Building and Construction update: Review of the security of payment laws

May 31, 2018

On 21 May 2018, the Australian Government released the final report of the review of the security of payment laws undertaken by Mr John Murray AM with assistance from the Department of Jobs and Small Business.

The final report, Review of Security of Payment Laws: Building Trust and Harmony (the Review), sets out 86 recommendations to improve the consistency in security of payment legislation. The recommendations serve three overriding goals:

  • the facilitation of a prompt response to a progress claim;
  • a quick and efficient adjudication process; and
  • the protection of progress payments.
Background

Albeit sharing one principal objective — the facilitation of prompt payments in the construction industry — the Australian states and territories each have very different security of payment laws which cause confusion and discourage builders from relying upon them. In December 2016, the Federal Government announced the review, which involved an extensive process of targeted face-to-face consultations with key stakeholders across all levels of governments, business, unions and other relevant interested parties throughout the first half of 2017.

Recommendations

Provided below are some of the more notable recommendations that are different to the provisions that are currently contained in the Victorian Building and Construction Industry Security of Payment Act 2002.

Recommendation 11: The legislation should not include the carve-out of amounts that a person is entitled to under a construction contract.

Recommendation 12: The legislation should apply to the residential housing sector so as to enable a residential builder to make a progress payment claim against an owner-occupier.

Recommendation 14: The ‘reference date’ should be abandoned. The builder should be able to make a payment claim for every named month, or more frequently if so provided under the construction contract.

Recommendation 17: When a construction contract is terminated, the builder may make a payment claim for construction work carried out up to the date of termination.

Recommendation 18: The legislation should prohibit ‘pay-when-paid’ clauses in construction contracts.

Recommendation 24: Unless the construction contract provides for a longer period, a progress payment claim must be made within 6 months after the construction work was last carried out or the related goods and services were supplied.

Recommendation 40: A respondent may make a written application to the adjudicator to request an extension of time of up to 10 business days for giving an adjudication response, subject to that application:

  • being made within 2 business days of the respondent having received a copy of the claimant’s adjudication application; and
  • setting out the respondent’s reasons for requesting the extension.

Recommendation 41: A respondent be prohibited from including in its adjudication response any reasons for withholding payment unless those reasons have already been included in the payment schedule.

Recommendations 43 to 46: A party to an adjudication may apply to the Regulator for a review of an adjudication decision, but only if a number of technical requirements are satisfied.

Recommendation 57: Where an adjudicator has committed a jurisdictional error of law in a part of the adjudication decision which does not affect the whole of the decision, a court may sever that part and allow the remainder of the decision to be enforceable.

Recommendations 69 to 70: The fees that an adjudicator may charge should be fixed at a rate or should not exceed a capped rate prescribed by the Regulator.

Recommendation 82: An adjudicator may decide whether a retention amount and/or security is to be returned, and the date on which it is to be returned.

Conclusion

While the Federal Government called for the review, the security of payment is a state and territory matter. It remains to be seen whether the Australian states and territories will adopt any one, or more, of the recommendations in the Review.

More information

For more information about the recommendations and what it means for the Victorian building and construction industry, please contact Alan Bidychak, Senior Associate, on (03) 8600 8713 or abidychak@kcllaw.com.au.

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