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

Introduction and First Reading

The Hon. V.A. CHAPMAN (Bragg—Deputy Premier, Attorney-General, Minister for Planning and Local Government) (16:32): Obtained leave to introduce a bill for an act to amend the Building and Construction Industry Security of Payment Act 2009 and to make related amendments to the Building Work Contractors Act 1995 and the Plumbers, Gas Fitters and Electricians Act 1995. Read a first time.

Second Reading

The Hon. V.A. CHAPMAN (Bragg—Deputy Premier, Attorney-General, Minister for Planning and Local Government) (16:33): I move:

That this bill be now read a second time.

I am pleased to introduce the Building and Construction Industry Security of Payment (Review Recommendations) Amendment Bill 2021. The bill will make a raft of amendments to the Building and Construction Industry Security of Payment Act 2009 aimed at ensuring better payment practices and improved cashflow for businesses and making related amendments to the Building Work Contractors Act 1995 and the Plumbers, Gas Fitters and Electricians Act 1995.

The cascading nature of contracting within the building and construction industry and imbalances of power in contractual relationships—for example, between a large head contractor and smaller subcontractors—still pose significant problems in the industry. These issues are highlighted in the report of Mr John Murray AM, entitled, 'Review of security of payment laws: building trust and harmony'. That was back in 2017, but it seems even longer ago than that. Hereinafter, I refer to it as the Murray review. The Murray review reports at page 12:

This hierarchical contractual chain leaves subcontractors not only vulnerable to the consequences of late payment (and therefore having to draw on their own sources of finance, such as overdraft facilities, to meet payment obligations to suppliers and their employees), but also to the risk of insolvency of parties higher up the pyramid.

The Building and Construction Industry Security of Payment Act 2009 establishes a statutory scheme to promote prompt payment to enable a flow of cash down the contractual chain. The statutory scheme ensures that a person who carries out construction work, or who supplies related goods and services under a construction contract, is entitled to receive and able to recover progress payments for carrying out that work or supplying those related goods and services. It also provides a mechanism for the adjudication of payment disputes in the building and construction industry to ensure the rapid resolution of these disputes.

The Building and Construction Industry Security of Payment Act 2009 has not undergone amendment since its commencement. The government is committed to taking action to ensure better payment practices in the industry and to improve protections provided through the progress payment claim procedure and adjudication process. The bill has been informed by a comprehensive consultation process, in addition to the consultation that occurred as part of the Murray review, which I have previously referred to.

The government also undertook an eight-week consultation process by releasing a draft bill for public comment in December 2019. The broad measures in the bill are designed to:

1. Extend the application of the Building and Construction Industry Security of Payment Act 2009;

2. Promote better payment practices in the industry;

3. Improve the power imbalance between head contractors and subcontractors; and

4. Strengthen the integrity of the adjudication process.

The more significant changes include reforms in relation to the application of the act and administration of the act, including:

extending the application of the act to construction contracts relating to residential premises, where the party for whom the work is carried out resides or will reside in those premises;

new provisions making it clear that the Small Business Commissioner is responsible for the administration of the act and outlining the Small Business Commissioner's functions; and

amendment to the definition of the 'business day' to take into account the Christmas-new year closure period, which is generally observed by the industry.

Reforms to the area of progress payments, payment claims and payment schedules include as follows:

clarification and improved protections in relation to the timing of when a person is entitled to a progress payment;

strengthening protections in relation to when a progress payment becomes due and payable;

outlining further requirements to be included in a payment claim to ensure relevant information is provided to the person liable to make payment;

expressing requirements in relation to the timing of the service of a payment claim that relates to a final payment;

introducing requirements related to supporting statements and payment claims;

improvements to the requirements relating to payment schedules, in particular by introducing a form to make it easier for a person on whom a payment claim is served (that is, a respondent) to respond; and

the timing in relation to when a respondent becomes liable to pay the claimed amount has been amended to make it consistent with other jurisdictions adopting the same model of security of payment legislation.

Reforms to the adjudication process include:

extending the right to adjudication to parties unable to reach agreement about the return of retention money or any form of security held by a party to the contract in accordance with the requirements to be outlined in the regulations;

amending the timing in respect of lodging an adjudication application in certain situations;

introducing a new process for the referral of adjudication applications to an adjudicator, where the Small Business Commissioner will have an increased role and greater oversight of that process;

amendments to the time frames and notification procedures as a result of the new process for the referral of adjudication applications;

introducing the ability for an adjudicator to grant an extension of time for lodging an adjudication response;

inserting a provision making it clear that an adjudicator must make a determination as to whether the adjudicator has jurisdiction to determine the application before determining the application; and

clarifying the circumstances where a claimant may withdraw from adjudication and the notification procedures.

