Overhaul of NSW’s security of payment legislation? Discussion paper released

Background

NSW Fair Trading has recently released a Discussion Paper¹ on the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act). The Discussion Paper comes after the Collins Review into insolvency in the industry and the resultant reforms that have been considered and made in the past few years.

The Discussion Paper is intended to facilitate, guide and inform a thorough evaluation and review of the Act. As such, rather than advancing any proposals for reform or articulating Government policy, it suggests stakeholder concerns and puts forward questions on key issues to be addressed in submissions it has called for by 26 February 2016.

After considering submissions, and any necessary further research or industry consultation is completed, NSW Fair Trading will prepare a report to the Government.

The discussion paper is accordingly a first, but important, step toward reform of the Act. The true scope of the likely reforms will become clearer when the report to Government is released.

Key issues

The Discussion Paper does not seek to limit the scope of the reforms that may be considered. To that end, it seeks feedback on whether the Act meets its objective of ensuring that parties who undertake to carry out construction work or supply related goods and services under a construction contract are paid promptly, and that disputes are quickly and fairly resolved.

Clearly then, every aspect of the Act is open to comment and possible reform. In many places the position in NSW is compared with the position in other Australian jurisdictions, and questions are asked to gauge whether the position elsewhere should be adopted in NSW.

The discussion paper asks questions generally on 5 key topics. Those topics are identified below, along with some of the more interesting questions or issues raised for discussion.

Application and enforcement

• The appropriateness of current exemptions to the Act, and whether they should be narrowed or broadened, especially in relation to owner/occupier contracts.
• Confusion for subcontractors serving claims on head contractors when a  ‘superintendent’ is involved, including whether specific provisions are required to address such circumstances.

Progress payments

• Allowing claims to be made up and down the contracting chain (which would allow a principal to claim against a contractor).
• Whether the requirement to expressly state a payment claim is made under the Act should be reinstated.
• Whether Project Bank Accounts, set up by the head contractor and trialled by the NSW Government on selected projects, would be appropriate for the public sector.
• Advantages of, and preferences for, either the East Coast and West Coast (essentially the equivalent legislation in Western Australia and the Northern Territory) legislative models, especially with respect to statutory payment schemes and dispute determination processes.

Adjudication of disputes under the Act

• Qualification standards and disciplinary actions for adjudicators.
• The appropriateness of the adjudication process and powers of adjudicator nominating authorities (ANAs) and adjudicators, including fees charged, choice of ANA, and adjudicator appointment.
• The role and benefits of alternative dispute resolution, including whether mediation should be a mandatory precursor to any adjudication application.

Uniform application of the legislation to all disputes

• Whether the Act is appropriate and suitable for complex matters, especially in relation to time frames – and whether, like the Queensland legislation, different processes for ‘standard’ claims and ‘complex’ claims should be created.
• Any need for automatic removal to the court system above a certain value threshold.

Supporting statements and retention money trust accounts

• Any need for lowering the threshold for the requirement of retention money trust accounts to contracts worth less than $20 million.
• Any need for simplifying the reporting requirements of retention money trust accounts.
• Any need for a prescribed maximum amount of retention money (e.g. as a percentage of the contract’s value).

Next steps

Clearly, NSW Fair Trading is approaching the review of the Act with an open mind. The submissions will no doubt influence the next steps in the review of the Act, and therefore the form of any amendments ultimately made to the Act.

Industry participants are accordingly presented with a unique opportunity to have their say on any aspect of the Act, with the hope, of course, of influencing the scope of reforms that are carried forward. Submissions in response to the Discussion Paper close on 26 February 2016.

We will update you with any developments on the road to reform as they arise.

Endnotes

1. Building and Construction Industry Security of Payment Act 1999: Discussion Paper - December 2015.

More information

For information regarding possible implications for your business, contact Elisabeth Maryanov.