Bills

Building and Construction Industry Security of Payment (Authorised Nominating Authorities) Amendment Bill

Introduction and First Reading

Mr KNOLL (Schubert) (10:31): Obtained leave and introduced a bill for an act to amend the Building and Construction Industry Security of Payment Act 2009. Read a first time.

Second Reading

Mr KNOLL (Schubert) (10:31): I move:

That this bill be now read a second time.

I rise today to bring forward my first amendment to an act of this place. The change I am seeking to put in, I think, is quite a straightforward, common-sense solution to what has been a longstanding problem that has existed within the construction industry. The Building and Construction Industry Security of Payment Act provides for a process to deal with payment disputes in the construction industry—an industry that has particular issues due to its nature and its structure.

It is an industry that has a series of interrelated parties that can sometimes have stressed relationships. When you have head contractors taking on building jobs to build sometimes simple and sometimes quite complex buildings, and then subcontracting that work out to various other entities, or, indeed, subcontractors who also then further subcontract work out, you have a very complex, interrelated set of entities on a singular task. That, by its very nature, creates issues that need to be dealt with in a regulatory sense.

The intent of the act is to provide a mechanism to deal fairly and efficiently with disputes around payment. Unfortunately, this mechanism is not always used fairly and efficiently and has drawn a lot of criticism. There are documented issues with the current system that need to be fixed. There is often a claim within the Building and Construction Industry Security of Payment Act of bias towards subcontractors who, through the current system, essentially shop around for an authorised nominating authority that is going to provide them with the outcome they seek.

That bias, in turn, creates an enmity with the two parties, between head contractors and subcontractors, where there is not faith and trust put in the process. What ends up happening is that there is often a breakdown of the relationship between head contractors and subcontractors through having used this process or, indeed, been antagonised through the current system.

Regardless of that fact, if the security of payments process is used successfully, it can help to fix the issues that exist within the industry. But what needs to happen is there needs to be trust in this process. I would like to quote from the Society of Construction Law, which did a really large review into this in 2014 and came up with some fairly strong information that does feed into some of the issues that I am seeking to deal with as part of this amendment. They say in their executive summary that the model we have here:

contains some problematic features...

If there is a payment schedule, the claimant can choose an 'ANA', usually a for-profit company which has advertised its service to potential claimants, and the ANA then appoints an adjudicator, who is an individual who may have no professional qualifications, but who has agreed to pay up to 40% of his adjudication fee back to the ANA which appoints him.

They go on to say:

The system is susceptible of unfairness, in that it is in the commercial interests of the ANAs and hence their appointees to aim their marketing at their prospective applicant clients. [Society of Construction Law's] research has revealed the following:

Cases of bias and breaches of natural justice (always favouring the claimant) are frequent. In cases in which the victims are willing and able to put up significant legal cost of challenging the determination, the courts are increasingly finding that the determinations are fundamentally flawed. Last year (2013), 80% of the determinations that were challenged in the court were quashed.

So, 80 per cent of the determinations made, when challenged by a higher court, were quashed, and that shows some fundamental flaws in the current system. They go on to say:

Determinations are not trusted as reliable by the industry. Major contractors typically escape the application of the legislation simply by making it clear that they will not place contracts with subcontractors who use the legislation. The victims of this system are thus typically smaller, less well-resourced businesses.

I think that is a fairly strong and damning indictment. What they further go on to say, and this is the part of it that I think really needs to be fixed and is what I am attempting to fix through my amendment, is:

Another aspect of the unfairness of the process is that its use typically spells the end of the commercial relationship between the parties. Instead of mending fences, the toxicity of the process is typically fatal to any prospect of the claimant ever working with the respondent again.

Basically, the longer this legislation as it currently stands is allowed to stay in place, the more we are going to see frustration, breakdown and dysfunctionality within our construction industry. I think it is incumbent upon us in here to fix these issues.

The government did make an attempt, and when I say 'did make an attempt', it was mandated when the original 2009 act was put in place for there to be a review into the act. The government duly put together that review. They commissioned Retired District Court Judge Alan Moss to undertake the review. Alan Moss came back and presented his findings to cabinet on 11 March last year, and I note that we have just hit the 12-month anniversary of cabinet first seeing these documents.

Alan Moss's review goes through to deal with a whole number of issues, but the first and probably most important recommendation that the retired judge makes is in relation to the appointment of authorised nominating authorities. Indeed, his first recommendation is the following:

(a) That the Minister withdraw all authority of the current ANAs...

(b) That the Minister appoint the [Small Business Commissioner], upon the [Small Business Commissioner's] application, to be the sole ANA...

(c) That the [Small Business Commissioner] should give such information, or advice, or offer mediation to would be claimants under the Act as he considers consistent with his legislative charter.

(d) That all applications for adjudication be made to the [Small Business Commissioner] as the sole ANA.

I think that is an entirely sensible suggestion. I think that cabinet would have thought that this was an entirely legitimate suggestion. But, indeed, here we are 12 months on from that review being submitted to cabinet and we still do not have an answer.

