This review was announced on 21 December 2016. The purpose of the review was to identify legislative best practice, with a view to improving consistency in security of payment legislation and the level of protection afforded to construction industry subcontractors to ensure they obtain payment for work they have completed or for goods and services they have supplied. The review was required to report back by 31 December 2017 and include a range of recommendations to be considered by government.
Over the past 18 years, every state and territory government has progressively enacted security of payment legislation with the prime objective of facilitating prompt progress payments. All of the jurisdictions, other than Western Australia and Northern Territory, have based their legislation on the Building and Construction Industry Security of Payment Act 1999 (NSW) and such legislative regimes have come to be referred to as ‘the East Coast model’. The legislative regimes that operate in Western Australia and the Northern Territory are based on a different model, referred to as ‘the West Coast model’. There are significant differences, not only between the two models, but particularly within those jurisdictions that have adopted the East Coast model.
It should be noted that during finalisation of this Report the Queensland Government passed the Building Industry Fairness (Security of Payment) Bill 2017 (Qld) on 26 October 2017 with 144 amendments. The Bill was read a third time on 8 November 2017 and received Royal assent on 10 November 2017. Many of the changes to be affected by the Building Industry Fairness (Security of Payment) Act 2017 (Qld) are to be dealt with in Regulations, which at the time of writing had not yet been released. Given timing for delivery of the interim report and this final report, that Act is therefore only considered in its original Bill form as introduced to the Queensland Parliament on 22 August 2017.
Notwithstanding that two fundamentally different models have developed and been adopted in divergent ways across jurisdictions, there have been some improvements in payment practices within the construction industry. However, major problems associated with the current security of payment legislative regimes remain, including:
(a) With the exception of Queensland, none of the existing state and territory legislations provide any effective ‘security’ of payment where a party higher up the contractual chain becomes insolvent.
(b) The legislative regimes are unduly complex and this has discouraged their usage and caused confusion.
(c) There are questions around the process of appointing adjudicators; the adequacy of qualifications, training and grading of adjudicators; and the variable quality of adjudication decisions.
(d) There is an imbalance of bargaining power within the contractual chain and the practice of passing on contractual risks has resulted in the imposition of unfair contract terms that operate to prevent payment to the party that has carried out construction work.
(e) There are suggestions that acts of intimidation and retributive conduct by head contractors discourage subcontractors from pursuing their entitlements.
(f) Late payment continues to be a major issue for the construction industry.
To gain an appreciation of these issues and how they may be addressed, an extensive process of targeted face-to-face consultations was conducted with key stakeholders across all levels of governments, business, unions and other relevant interested parties. An Issues Paper was produced for the purposes of setting out the matters for discussion during the targeted consultations.1 The Issues Paper identified key issues related to security of payment and posed questions for consideration by stakeholders.