10 minute read
Will the failing security of payment scheme ever get ‘fixed’?
vitally important that members of the
by alisa taylor and lauren gray, meyer vandenberg lawyers
The Federal Government has announced plans for a review of the security of payment laws in the building and construction industry. The review stems from a concern on the government’s behalf over the significant differences in security of payment frameworks across Australia, and the impacts of these differences on the level of protection afforded to subcontractors. The review will consult with business, governments, unions and other interested parties in the industry.
COULD WE SEE A NATIONAL SECURITY OF PAYMENT FRAMEWORK?
It’s possible. The review will try to find areas of ‘best practice’ in the industry, following a review of the laws in each state and territory. The review will re-examine a number of previous enquiries into security of payment, including the December 2015 report by the Senate Economic References Committee on insolvency in the Australian construction industry, and the 2003 Cole Royal Commission into the Building and Construction Industry draft legislation.
The December 2015 Senate report made a total of 44 recommendations directed at overcoming the challenges that the construction industry faces in dealing with its high rate of insolvency. One of those recommendations was that the Commonwealth enact uniform security of payment legislation. Another recommendation was that the Commonwealth commence a two year trial of ‘Project Bank Accounts’ on construction projects where the Commonwealth’s funding contribution exceeds ten million dollars, following which it was recommended that the Commonwealth legislate to extend the use of this form of ‘trust account’ to private sector construction. The report also examined ways to address phoenix activity as a significant issue in the construction industry (that is, the transfer of assets from an indebted company to a new company to avoid paying creditors etc).
The 2015 report also recommended that each state and territory construction licensing regime require:
that licence holders demonstrate they hold adequate financial backing for the scale of their intended project; that on registration, licence holders provide evidence they have completed an agreed level of financial and business training programs, including principles of commercial contract law; and that each licence holder demonstrates it is a fit and proper person to hold a licence.
The 2003 Cole Royal Commission made 211 reform recommendations, and unsurprisingly concluded that the Commonwealth should enact uniform legislation (with the peculiar exception for the national regime not to apply to construction contracts governed by the terms of a state or territory ‘in which
adequate alternative legislation is in force’ – adequate as declared by the Governor-General).
IS REFORM ACTUALLY LIKELY?
We have seen a number of reviews and enquiries over the years, all of which conclude a national regime is preferable. The difficulty with enacting national security of payment legislation lies in the Commonwealth’s limited powers to legislate in these areas. Security of payment is typically something that lies in the hands of the states and territories to enact, unless (a) the relevant state or territory refers its power to the Commonwealth or (b) the Commonwealth uses one of its specific constitutional powers to enact such legislation (which in itself is a long process). The bottom line is, it’s going to be a long process.
However, whilst changes may not happen next week, it is a hot topic in the industry and the government is presumably feeling the pressure.
WHAT NEXT?
Importantly for head contractors and subcontractors, the review will examine the various types of contractual clauses restricting contractors in the industry from obtaining payment for completed work. It will also consider entirely different security of payment models, drawing on advice from various working groups established over the years. Thus, it is vitally important that members of the industry have their say in how any new regime will operate going forward.
We will be monitoring the review, including making submissions through working groups we are participating in with numerous industry associations.
A progress report will be given to the Minister by 30 September 2017, and a final report will be given to the Minister by 31 December 2017 with recommendations.
Watch this space.
For more information contact the Building and Construction Dispute Resolution Team:
Alisa Taylor
Partner, Construction Dispute Resolution (02) 6279 4388 Alisa.Taylor@MVLawyers.com.au
Lauren Gray
Senior Lawyer, Construction Dispute Resolution (02) 6279 4332 Lauren.Gray@MVLawyers.com.au
aCt progressing on
building quAlity reForMs
improving the quality of buildings across the aCt has been a cornerstone of master builders aCt advocacy and policy for many years. master builders aCt released its building Quality policy Document in 2015, and since that time industry has led the charge for reform to the aCt building industry.
In the last decade, the ACT Government conducted a thorough review of the building regulatory environment in 2010 and again in 2015. The ACT Government’s focus on building regulatory reform started to gather some momentum 18 months ago when the ACT Government responded to Master Builders call to establish a Building Regulatory Advisory Committee (BRAC) to act as an advisory group to government on building regulator priorities.
During the BRAC’s first year of operation it has had substantial input into the Government’s proposed building reforms, through consultation on the “Improving the ACT Building Regulatory Systems” discussion paper. Master Builders ACT, with extensive input from our members, made a comprehensive submission to the discussion paper. Master Builder’s recommendations have largely been accepted by the Government as priorities for reform. Then Minister for Planning, Mick Gentleman, released his response to the consultation by setting out 43 recommended priority actions to the reforming the building regulatory system. The 43 recommendations include a wide ranging list of actions including reforms to builders licensing, security of payment, industry training, residential building contracts, statutory warranties and much more. During recent meetings between BRAC members and Ministers’ Gentleman and Ramsay, three short term priorities have been set out for urgent action by government. These priorities include: training for the construction industry within 3 years, starting with mandatory or directed training for licensees in identified industry deficiencies in the first 12 months. investigation of trade contractor licensing, supervisor licensing and review of corporations licensing. home warranty insurance and statutory warranties to remove some existing uncertainty and respond to recent court decisions. Running concurrently to actions at a local level, Master Builders ACT and Master Builders Australia are part of a national review of security of payment laws. These reforms aim to improve security of payment laws and adopt a consistent framework across the country for how payment claims and payment disputes are handled. But legislation alone will not improve building quality in the ACT. Industry must continue to lead the discussion about improving building quality, and it must also lead by example.
Of the approximately 4,000 licensed builders in the ACT, 12% are members of Master Builders ACT.
Before becoming a member of Master Builders ACT, prospective members must be nominated by two existing members, approved by their relevant sector council, and approved by the full MBA Executive Committee. Upon joining, members agree to abide by the MBA Code of Conduct, and are subject to ongoing adherence to the Code
Implementation of Continuing Professional Development (CPD) Completion of reforms to builders licensing, including the Clarifications to the Building Act relating to the application of
by their clients, the general public, other members, and the MBA Executive Committee. These members are leaders in our industry, and have all made a commitment to quality and excellence in the construction industry.
For building quality in the ACT to improve our industry leaders must continue to demonstrate best practice, all license holders must be held accountable to public and legislative standards, and government must continue to improve building legislation to ensure it reflects community and industry standards.
Master Builders ACT Building Quality Policy
Master Builders Association of the ACT
1 Iron Knob St, Fyshwick ACT 2609 PO Box 1211, Fyshwick ACT 2609 T (02) 6280 9119 F (02) 6249 8374 E canberra@mba.org.au W www.mba.org.au Policy Document
Master Builders Association of the ACT
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MBAIS_BuiltOnAdvice_211x295_ACT_v2.pdf 1 12/05/2017 3:53 PM
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LennockMBAIS is the only insurance broker delivering profits directly back to the building & construction industry.
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