04 Feb 2016

More security of payment reform for Queensland - get involved

by Frazer Moss, Chris Cull

The Queensland Government's contemplated further reforms to security of payment legislation are wide-ranging and could impose significant change on the administration of construction contracts.

In December 2015, the Queensland Government (Department of Housing and Public Works) released a Security of Payment discussion paper that asks for written submissions about how Queensland's current security of payment regime can be improved to better protect the interests of subcontractors, and ensure that they get paid in a fair and timely manner.

The discussion paper represents a continuation of the journey to attain security of payment for construction contractors. It comes less than two years since the last round of reforms began to be implemented through the 2014 amendments of the 2004 BCIPA legislation. The focus this time is said to be on subcontractors, a group that has long been the reason for the introduction of legislative measures. However, issues raised in the paper have implications for all levels of participants in the industry.

Queensland's options for reforming security of payment

A number of options for reform are put forward in the paper, which include:

  • introduction of project bank accounts (initially on trial on government projects), whereby the principal and head contractor set up the account and money is held in trust for the head contractor and subcontractors pending certification for work performed. Payment is made directly from the account to subcontractors, avoiding payment through the head contractor;
  • a trust fund scheme for retentions under subcontracts, similar to that recently introduced in NSW and New Zealand;
  • as an alternative to retentions, insurance for non-performance being taken out by the head contractor (under this proposal, retentions would be prohibited by legislation);
  • amendment to the Commonwealth Corporations Act and Bankruptcy Act to grant subcontractors a priority payment in the event of head contractor insolvency;
  • an education program to increase the financial and business skills of construction industry participants

The perceived advantages and disadvantages of each option are provided, but otherwise the detail of what is contemplated is light. The paper is instead one that is looking for direction, stating that the Government, the building and construction industry, and the public, must work together to bring about change.

It emphasises that the review is not confined to the options that it sets out. The Government also calls for submissions on any other practical strategies that will inform genuine change and improvement to the current security of payment regime. In that respect, an obvious measure worthy of consideration is the harmonisation of SOP legislation.

Security of payment laws across Australia

A troubling aspect associated with the release of the discussion paper and the options contained in it is that it reflects the potential for an even more fragmented security of payment landscape in Australia. Each State and Territory jurisdiction is looking to solve common concerns, but with differing approaches.

Western Australia and South Australia have already undertaken recent reviews of their SOP legislation which will likely see the introduction of provisions either unique to those States or the adoption and amendment of what exists elsewhere. NSW is also thinking about making further changes to its SOP scheme involving tweaks to the recent SOP reforms that flowed from the Collins Inquiry (NSW), but also more substantial changes, such as an ability for SOP claims to be made down the contractual chain

The lack of consistency between jurisdictions on the issue of security of payment causes confusion and leads to inefficiencies in doing business. A co-ordinated effort by the Australian and State/Territory Governments to create a harmonised SOP framework would be a powerful tool for improving the security of payment for construction contracts in Australia, and would represent an opportunity for a national shift in measures directed towards the timely payment of contractors.

Until a national approach is achieved, however, participants should continue their efforts to engage in debates on SOP reform in those jurisdictions in which they operate. In the case of Queensland, submissions in response to the discussion paper are due no later than 5pm on Thursday, 31 March 2016.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.