Building and Construction Industry Security of Payment (Review) Amendment Bill

Introduction and First Reading

The Hon. M.L.J. HAMILTON-SMITH (Waite—Minister for Investment and Trade, Minister for Small Business, Minister for Defence Industries, Minister for Veterans' Affairs) (12:01): Obtained leave and introduced a bill for an act to amend the Building and Construction Industry Security of Payment (Review) Amendment Bill. Read a first time.

Second Reading

The Hon. M.L.J. HAMILTON-SMITH (Waite—Minister for Investment and Trade, Minister for Small Business, Minister for Defence Industries, Minister for Veterans' Affairs) (12:02): I move:

That this bill be now read a second time.

I seek leave to have the second reading explanation inserted in Hansard without my reading it.

Leave granted.

In December 2015, the Senate Economic References Committee Inquiry into Insolvency in the Australian Construction Industry found that 'it is a fundamental right of anyone that performs work in accordance with a contract to be paid without delay for the work they have done.'

When it was enacted in 2009, the Building and Construction Industry Security of Payments Act 2009 (the Act) was intended to ensure that a person who carries out construction work or who supplies related goods and services, under a building or construction contract is entitled to receive and able to recover progress payments for carrying out that work, or supplying those goods and services.

Under the regime of the Act, a claimant is deemed to be entitled to payment on a claim pursuant to the Act, unless the respondent provides a 'payment schedule' setting out how, or why, payments will be made, or withheld.

If the claimant is dissatisfied with the payment schedule offered by the respondent, the claimant can take the matter to 'adjudication' via an Authorised Nomination Authority that will appoint an Adjudicator.

Alternatively, if the respondent simply fails to provide a payment schedule, or provides a payment schedule but fails to pay in accordance with it, then any unpaid part of the claim automatically becomes a debt that is able to be enforced through a Court.

I am now able to advise the government has, through the Office of the Small Business Commissioner, undertaken a comprehensive review of this legislation across two extensive tranches of industry and stakeholder consultation.

As is evidenced by this lengthy consultation and review process, the government is determined to improve this legislation by making the processes under it less ambiguous, more transparent and broadly improving accessibility for participants that encounter issues with payments under building and construction contracts.

As important, will be the improved confidence of industry participants in the process given the serious concerns that had been flagged by the Small Business Commissioner about the ability of some sub-contractors to achieve payment, whilst head-contractors broadly contended that the process is unfair, and in some cases, biased against them.

I expect these amendments within the Bill to contribute to improved operation and efficacy of the updated legislation, in line with the broader industry's consultation and expectations. Indeed a number of the proposals within the Bill simply make common sense such as some simple changes to better clarify the Christmas shutdown period.

I will now briefly advise the House of the review process that has been undertaken.

The State Government was obliged by legislation to commence a review of the Act by December 2014. That review was initiated on behalf of the former Minister for Small Business, by the Small Business Commissioner.

Former District Court Judge, Alan Moss undertook an initial review of the Act and formulated a suite or recommendations in the 'Moss Review'. After considering the 24 submissions received, the Government tabled the Moss Review in the Parliament on 12 May 2015.

However, following on from the collapse of Tagara Builders in June 2016, the Small Business Commissioner instigated another tranche of consultation with industry, industry associations and key stakeholders on 16 specific proposals – a number of which built upon the recommendations made in the Moss Review. That two-month consultation period closed on 19 August 2016 with 37 submissions being received.

Legislative changes

The Bill will execute the following legislative changes to the Act:

The Bill inserts into the Act new sections 7A – Administration of Act and section 7B – Commissioner's functions.

Section 7A formally allocates the responsibility for the administration of the Act to the Small Business Commissioner's. Section 7B then sets out the Commissioner's functions under the Act in some detail. This will provide greater transparency of the operation of the adjudication process and assist in educating subcontractors and other building industry participants of the positive outcomes which can be achieved by using the Act.

