Security of Payment in Australia
Background
Security of Payment legislation has been introduced by each Australian State and Territory to allow for the rapid determination of progress claims under buildingReviews of Security of Payment Legislation
Since 1974 there have been at least 30 reviews, discussion papers, and inquiries at the state and federal level that are related to financing in the building and construction industry. There is currently a federal review underway, led by John Murray AM. The Murray Review was announced on 21 December 2016, with a progress report due by 30 September 2017. A final report with recommendations is due to the Minister for Employment no later than 31 December 2017. The NSW Office of Fair Trading is also conducting a full review of the NSW Security of Payment legislation following a discussion paper released in December 2015. Submissions closed on 26 February 2016. There is no publicly available final due date for this report.Adjudication and Authorised Nominating Authorities
Challenges associated with Security of Payment Legislation in Australia
The December 2015 Senate Inquiry into Insolvency in the Australian Construction Industry found that Security of Payment legislation has been effective where it was used. However it is underutilised by subcontractors for several reasons, chiefly: # There is still a major power imbalance between subcontractors and contractors; # There is confusion and poor understanding of the legislative scheme; and # Accessing the scheme is still costly.Power imbalance
Although the Security of Payment legislation was designed to reduce the power imbalance in the payment chain, the scheme’s own take-up has been deterred by this same power imbalance. Fear of retribution, threatening behaviour and intimidation from those higher in the contractual chain act as a strong deterrent to using the legislation. The intimidation may be indirect, such as a questionnaire including “have you ever used the SoP legislation?”. Further, subcontractors fear or have actually been threatened by head contractors that if they make a payment claim they will be cut off from future work. In fact, the likelihood of ability to get future work can be the basis for a subcontractor’s decision to use the Act.Confusion and poor understanding
The Collins Review found that there is a lack of knowledge and awareness among subcontractors of what rights and enforcement options are available. This is compounded by the lack of education and support for subcontractors attempting to utilise the Act. A second contributory factor is the relative lack of financial acumen amongst smaller-scale contractors, who have not needed to acquire financial or legal skills during their career. The short timeframes can in fact negatively affect parties as they may not realise they are in a dispute and their time under the legislation has started to run. Alternatively, subcontractors may be deliberately strung out by parties with greater legal resources and cash flow.Costliness of dispute resolution
Short time frames have sped up the rate at which subcontractors can recover payment, ensuring critical cash flow for claimants. However there has been a significant amount of litigation created by the Security of Payments legislation around Australia. According to the Collins Review, even a simple claim with an adjudicator and legal fees can cost around $4,000-5,000, meaning that subcontractors may be underpaid by $4,000 per progress payment without fear of dispute resolution action. The cost of enforcing Adjudicators’ findings has proven to be also a disincentive for potential claimants. An enforcement action requires considerable time, effort and financial outlay borne directly by subcontractors. Subcontractors who engage legal advice in order to seek overdue progress payments often emerge less well-off than subcontractors who cut their losses. Larger respondents have been able to string-out court action until the claimant either becomes insolvent or ends the legal action.Australian Senate Economic References Committee,Private measures
Commonly, businesses in the building and construction industry in Australia will include the following statement on payment claims or tax invoices: "This is a payment claim made pursuant to the Building and Construction Industry (Security of Payment) Act 2009 (ACT)” or "This is a payment claim made under the Building and Construction Industry Security of Payment Act 1999 NSW". These Statements may vary depending in which Province the Claim is made. However this has not been a requirement in NSW since legislative amendments in 2013.Security of Payment in the UK
The UK's security of payment scheme can be found in the ''References
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