Please note: This is an extract from Hansard only. Hansard extracts are reproduced with permission from the Parliament of Tasmania.
BUILDING AND CONSTRUCTION INDUSTRY SECURITY OF PAYMENT BILL 2009
SECOND READING SPEECH
Mr Speaker, I move that the Bill now be read a second time.
This Bill seeks to achieve one of a number of significant reforms the Government
intends to introduce to the Tasmanian Building and Construction Industry in
order to align conditions in the Tasmanian industry with that elsewhere in Australia.
Mr Speaker, the main objective of this Bill is to reform payment behaviour in
the building and construction industry. The Bill creates fair and balanced payment
standards for all building and construction contracts. The standards include
statutory rights to progress payments and quick adjudication of payment disputes.
The Bill will speed up payments by
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removing the ability to delay those payments. Reforms include the power for
an unpaid contractor or subcontractor to suspend work. It also bans pay-when-paid
clauses.
In tabling this Bill, the Government seeks to improve cash flow throughout the
entire building and construction industry. In particular, the Bill seeks to
address the dramatic affect that non payment has on small subcontractors, such
as bricklayers, carpenters, electricians, plumbers and earthmoving subcontractors.
Many businesses and subcontractors at this level cannot survive financially
when they do not receive regular payment for the work they have done. This can
have severe consequences to themselves, their businesses and most importantly,
Mr Speaker, their families.
Mr Speaker, the Government is determined to rid the building and construction
industry of unacceptable payment practices. In doing so, there is a clear recognition
by this Government that any action taken does not add unnecessary cost to
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industry, its participants and its clients. A draft Bill, was issued for public
comment in August this year. The draft Bill has received widespread support
and recognition from all sectors of the industry, including bodies representing
contractors, subcontractors, suppliers, interstate adjudicators, nominating
authorities, specialist legal practitioners and private businesses (both large
and small).
The representative bodies include the Building and Construction Industry Council,
the Australian Institute of Architects, the Air Conditioning & Mechanical
Contractors Association of Tasmania Limited and Master Plumbers Association
of Tasmania.
Mr Speaker, this Bill is based on that Draft Bill and public comments received
from stakeholders.
Mr Speaker, the Bill addresses what is commonly known in the building and construction
industry as the 'security of payment
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problem'. This problem occurs when the contractors, subcontractors and suppliers
in the building and construction industry are unable to secure just payment
in a timely fashion or sometimes to get paid at all, for the work performed
or goods and services supplied, despite in most cases, having the contractual
right to that payment.
Because much of the building and construction industry operates under a system
of hierarchical contract chains, the industry is particularly vulnerable to
security of payment problems. The failure of any one party in the contractual
chain to honour its obligations can have a flow-on effect on other parties further
down the chain by restricting cash flow and ultimately causing their bankruptcy.
There have been a number of inquiries into the security of payment problem in
Australia. In general, these reviews have concluded that the security of payment
problem was a matter that warranted government action. A consistent theme of
all
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the reviews was that traditional legal remedies do not provide adequate protection
to subcontractors and suppliers. These reviews initiated government reforms
in other states and New Zealand. All states and territories, except Tasmania,
have legislated to address the security of payment problem in their building
and construction industries. South Australia has tabled a Bill and the Australian
Capital Territory is soon to debate their Bill.
The Tasmanian Security of Payment Bill implements many of the recommendations
contained in the report Security of Payment in the Tasmanian Building
and Construction Industry which was developed by consultants Stenning
and Associates, released for public comment in October 2006. The report was
commissioned in response to industry representations and supported by the Tasmanian
Building and Construction Industry Council.
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This report determined that many participants in the building and construction
industry are under capitalised, resulting in a significant reliance on cash
flow to sustain their business operations.
The report confirmed that the Tasmanian building and construction industry often
experiences serious security of payment problems.
In developing the report a survey of small businesses found that 43% of those
surveyed reported problems with receiving payment owed during the previous financial
year.
In the sample of businesses surveyed, security of payment problems had affected
over $37 million dollars of revenue flow in the previous financial year.
The most common problem experienced by businesses was late payment (81%). Around
48% said they had experienced
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partial payments and an alarmingly 43% said they had experienced non payment.
The Bill I put before the house today is based on the Building and Construction
Industry Security of Payment Act 1999 of New South Wales. A key departure from
the policy outcomes contained in the New South Wales Act is the ability for
contractors to make a payment claim against the contract Principal when that
person is a residential home owner.
