l ega l
The battle for uniform
security of payments
legislation & project
bank accounts
Bryan Pickard
Greenhalgh Pickard
Solicitors and Accountants
T
here has been plenty in the news
about the Dyson Royal Commission
into trade union activities and the
re-establishment of the Australian Building
and Construction Commission (ABCC).
The ABCC was introduced by the Howard
government as a result of the Cole Royal
Commission into the building industry and
was supposed to be an industry watchdog.
While the trade union enquiry was going,
the Australian Senate Economics Reference
Committee (the Committee) conducted an
enquiry into insolvency in the Australian
construction industry. It released its report
in December 2015. While it runs to over
200 pages, the executive summary and the
conclusion are well worth a read.
The Committee found:
• That businesses operating in the
Australian building and construction
industry faced an unacceptably higher
risk than any other industry. The industry
accounts for between one-fifth and
one-quarter of all insolvencies, while the
industry is between eight and ten per
cent of the economy.
• There are serious imbalances in power in
the commercial construction market and
harsh, oppressive and unconscionable
conduct plays a major role. Unpaid debts
in the industry amount to nearly $3 billion
every year. This has flowed from the
change in the structure of the industry
from a situation where one contractor
directly employed labour to where a
head contractor employs major specialist
subcontractors who then subcontract
parts of their work to others. The market
power is concentrated in contractors
12 Australian Window Association Autumn 2016
at the top of the chain who have little
regard for those further down the chain.
The result is a cut-throat industry with
non-payment of subcontractors and
insolvency.
• Poor payment practices in the industry
are not new. Numerous inquiries and
reports have recommended that a party
in a construction project who receives
money on account of the contract should
be required by law to hold the money as
trustee.
• The regulatory responses have been
too little and fragmented. While there is
disparate security of payments legislation,
unacceptable payment practices remain.
The viability of the industry requires
‘Commonwealth intervention to ensure
that businesses, suppliers and employees
that work in the industry’s subcontracting
chain get paid for the work they do’.
There are some 44 recommendations in
the report. Some are focused on tightening
up corporate regulation, penalties and
insolvency. To me, the most important
recommendations are uniform security
of payments legislation and project bank
accounts (PBAs).
The report recognised a fundamental
right of anyone who performs work in
accordance with a contract to be paid
without delay for the work they have done.
While it was recognised that the States
have enacted security of payments laws,
there has been a relatively poor take-up of
the use of the regimes. It recommended
that the Commonwealth legislate using its
corporation’s power to bring all parties,
where at least one of them is a company,
under one law. While I think this is good,
I am not sure it will improve the take-up particularly where there are small amounts
owed. The process must be simple and
quick. It is interesting that the report cites
evidence that subcontractors are reluctant
to engage in legal proceedings to enforce
their contractual rights as they believe
that those higher up the contracting chain
have the legal resources to tie them up
in the courts. While the State security
of payments schemes have the object of
making the process simple, cheap and
quick, it is my observation that many are
reluctant having been ‘burnt’ in the process
by procedural errors, incompetent advisors
and the perception of inexpert and biased
adjudication. Any new law needs to be user
friendly, fair and very simple. I think the
best models are the various state consumer
tribunals.
The most important recommendation in
my view is the implementation of a trust
scheme to facilitate the prompt payment
of subcontractors. The report calls them
project bank accounts. These would be a
statutory trust account for construction
projects. The funds for the project go into
the account and only drawn on to pay the
contractors. To my mind, the money in the
fund must come from the owner/developer
or a guarantee from the financier. The
contract payments are drawn on the fund or
going to the account of contractors as and
when they complete the stages for progress
payments. A subcontractor shouldn’t be
dependent on the contractor being paid
before they are paid for their part of the
work they have completed.
Many government reports go nowhere
unless there is a political will. Political will
comes from you and I as citizens going to our
elected representatives and putting pressure
on them. Without pressure for change
nothing will happen. If the government is
willing to go to a double dissolution over the
ABCC, surely it should take on board some
of the recommendations in this report.
The report can be found at: http://www.aph.gov.
au/Parliamentary_Business/Committees/Senate/
Economics/Insolvency_construction/Report