Reforms to improve oversight of adjudicators and Authorised Nominating Authorities include:

the introduction of a registration scheme for adjudicators administered by the Small Business Commissioner, which provides for:

the registration and renewal, suspension or cancellation of a registration;

an appeals process, where a person dissatisfied with a certain decision of the Small Business Commissioner relating to the registration scheme may appeal to the Administrative and Disciplinary Division of the District Court; and,

grading of adjudicators in accordance with guidelines to be published in the Gazette and the Small Business Commissioner's website.

strengthening of the authorisation process by Authorised Nominating Authorities, including a requirement for the renewal of an authority;

inserting a provision to enable the introduction of a code of conduct by an Authorised Nominating Authority and adjudicators;

inserting a power to enable the Small Business Commissioner to publish a determination made by the adjudicator if the information does not identify any person or disclose the address or location of that person, and the identity, address or location of any person referred to in the determination cannot reasonably be determined from the information.

Reforms to strengthen the protections around threatening or intimidating behaviour and unreasonable contractual terms include:

making it an offence to directly or indirectly insult, threaten or intimidate, or attempt to assault, threaten or intimidate, a person in relation to an entitlement or claim for a progress payment; and

making void certain provisions in contracts if the requirement to give notice would not be reasonably possible or be unreasonably onerous or serve no commercial purpose.

Reforms aim at monitoring the operation of the act by:

inserting an express obligation on the Small Business Commissioner to provide an annual report to the minister on the operation and effectiveness of the act; and

requiring the minister to undertake a review of the reforms in this bill.

The bill includes transitional provisions in relation to the application of the reforms to construction contracts, adjudications, persons eligible to be adjudicated before commencement of the reforms and Authorised Nominating Authorities that have been granted an authority before commencement of the reforms.

Finally, the related amendments to the Building Work Contractors Act 1995 and the Plumbers, Gas Fitters and Electricians Act 1995 allow a prescribed proportion of the contractor licence fees to be paid to the Small Business Commissioner. The prescribed proportion is intended to be $10, indexed over the forward estimates, which will be added to the contractor licence fees. The additional revenue generated by the prescribed proportion will be transferred from the Commissioner of Consumer Affairs to the Small Business Commissioner towards the administrative and regulatory costs associated with carrying out functions under the act.

With all that, I commend the bill to members and I seek leave to insert the explanation of clauses without my reading it into Hansard.

Leave granted.

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

This section inserts and updates definitions in the Act to support the provisions in this measure.

5—Amendment of section 7—Application of Act

This amendment removes a prohibition in section (7)(2) of the Act to enable the Act to apply in relation to the carrying out of domestic building work.

6—Insertion of sections 7A and 7B

This clause inserts 2 new sections as follows:

7A—Administration of Act

This section assigns responsibility for the administration of the Act to the Small Business Commissioner.

7B—Commissioner's functions

This section sets out the Commissioner's functions in relation to the Act.

7—Substitution of section 8

This section substitutes the current section in relation to the rights to progress payments as follows:

8—Persons entitled to progress payments

The section sets out when and in what circumstances a person to whom the section applies will be entitled to a progress payment under the Act. The section applies to a person who has undertaken to carry out construction work, or to supply goods and services, under a construction contract but does not apply to such a person who is a company in liquidation or who was not, at the time of entering into the contract an authorised person. An authorised person is defined as—

a person who is authorised under the Building Work Contractors Act 1995 or the Plumbers, Gas Fitters and Electricians Act 1995 to perform construction work of the kind to which the undertaking relates;

a person of a class prescribed by the regulations for the purposes of the definition.

8—Amendment of section 11—Due date for payment

The clause substitutes section 11(1)(a) to provide that a progress payment, under a contract that makes express provision with respect to the matter, will become due and payable either on the day specified in the contract or, if that date falls more than 25 business days after a payment claim is made under Part 3 of the Act, 25 business days after the payment claim is made.

The clause amends section 11(1)(b) to change the due date for a progress payment under a contract that does not make provision in relation to the due date for payment from 15 days after a payment claim is made under Part 3 of the Act to 10 days.

9—Insertion of section 12A

This clause inserts a new section as follows:

12A—Return of retention money

The proposed section provides that parties to a construction contract who are unable to reach agreement about the payment of retention money, or any form of security held by a party to the contract, may have the dispute referred to an adjudicator in accordance with the regulations.

