Why the Review?
On 21 December 2016 the Federal Government announced a national review of security of payment laws in the building and construction industry. Mr John Murray AM has been appointed by the Federal Minister for Employment to conduct the review, which will consider the disparate approaches taken to security of payment laws across Australian jurisdictions. Following a push by crossbenchers in relation to the passing of the Building and Construction Industry (Improving Productivity) Bill 2016, a Security of Payments Working Group (SPWG) was established to monitor issues in security of payment for contractors. Security of payment issues in the construction industry have also been noted as a concern by other reviews and inquiries such as the recent Senate Economic References Committee Inquiry into Insolvency in the Australian Construction Industry, which found that security of payment laws across jurisdictions were not working as effectively as intended.
The level of protection given to contractors under the different security of payment laws across Australian states and territories varies in a number of respects. Two different models of security of payment laws exist in Australia: the 'East Coast Model' and the 'West Coast Model', and there is a need to consider the relative merits of each in providing for cost effective and prompt adjudication of payment disputes.
Mr. Murray was made a Member of the Order of Australia in 2014 for services to the building industry. He has extensive experience in dispute resolution in the construction industry and as an adjudicator applying security of payments legislation. In undertaking the review, Mr Murray will consult with business, governments, unions and other relevant parties to identify best practice.
A progress report must be provided to the Minister for Employment by 30 September 2017 and the final report, providing recommendations for government consideration, must be delivered by 31 December 2017.
Terms of Reference
The Terms of Reference set out the following key areas for the Review:
- to examine all jurisdictions' security of payment legislation to identify areas of best practice for the construction industry
- to take into account any reviews and inquiries that have been conducted recently in relation to security of payment, including the December 2015 report by the Senate Economic References Committee on Insolvency in the Australian Construction Industry and the draft legislation developed by the 2003 Cole Royal Commission into the Building and Construction Industry
- to consult with business, governments, unions and interested parties and the SPWG. The SPWG is responsible for monitoring the activities of the Australian Building and Construction Commission (ABCC) in relation to security of payment laws across Australia, making recommendations to the ABCC on ways to improve industry compliance with security of payment laws and making recommendations to the Minister on how to ensure that construction contracts are free from clauses that may restrict the contractor's ability to obtain payments for completed work
In making recommendations, the Review is required to consider other models, including the model that operated in Queensland prior to legislative amendments being made in December 2014. The adjudication process for payment claims, time frames for making and responding to payment claims and the information that could be included in adjudication differs significantly between the pre and post 2014 models.
Potential Areas for Harmonisation between Australian Jurisdictions
We list below some aspects of the security of payment laws which we identify as arguably suitable for harmonisation or amendment. Readers of this alert will undoubtedly have others.
- harmonisation of inconsistent definitions of 'business day' critical for the calculation of response times
- harmonisation of inconsistencies of the scope of the mining exception
- whether claims for the release of unconditional undertakings should remain outside the adjudicator's jurisdiction (unlike cash retention). This may raise issues relating to the rights of third party banks and insurance companies
- clarification of the scope for an insolvent claimant to claim under security of payment legislation, involving consideration of the inter-relationship between State security of payment legislation and Federal insolvency legislation
- Victorian 'excluded claims' - whether a similar restriction on specific types of claim should be extended across all states
- amendment of Victorian security of payment legislation to address issues arising from the SSC Plenty Road decision regarding the dispute resolution procedures which constitute 'a method for resolving disputes'
- potential for extension of time periods for provision of Adjudication Claims, Adjudication Responses and Definitions in respect of larger claims (based on the Queensland Complex Claim procedure)
- greater regulation of the training and accreditation of adjudicators
If you are interested in providing commentary or feedback in relation to the Terms of Reference set out above, we are happy to take note of client views in the making of Baker McKenzie's own submissions.
Feedback on the Terms of Reference can be submitted to us by 5pm on Friday 17 March 2017.