WINDOWS Magazine Autumn 2016 - Page 14

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: au/Parliamentary_Business/Committees/Senate/ Economics/Insolvency_construction/Report