The section further provides the types of determinations an adjudicator may make in relation to a dispute referred under this section. Retention money is defined in the section as money retained by a party to a construction contract payable to another party under the contract as security for the performance of obligations by that other party under the contract.

10—Amendment of section 13—Payment claims

The amendments in subclause (1) add new requirements to the form of a payment claim under the Act.

Subclause (2) inserts subsections (2a) and (2b) which provide additional requirements for the form of a payment claim relating to construction work carried out on residential land if the person liable to make the payment is the owner of the land.

Subclause (3) inserts a new subsection (4a) which makes other provisions in relation to a service of a payment claim in relation to a final payment.

Subclause (4) makes a consequential amendment.

Subclause (5) inserts offence provisions as follows:

a head contractor must not serve a payment claim on the principal unless the claim is accompanied by a supporting statement that indicates it is related to that payment claim with a maximum penalty of $20,000 in the case of a natural person and $110,000 in the case of a body corporate;

a head contractor must not make a supporting statement knowing that the statement is false or misleading in a material particular in the particular circumstances with a maximum penalty of $20,000 or imprisonment for 1 year in the case of a natural person and $110,000 in the case of a body corporate;

a head contractor, must, not more than 5 business days after serving a payment claim on the principal, provide a copy of the supporting statement that accompanied the payment claim to each subcontractor, if any, for whom an amount became due and payable in relation to the construction work concerned, with a maximum penalty of $20,000;

Subclause (5) also inserts provisions to be applied in circumstances where the offences against the section are committed by a body corporate, a provision that clarifies that a failure of a head contractor to comply with a requirement of an offence provision will not invalidate the payment claim or the service of the payment claim to which the supporting statement relates, as well as inserting defined terms for the purposes of the section.

11—Amendment of section 14—Payment schedules

Subclauses (1) and (2) amend subsection (2) to provide for payment schedules to be in a form approved by the Commissioner, and include information required by the Commissioner. Subclause (3) changes the time within which a respondent must serve a payment schedule on a claimant from 15 business days to 10 business days.

12—Amendment of section 16—Consequences of not paying claimant in accordance with payment schedule

This amendment is consequential on the amendments in clause 11.

13—Amendment of section 17—Adjudication applications

The amendments in subclauses (1) and (2) are consequential on the amendments in clause 11.

The amendment to subsection (5) in subclause (3) provides that a claimant must, as soon as practicable after making an adjudication application under the section, serve a copy on the respondent.

Subclause (4) inserts new subsections (6) to (13):

subsection (6) requires an authorised nominating authority (ANA) to refer an adjudication application to the Commissioner (an adjudication referral). Under the current provisions of the Act, the ANA appointed the adjudicator.

subsection (7) sets out the manner and form of an adjudication referral;

subsections (8) and (9) set out the requirements for the ANA to nominate 3 suitable adjudicators in the adjudication referral;

subsections (10) and (11) set out the process whereby the Commission refers the application to an adjudicator on receipt of an adjudication referral;

subsection (12) provides that a failure of an ANA or the Commissioner to request or refer a matter within the time specified in the section does not affect the validity of an adjudication application;

subsection (13) sets out the requirements for the provision of the adjudication application to the adjudicator.

14—Amendment of section 18—Eligibility criteria for adjudicators

This clause makes a consequential amendment.

15—Amendment of section 19—Appointment of adjudicator

The amendments in this clause are consequential on the Commissioner's referral of adjudication applications to an ANA, and provides that the adjudicator may accept the adjudication application by notice in writing to be served on the Commissioner, the ANA who nominated the adjudicator, the claimant and the respondent. A further amendment to section 19 provides that an adjudicator may not delegate the function of determining an adjudication application.

16—Amendment of section 20—Adjudication responses

This clause provides new and updated requirements for a respondent to lodge a response to the claimant's application with the adjudicator (the adjudication response), and provides for the time frame in which the adjudication response must be lodged and the possibility of the adjudicator granting an extension of time for the adjudication response in circumstances set out in the section.

17—Amendment of section 21—Adjudication procedures

Subclause (1) inserts new requirements for the time within which an adjudicator must determine an adjudication, being not before—

the period within which the respondent may lodge an adjudication response has expired; and

the adjudicator has made a determination as to whether the adjudicator has jurisdiction to determine the application.

