamming the brakes on vital projects and investment in the state.  Up to 24,000 unsecured creditors, including suppliers and subcontractors, have been left out of pocket, some by millions of dollars according to the Minister.

Although there is existing legislation, such as the Building and Construction Industry Security of Payment Act 1999 (NSW) and Contractors Debts Act 1987 (NSW), which offer some level of protection for subcontractors, this legislation only operates in circumstances where an adjudication determination has been made under the SOP Act and, even then, cannot guarantee payment to the claimant. 

The Chair of the Inquiry will be Mr Bruce Collins QC.  The former ICAC Commissioner has extensive experience in commercial law, and engineering and construction law.  He has also served as a Supreme Court Evaluator and Supreme Court Referee.

Terms of Reference

The government has set out in the Terms of Reference five key areas for the Inquiry to look into:

  1. assess the extent and causes of insolvency in the construction industry;
  2. consider payment practices affecting subcontractors, existing protections for subcontractors and the impact of insolvency on subcontractors;
  3. consider legislative and other policy responses that can be taken to minimise the incidence and impact of insolvency in the industry, including simplifying debt collection processes, a mandatory insurance scheme to secure payments to subcontractors, trust arrangements, compulsory contract provisions and other mechanisms, designed to help safeguard the interests of subcontractors;
  4. consider the impact of Commonwealth jurisdiction over insolvency; and
  5. receive advice from an industry reference group including industry key associations and the Small Business Commissioner.

Given the role of ASIC, the Inquiry will not make any findings in relation to specific incidences of company failures.

Taskforce

The Government has also established a taskforce to review government procurement and contract administration processes.  This has been done to ensure that government agencies are appropriately managing construction risks.

Submissions

The Inquiry seeks submissions from the construction industry (particularly contractors and subcontractors), financial professionals, legal professionals, relevant government regulators and the public.  Submissions can be made through the Inquiry's website.  Baker & McKenzie is happy to assist clients with their submissions to the Inquiry.

Further, the work of the Inquiry will involve informal meetings with parties involved in subcontracting in the construction industry.

Consultation will close on 14 September 2012, with the Inquiry to report within 3 months of being established.