On 21 May 2018, the Federal Government released John Murray AM’s final report on the national Review of Security of Payment regimes. In the report, Murray recommended that the Australian government work closely with all state and territory governments to adopt nationally consistent security of payment laws based on the NSW security of payment legislation.

The review

Mr Murray announced on 21 December 2016, that he would be undertaking the review, in accordance with the Terms of Reference established by Senator the Hon Michaelia Cash in her then capacity as Minister for Employment.

The purpose of the review was identifying best legislative practice with a view to improving consistency across all states and territories in terms of the level of protection afforded to contractors to ensure they obtained payment for work they have completed or for goods and services they have supplied.

Mr Murray, as part of the review, carried out an extensive process of targeted face-to-face consultations with stakeholders across all levels of governments, business, unions and other relevant interested parties throughout the period from February 2016 to April 2017. By far the majority of consultations involved numerous stakeholders in the construction industry from all states and territories but to ensure that broad industry consultation was achieved, a cross-sectional survey of contractors, subcontractors in the building and construction industry was also conducted.

Accordingly in order to examine and recommend a nationally consistent legislative model, as a starting point it was important to examine the differing views on whether the legislation should be based on the ‘East Coast’ or ‘West Coast’ model.

While the federal government cannot introduce the recommendations itself, it has said that it is ‘committed to working closely with all Building Ministers around the country’ to ‘harmonise the various state and territory security of payments laws’.

The recommendations

Mr Murray has made 86 separate recommendations across the security of payment legislation that exists across Australia. He identified that when comparing the two models, the East Coast (as currently operates in NSW, QLD and Vic) and the West Coast (as used in WA & NT), that a regime broadly based on the East Coast Model would be best to promote promt payment so as to maintain a contractor’s cash flow.

Further Mr Murray concluded that the East Coast Model better promoted an efficient adjudication process than what was provided for in the West Coast Model. More particularly Mr Murray’s key recommendations be:

1) that all states and territories adopt laws based on the New South Wales legislation; and

2) that a system of statutory trusts apply throughout the contractual payment chain (as opposed to the recently introduced PBA’s in QLD) for construction projects of more than $1 Million.

Other recommendations include:

• legislation should be drafted and structured as simply as possible and not provide for a two-tier system (such as ‘complex’ and ‘standard’ as currently exists in QLD) so that all payment claims should be subject to the same process;

• a clear definition in the legislation of what constitutes ‘construction work’ and ‘related goods and services’ which is to be drafted in the broadest of terms;

• the legislation not to apply to a claimant corporation in liquidation;

• the legislation to apply to the residential housing sector as to enable a residential contractor/builder to make a progress payment claim against an owner-occupier;

• the legislation to better express the rights to progress payments, in particular abandoning the term ‘reference date’ and set out clearly the manner in which a date is to be determined and to prohibit ‘paid-when-paid’ clauses in construction contracts;

• the legislation should extend (unless the contract provides for a longer period) the time from which a progress claim can be made to 6 months (currently 3 months in Vic);

• that a ‘supporting statement’ be included in any payment claims submitted by a head contractor to a principal, that a copy be provide to all subcontractors and that to it should included a declaration that all subcontractors have been paid the amounts due and payable to them and that any false or misleading ‘supporting statement’ would constitute an offence;

• that a regulator (the VBA) should appoint adjudicators to determine an adjudication application and that under certain circumstances a party to an adjudicated determination be entitled to seek a review of a decision, in lieu of only being able to appeal a decision to the court.

• that fees on adjudicators be fixed at a rate prescribed by the Regulator for payment claims below $25,000 and for amounts above $25,000 not exceed a capped rate prescribed by a Regulator or as otherwise agreed by the parties;

• the legislation should not require adjudicator’s decisions to be published;

• the respondent should not be permitted to provide any new or additional reasons in its adjudication response, as both the QLD and Vi legislation currently allow (at least in certain circumstances); and

• legislation not exclude certain claimed amounts, as is currently the case in Vic.

Although most of Mr Murray’s recommendations appear to be fair and balanced, Master Builders is concerned around the recommendation of statutory trusts.

In late 2017, Master Builders Victoria made a submission to the review, and expressed the following:

“Only changes to the system that deliver faster payments, fewer disputes and fewer events of insolvency would be preferred by Master Builders. Until such a system is developed, it would be concerning to introduce any additional complexity into the system. Examples and evidence from other jurisdictions has shown that complexity added can be very burdensome and we therefore caution against adopting those regimes.”

Master Builders believes that any adoption of a statutory trust (including PBAs as in QLD) may result in increased administrative burdens as this would require separate trust accounts to be set up and administered the costs of which may well get passed on to consumers.

Master Builders will continue to review the Report in more detail and will provide further commentary in due course. Master Builders will continue to input into the Victorian laws and advocate for the most efficient, fair and effective system for builders.

Mr Murray’s complete report can be found here: Review of Security of Payment Laws.