We did get a conversation of sorts; I will not call it an answer. On 30 June last year, the Minister for Mineral Resources and Energy and also the Minister for Small Business came into this place and tabled the review. He then made a ministerial statement where he goes on to say the following:

There remains considerable concern within sections of the industry about the imbalance of power between subcontractors and head contractors, and Mr Moss was presented with evidence of behaviours of some parties which show the industry is a long way from best practice when it comes to a smooth payment process.

He goes on to say:

I will provide the house with further updates on the Building and Construction Industry Security of Payment Act 2009 as they become available.

We sit here nine months on from a ministerial statement that says, 'I will come back with further updates,' and we are still waiting. The longer this goes on, the further and further the industry is going to descend into dysfunction because of the inaction of this government, which is why I felt compelled to bring an amendment bill to this place. In the same ministerial statement, the minister also goes on to place on the record that:

…the failure of Tagara is of…concern to the state government. The Small Business Commissioner spoke to Tagara liquidators, Clifton Hall, on Monday, 29 June, who advised that a meeting of creditors was scheduled to be held on 14 July 2015. Contact will continue with liquidators to establish the cause of Tagara's collapse…

The minister has tied those two things together. He has tied together two issues—the collapse and liquidation of a builder and a review into changes proposed for the security of payments act. I think he did that deliberately. Indeed, the collapse of Tagara and the collapse of other builders that we have seen subsequently is an issue for that industry but, once again, even after having conducted a review highlighting the issue in this place, the government has now sat down and done absolutely nothing about it.

What I would like to do now is discuss the changes that I seek to bring forward. The main crux of what we need to fix here is the claims of bias. Even if those claims are not always substantiated, if there is a lack of trust within the industry in the security of payments process, then the process is failing. Fundamentally, the process needs to be viewed and trusted by all sides as a legitimate way and an unbiased way of dealing with the issues that exist.

The change I am proposing as part of this amendment bill is to do what Alan Moss wanted to do in his review and that is to make the Small Business Commissioner the only authorised nominating authority. It gives the Small Business Commissioner the ability to appoint a pool of adjudicators from which security of payments disputes can be mediated.

As part of this, we are calling for adjudicators to be appointed to cases on a random basis, It cannot be that adjudicators are plucked to fit a specific case because, as is currently the case, they are probably the ones who are going to get the right outcomes for the claimant. Appointing adjudicators on a random basis can help to deal with that claim of bias and that institutionalised bias that exists under the current system.

I do agree that there are considerations that the Small Business Commissioner will have to make in relation to the qualifications and experience of these individual adjudicators as to when they are going to be able to apply to different cases, but in my view, there has to be a principle that these adjudicators are appointed randomly, to get rid of those claims of bias. To further get rid of the claims of bias, I am proposing to create a panel of five members, with at least one of those members representing the interests of head contractors and one representing the interests of subcontractors.

The idea behind this is to give this panel the power to review the appointment of adjudicators. By consulting industry, by having people representing the two sides of the debate on this issue being part of a process to review adjudicators and by giving them a seat at the table, we will show them that the process can and should be fair and also give them the ability to ensure that the process is fair.

The functions of the panel will be to oversee the pool of adjudicators appointed; to inquire into the suitability of individual persons to be, or to continue to be, adjudicators for the purposes of the act; and to make recommendations and give advice to the Small Business Commissioner in relation to adjudication under this act. The adjudication review panel may also recommend to the Small Business Commissioner that a specific person be removed from the pool of adjudicators established under section 18.

Essentially, it gives that panel of five the ability to veto those whom they believe, and whom the majority believe, have a claim of bias. That panel will also be able to give advice to the Small Business Commissioner, because one of the issues that has been raised is that, because the commissioner is there to represent small business, the Small Business Commissioner may also potentially have a bias.

The idea behind putting in this panel is so it can counter that potential and, I believe, unfounded claim of bias against the Small Business Commissioner. So the panel will be there, we will be able to review and oversee and we will be able to direct the Small Business Commissioner in relation to specific individuals, thereby dealing with that claim of bias.

In the model that I am presenting as part of this amendment, I believe that we have been able to come to a compromise that will, by its very nature, be able to have a process that all parties can have faith in. This amendment can put together a process which, if claimants and defendants go through this process, at the end of it they will actually still be able to do business together because they will have gone off to an independent arbiter who they both have trust and faith in, have received an outcome and then go back.

What I would like to say in closing my remarks is that the review into security of payments highlighted a whole range of issues—a vast range of issues—and, indeed, my research on this topic shows that the issue that I am seeking to deal with here is, in my view, the most important and the most fundamental, but certainly only one part of a whole series of changes that need to be made.

In bringing this amendment to the house I would open it up for consultation, and I welcome feedback on the model that I am seeking to propose here today, but also to push the government to act on the remaining recommendations in Alan Moss's review and to act on the concerns that other industry partners have put to the government. It is high time for the government to get its act together and deal with this issue in a timely manner. We have an industry that is continuing to slide into dysfunction. The government has the power to act, it has the obligation to act, and I look forward to seeing, in a very timely manner, its response to the wide range of criticisms in relation to security of payments.

Debate adjourned on motion of Hon. T.R. Kenyon.