This departure is seen as necessary to ensure that all participants in the building
and construction industry are treated equally.
Additional mechanisms are introduced by the Bill to ensure residential contract
Principals with no experience of building and construction contracts (for example,
home owners) are afforded special consideration for their lack of experience.
These mechanisms include mandatory warnings on claims and
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an increase to 20 business days to consider the content of a progress payment
claim, rather than the 10 days afforded building practitioners. This additional
time is provided to allow these non practitioners to consider their options
and if necessary to seek assistance or advice concerning the claim process.
The additional mechanisms are not extended to owner builders registered
under the Building Act 2000 because they are considered to be a building practitioner.
The parties who will be most affected by the legislation will be those who,
for their improper financial benefit, delay making legitimate progress payments.
This Bill gives claimants a quicker and cheaper means of enforcing payment.
It enforces interim payments to keep money flowing during the contract.
Final financial adjustments are made at the end of the contract under the terms
of the contract.
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Mr Speaker, I shall now describe in more detail the major features of this Bill.
Some building or construction contracts do not explicitly provide for progress
payments. A building or construction contract will now have to include provision
for making progress payments and for determining the amount of each progress
payment, otherwise these matters will be covered by the default provisions in
the Bill.
If the contract does not cover these matters, Part 3 of the Bill provides that
payment claims can be made for work carried out or goods and services supplied
up to the last day of each month. For building practitioners, payment becomes
due 10 business days after the claim is made. In the case of an owner of a residential
building who is not a building practitioner, this claim period is extended to
20 business days.
If the construction contract is silent on how a payment is to be valued, the
Bill provides that the amount is calculated on the
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basis of the value of the work carried out and related goods and services provided.
Mr Speaker, some existing subcontracts provide that a subcontractor is not entitled
to be paid until the principal pays the contractor, even though the principal
is late in paying or withholds payment on account of something unrelated to
the subcontractors performance. The Bill bans these pay-when-paid
contractual clauses.
When a payment claim is made, and the other party, called the respondent, does
not intend to pay the full amount of the payment claim, it must issue a payment
schedule stating the amount, if any, of the payment claim which will be paid
and the reasons for not paying the amount claimed.
The payment schedule alerts the claimant to the existence of a dispute over
payment and allows the claimant to immediately commence an adjudication process
available under the
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legislation. This is a critical component of the Bill as it provides a statutory
early warning to claimants that the respondent does not propose to pay their
claim in full.
Mr Speaker, to provide the incentive for early warning to be given, the respondent
must pay the full amount of the payment claim when it becomes due for payment
under the contract if a payment schedule is not given within time. The claimant
can also seek payment of that debt by way of proceedings in a court.
The respondent cannot raise defences of defective work or cross-claims in order
to delay judgment in these proceedings, therefore ensuring a prompt decision
by the court.
Mr Speaker, the Bill provides a much faster adjudication process by giving an
interim decision on disputes over progress payments, and fixing the amount of
the debt. In addition, if a payment schedule is not given within time, the
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party entitled to payment is given a right to suspend construction work. The
right to suspend work also exists if a payment made is less than the amount
which a payment schedule states will be paid.
The payment schedule is akin to the architects progress certificate which
is typically provided for in construction contracts. In adjudication under the
Bill, the respondent is unable to raise defences, set-offs or cross-claims which
have not been identified in the payment schedule. This means that the respondent
must treat payment schedules with the utmost care. The Bill prevents parties
from contracting out of the effects of either providing or not providing a payment
schedule or the adjudication which can follow a dispute over a payment claim.
To ensure a claimant does not delay in initiating the adjudication process,
the claimant has only 10 business days after receiving a payment schedule, and
20 days if the
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respondent lodges a payment schedule and does not pay, in which to give notice
requiring adjudication under the legislation. If the claimant fails to make
the adjudication application within time, the claimant forfeits the right to
the adjudication available under the Bill. The claimant also forfeits the right
given by the Bill to suspend work. However, other dispute resolution processes
in the contract or provided by law are not affected.
The adjudication application is simply a notice in writing identifying the relevant
payment claim and payment schedule and stating that the claimant requires adjudication
under the Act. The claimant can include reasons why the full amount of the payment
claim should be paid and why the respondents reasons in the payment schedule
for not paying are not justified. The claimant sends the adjudication application
to an authorised nominating authority. At the same time, a copy of the application
must be served on the respondent.
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The adjudicator must be a person acting independently. Clauses 35 and 36 provide
for the disqualification of adjudicators if they have a material personal interest
in a building or construction contract, dispute, or a party to the contract
to which and application relates.
