Home » Security of payment reform – where to from here?

Security of payment reform – where to from here?

Posted by Marcus McCarthy | 02 February 2016 | Civil Contractors and Construction

The seemingly endless cycle of changes to security of payment legislation across the country continues.

NSW is once again looking at reforming the Building and Construction Industry Security of Payment Act 1999 (NSW) – reforms that will no doubt create more confusion and frustration for many builders, contractors, principals and developers, who are still adjusting to the last round of sweeping changes (the latest of which came into effect just 1 May last year).

The NSW Government has again referenced the Collins Inquiry into insolvency in the construction industry as a basis for more reforms, but for many contractors, this will just mean more changes and rules to factor into their projects and costings. The proposed changes would move NSW further away from security of payment legislation found in other jurisdictions – including those bordering NSW, making the idea of a uniform regime look more and more like a pipe dream.

Proposed changes

The Discussion Paper released by Fair Trading discusses some dramatic reforms (some good, some not so good, and some very unlikely). Some of the changes being considered in the Discussion Paper are detailed below:

  • Period to make a claim – At the moment in NSW claimants have 12 months from the last date work was performed to make a claim. There is concern this is too long and the Discussion Paper considers reducing this to 6 months.
  • Reference Dates – Clarifying the way reference dates work under the Act as there is significant confusion around these dates and how they operate.
  • Model – Whether or not to move towards a “West Coast” type model – In NSW and other jurisdictions on the East Coast claims can only be made upstream (ie. subcontractor to head contractor), however in Western Australia and the Northern Territory claims can be downstream (ie. principal against head contractor for liquidated damages etc…).
  • Expanding to residential construction – At the moment most residential construction (ie. owner to occupy on completion) is not subject to the Act. The Discussion Paper considers expanding the Act to owner occupier construction, or at least owner occupier projects over a certain value (proposed $1 million).
  • Retention Trusts – From 1 May 2015 head contractors were required to hold retention monies in trust when projects were valued more at more than $20 million. This requirement also includes numerous reporting and accounting obligations and associated costs. The Discussion Paper flags a possible expansion of the retention trust regime to include various contracts worth less than $20 million irrespective of value and a prescriptive approach for how much monies can be retained. This could significantly increase head contractor administration cost and may result in more head contractors requiring bank guarantees to avoid the retention trust regime.
  • An expanded penalty system – this would include increased penalties including:
    – Including a general liability for directors;
    – Vicarious liability for employers for the actions of their employees;
    – adding offences around unconscionable conduct and predatory claims;
    – More time to take action in relation to offences;
    – Expanding the investigative powers to cover all matters under the Act;
    – Broadening the powers to obtain information from parties to a construction contract and a general review of the complaints process through Fair Trading.
  • Information provided – Should payment claims be required to state they are under the Act (a requirement that was removed in the last generation of change)? The Discussion Paper looks at what information should be provided with a claim.
  • Payment Regime – A review of the payment due date regime, ie. Should the period for paying subcontractors be reduced from 30 Business Days.
  • Prescriptive Regime – A more prescriptive regime for Authorised Nominating Authorities and adjudicators, including reviewing whether claimants are shopping for adjudicators.
  • Mediation – Whether or not mediation should be introduced as a mandatory step before adjudication.

The real question: Will more changes help contractors?

The fundamental question that needs to be asked is ‘will these changes benefit contractors’? It seems that a number of the proposed changes will add to the cost for head contractors and create a system that is difficult to internally administer.

Over the past 16 years, the Security of Payment regime in NSW has morphed from a relatively straight forward piece of legislation designed to “stamp out the un-Australian practice of not paying contractors for work they undertake on construction” and provide a “quicker and cheaper means of enforcing payment” . Some of the processed changes seem to step away from this original ambition.

While there are some positive ideas flagged in the Discussion Paper, those changes should not be made at the expense of slowing cashflow between parties or increasing disputes in the industry, which many of the proposed changes arguably will.

The Discussion Paper is available and can be downloaded by clicking on this link.  Fair Trading also has an online survey and the address for making submissions in response.

All submissions must be made by Friday, 26 February 2016.

If you have any questions in relation to the security of payment legislation in NSW or in other jurisdictions, or want assistance drafting any submissions in response to the proposal, contact Marcus McCarthy (mwm@nexuslawyers.com.au | +612 9016 0141).

This publication is © Nexus Lawyers Pty Ltd and is for general guidance only. Legal advice should be sought before taking action in relation to any specific issues.

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