Importantly, the Bill inserts penalty provisions against 'persons' (natural or corporate) utilising harassment, intimidation, coercion or otherwise applying undue influence or pressure to a person that is seeking payment under these laws.

Maximum penalties will be – in the case of an individual—$50,000 or imprisonment for 2 years, or both; and for a body corporate—$250,000.

As recommended by Mr Moss in his Review, the Bill will also insert a provision to enable the Small Business Commissioner to publish adjudications made under the adjudication arrangements of the Act. This will add further transparency to the sometimes opaque payments arrangements that occur in the building and construction sector.

The Bill clarifies the Christmas shutdown period in section 4 to (as proposed by Master Builders Association) to exclude any day that falls between 22 December in any year and 10 January in the following year. This measure will clarify that period within the building and construction sector, as well as preventing any 'ambush' claims by construction workers on the eve of the traditional industry shut down period.

The Bill will also reorganise the ANA Authorisation regime that currently applies to the 7 ANAs which are authorised within South Australia. The new regime will place some light-handed rigour and oversight to the 'open-ended' authorisation arrangements that were implemented when the legislation became operational in December 2011. The Bill provides the Commissioner with some greater oversight of the arrangements for both ANAs and the adjudicators that operate under them.

Non Legislative changes

There are three non-legislative measures that are proposed as part of the review of the Act. Briefly, they can be described as follows:

The establishment of an ongoing Education Program to promote the legislation and educate the broader industry

In his review, retired District Court Judge, Mr Alan Moss found that 'There were a number of submissions that subcontractors were unaware of the Act and that Government and industry bodies should do more to promote its use.'

Where any legislation is being changed significantly, it is imperative that those that will be impacted by those laws are educated about the changes by the Government. This is even more the case when a new offence is being enlivened – one that could result in heavy penalties and/ or imprisonment.

The Education Program will need to be ongoing because of the ever-changing nature population of the building and construction industry within the State. At the contractor and sub-contractor levels—the levels where late payment or non-payment most often occurs—there is a significant rate of 'churn' within this industry – the 3rd largest in the State.

New participants enter the building and construction industry all of the time. These might be small start-ups such as a newly qualified tradesman that has set him or herself up as a new contractor. It is these types of businesses that are extremely vulnerable to late payment, non-payment or intimidation and coercion.

It is these businesses that need to access education about their rights to payment for work done and the protections that can be afforded to them by this (amended) legislation.

The role of the Education Officer tasked with delivering this Program will have a much broader role than merely educating the industry on the legislative changes to the Act. This Officer will also:

engage closely with relevant industry associations (including the Master Builders Association (SA), the Housing Industry Association (SA), the Civil Contractors Federation (SA) and Business SA) to support the delivery of information, education and resources to industry participants;

conduct regular information sessions for sub-contractors;

prepare marketing materials including on-line and social media;

coordinate the investigation of complaints of harassment, intimidation, coercion or otherwise applying undue influence or pressure of a person seeking payment under the Security of Payment laws (as set out in the Bill below) ;

oversee the operations of ANAs under the proposed new arrangements proposed (also as set out in the Bill below) ; and

investigate complaints made under the Act, as well as providing advice and support to the Commissioner on complaints that might be made under the proposed new Building and Construction Industry Code under the Fair Trading Act 1987 (as Proposal 1.7).

The Small Business Commissioner will work cooperatively with the Industry Participation Advocate to develop a policy that will effectively impose a 'good behaviour' test for principal contractors who bid for Government projects of $4 million and above for the metropolitan area and $1 million and above for regional areas.

In recent times the Small Business Commissioner has had dealings with one particular subcontractor who has a $3.5 million claim against a large principal contractor in another state.

The question that this subcontractor has constantly asked is, 'why do these people who behave so badly keep getting government contracts in South Australia?'

As part of the development of this Policy, the Small Business Commissioner will consult with relevant government agencies to define this 'good behaviour' test which will be broadly consistent with current Industry Participation Advocate thresholds for local participation assistance.