An authorised nominating authority is an individual or organisation approved
by the Security of Payments Official. The Security of Payments Official is established
under the Act to be the Director of Building Control or a person appointed by
the Minister. There are presently a significant number of nominating authorities
established under interstate laws. It is expected that these organisations will
apply to be approved as authorised nominating authorities in Tasmania. It is
also expected that in future Tasmanian based nominating authorities and adjudicators
will be established. The Security of Payments Official may decide to withdraw
approval of any authorised nominating authority or impose conditions if it is
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unable or unwilling to properly perform the role of a nominating authority.
An appeal is available to the Magistrates Court (Administrative Appeals Division)
against the refusal of the Security of Payments Official to authorise a person
as a nominating authority or to set a condition or withdraw authorisation.
The claimant is free to use any authorised nominating authority. If a claimant
does not receive notice of acceptance of an adjudication application within
four business days, the claimant can present their adjudication application
to any other authorised nominating authority.
The respondent can make the response up to a maximum of 10 business days after
receiving a copy of the claimants submission to the adjudicator or 5 business
days after receiving a copy of the notice of the adjudicators acceptance
of appointment, whichever is the later. The response must
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contain any submissions which the respondent wishes the adjudicator to consider
when the adjudicator decides the claimants adjudication application. If
the respondent does not lodge the response in time, it cannot be considered
by the adjudicator. The adjudicator will then proceed to make a determination
only on the information provided by the claimant.
Mr Speaker, this date will be the date for payment prescribed by the building
or construction contract or, if no date is prescribed, either 10 days after
the payment claim was made by a building practitioner or 20 days in the case
of a residential building owner.
As the respondents submission must be confined to reasons, amounts and
grounds for withholding payment which were stated in the payment schedule and
any related issues raised in the claimants submission, the ambit of the
dispute to be
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decided is fixed by two documents, namely, the payment claim and the payment
schedule.
Mr Speaker, normally payment of the adjudicators fees is shared equally
by the disputing parties. However, a party could ask the adjudicator to make
a different apportionment. The adjudicator would have to give the other party
an opportunity to make a submission on this point.
Neither party is entitled to recover from the other the costs of preparing or
making its submissions to the adjudicator.
Usually, if payment is not provided within 5 business days after the adjudicators
decision, the claimant can suspend work but must give 2 business days notice
of an intention to do so. The claimant can also register the adjudicators
decision in a court and obtain a court judgement.
In summary, the time frames set out by the Bill for responding to a payment
claim and for the making of adjudication are tight
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and aimed at ensuring that the disputes under this proposed legislation are
resolved rapidly and at minimal expense to the parties.
The adjudication process for building practitioners should be completed within
6 weeks of the claimant receiving notice that a progress claim will not be paid
in full. The process is slightly longer (8 weeks) if the claim is against an
owner of a residential building.
If, without the consent of both parties, the adjudicator fails to make a decision
within 10 business days, the adjudicator forfeits any right to payment and the
claimant can proceed to have another adjudicator nominated.
Adjudication provides the claimant with important benefits: a prompt interim
decision on a disputed payment, impartial assessment of a disputed payment,
and the opportunity to
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progress the matter as a judgement for a debt in court. Failure to pay will
also allow the claimant to suspend work.
The Bill does not specifically provide for an appeal from an adjudicators
decision. The adjudicators decision is only an interim decision until
the final amount due in respect of the payment claim is finally decided in legal
proceedings or in a binding dispute resolution process.
The right to suspend work given by this Bill is in addition to any other right
to suspend work. Sometimes a building or construction contract contains an express
right to suspend. Such a right will not be affected by this Bill. Generally
speaking, the common law does not allow a contractor to suspend work simply
because the other party has failed to make a payment on time. This Bill changes
the common law by providing such a right.
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There are limitations on the exercise of this right. Firstly, work can only
be suspended on account of non-payment of an undisputed payment claim or adjudicators
decision. Secondly, time for payment must have passed and a notice of intention
to suspend must have been given. Suspension cannot commence until 2 business
days after such a notice is given. The suspension must be lifted if the respondent
pays the debt.
This Government committed itself to the introduction of this important legislation
during this sitting of the Parliament. In fulfilling this commitment on behalf
of the Government, I am pleased to note that the building and construction industry,
and particularly subcontractors, will benefit substantially from the implementation
of this legislation.
Mr Speaker, I commend this Bill to the House.