A Building and Construction Industry Code will also be developedunder the Fair Trading Act 1987. This Code will mirror the 4 existing Industry Codes (Farming, Newsagency, Motor Vehicles and Franchising) that are in place and will provide the Small Business Commissioner with extra powers to compel disputing parties to participate in an alternative dispute resolution, which will include mediation.

Alternative dispute resolution (ADR) gives parties the opportunity to work through disputed issues with the help of a neutral third party. ADR is generally faster and less expensive than going to court.

One of the main benefits of ADR is that the process puts the parties in control (rather than their lawyers or the court) by giving each party an opportunity to tell their side of the story, and have a say in the final decision.

The SBC currently monitors the following industry codes:

Farming Industry Dispute Resolution Code

Motor Vehicle Industry Dispute Resolution Code

Newsagency Industry Dispute Resolution Code

Franchising Industry Dispute Resolution Code

Each Industry Code promotes the successful resolution of industry related disputes in a streamlined and defined manner. Each Code provides mandatory alternative dispute resolution processes at no or low cost to participants.

The SBC has a variety of powers under each Code to assist in resolving a dispute. Parties can be compelled to:

attend meetings;

exchange information;

answer questions; and

participate in an alternative dispute resolution processes.

Another Code provision (as contained in existing Codes) is the ability of the SBC to engage a technical expert to help resolve disputes.

There are two levels of penalties for breaches of the four Industry Codes under the Fair Trading Act 1987. On one level, the SBC can issue a civil expiation notice for breaches of a particular Code, or alternatively, the SBC may take court action to obtain a civil penalty of up to $50 000 for a corporation or $10 000 for a natural person.

The proposed Building and Construction Industry Code would give the SBC the same powers as the existing Industry Codes, with mandatory requirements for parties to assist and participate.

Having now contributed significant resources into the two tranches of consultation, the retail and commercial leasing sector arguably has a legitimate expectation of the legislation being amended and thereby improved.

I commend this Bill to the house and seek leave to have the explanation of clauses inserted in Hansard without my reading it.

Explanation of Clauses

Part 1—Preliminary

1—Short title

2—Commencement

3—Amendment provisions

These clauses are formal.

Part 2—Amendment of Building and Construction Industry Security of Payment Act 2009

4—Amendment of section 4—Interpretation

Definitions are inserted for the purposes of the measure.

5—Insertion of sections 7A and 7B

New sections 7A and 7B give the Small Business Commissioner responsibility for the administration of the Act and set out functions.

6—Amendment of section 29—Nominating authorities

Certain amendments to this section insert a new scheme for the Minister to grant persons authority to nominate adjudicators for the purposes of this Act. Authorities will be granted for a term of up to 5 years and on conditions determined by the Minister.

The Minister may limit the number of persons who may be authorised and can revoke an authority in certain circumstances.

Other amendments provide for the Commissioner to obtain copies of adjudication applications or other information from authorised nominating authorities.

7—Insertion of sections 32A and 32B

New section 32A provides for an offence relating to assaulting, threatening or intimidating a person in relation to progress payments.

New section 32B supports the new offence by providing that the conduct and state of mind of an officer, employee or agent of a body corporate acting within the scope of his or her actual, usual or ostensible authority will be imputed to the body corporate.

8—Insertion of section 33A

New section 33A provides that neither the Commissioner nor the Crown incurs any liability for the publication by the Commissioner in good faith of a determination of an adjudicator in relation to an adjudication application (in accordance with the Commissioner's function to publish such adjudications).

9—Repeal of section 36

Section 36 provided for a review of the Act 3 years after it commenced operation. The provision is spent and is being repealed.

Schedule 1—Transitional provisions

1—Revocation of authorisations

In connection with the amendments to section 29 of the Act in clause 6 (above), existing authorisations under that section are revoked. Despite the revocation of authorisations, the transitional provisions allow for authorised nominating authorities to complete determinations of adjudication applications made before the commencement date.

Debate adjourned on motion of Mr Pederick.