Subclause (2) inserts new subsection (1a) which provides that a determination by an adjudicator under subsection (1)(b) that they have jurisdiction to determine an application will form part of the determination of that application. Subclause (3) makes a consequential amendment.

18—Amendment of section 26—Claimant may make new application in certain circumstances

This clause makes amendments consequential on other amendments in the measure to change the time during which the adjudicator must notify the claimant of their appointment from 4 business days to 10 business days, and provide that the claimant must give notice of their intent to make a new adjudication application to the adjudicator, the respondent, the Commissioner and the ANA who nominated the adjudicator.

19—Substitution of section 27

This section substitutes the current section 27 requirements for the withdrawal from an adjudication with more detailed requirements as follows:

27—Claimant may withdraw from adjudication

Proposed subsection (1) provides that a claimant may withdraw from an adjudication by notifying the adjudicator, the respondent, the Commissioner and the ANA who nominated the adjudicator in writing that the adjudication application is withdrawn.

Proposed subsection (2) provides that an application for adjudication will be taken to have been withdrawn if a respondent to an adjudication application has, before the adjudicator has decided the application, paid the claimed amount stated in the payment claim the subject of the application. In such a case, the claimant must, as soon as practicable, notify the adjudicator, the Commissioner and the ANA who nominated the adjudicator that the application is withdrawn because of the payment.

20—Insertion of Part 3 Division 3A

This clause inserts a new Part 3 Division 3A providing for the registration of adjudicators.

Division 3A—Adjudicators

Subdivision 1—Registration

28A—Application for registration

This section sets out the manner in which a natural person may apply to the Commissioner for registration as an adjudicator.

28B—Determination of application for registration

This section sets out the matters the Commissioner must consider and take into account before determining an application for registration as an adjudicator.

28C—Inquiries into applications for registration

This section gives power to the Commissioner to make certain inquiries for the purposes of assessing the suitability of an applicant for registration as an adjudicator by notice to the applicant.

28D—Decision on application for registration

This section sets out the requirements for the Commissioner to issue a certificate of registration on the grant of an application for registration as an adjudicator. The section further sets out that a decision to impose conditions on a registration or to refuse to grant registration must be provided to the applicant in writing.

28E—Failure to decide application for registration

The section provides that if the Commissioner fails to decide an application for registration within times specified in the section, the Commissioner is taken to have refused to grant the application (in which case the applicant may appeal the decision).

28F—Term of registration

This section provides that the term of registration takes effect from the day on which the certificate of registration is issued or the day on which the registration is renewed and ends on the day falling 3 years after the day on which registration is issued or renewed or an earlier date as specified by the Commissioner.

28G—Conditions of registration

This section sets out the conditions that apply to a registration of an adjudicator and the manner and circumstances in which the Commissioner may impose further conditions on the registration.

28H—Registration required to perform functions of adjudicator

This section makes it an offence for a person to accept or decide an adjudication application unless the person is an adjudicator, with a maximum penalty of $20,000.

Subdivision 2—Renewal of registration

28I—Application for renewal of registration

The proposed section sets out the process for a registered adjudicator to renew their registration.

28J—Inquiries into application for renewal of registration

This section allows the Commissioner to require an applicant for a renewal of registration as an adjudicator to provide information in relation to the renewal.

28K—Registration taken to be in force while application for renewal is considered

This section provides that if a registered adjudicator applies for a renewal of their registration, the applicant's registration is taken to continue in force from the day on which it would have ended until an application for renewal is decided or is taken to be withdrawn.

Subdivision 3—Amendment of registration

28L—Application for amendment of registration

This provision sets out the process by which a registered adjudicator may, on application, have their registration amended.

28M—Inquiries into application for amendment

This section allows the Commissioner to seek further information before amending an application for amendment of the registration of an adjudicator.

Subdivision 4—Suspension or cancellation of registration

28N—Grounds for suspension or cancellation

This section sets out the grounds for suspending or cancelling the registration of an adjudicator. For the purposes of considering whether an adjudicator is a suitable person to continue to hold their registration, the Commissioner is to have regard to the matters the Commissioner considered in deciding the application for a person to be registered as an adjudicator.

28O—Show cause notice

This section provides for the Commissioner to give a registered adjudicator a show cause notice if the Commissioner believes that grounds exist to suspend or cancel their registration. The notice must state the following:

the action (the proposed action) the Commissioner proposes to take;

the grounds for the proposed action;

an outline of the facts and circumstances forming the basis for the grounds;

if the proposed action is suspension—the proposed suspension period;

an invitation to the adjudicator to show within a stated period (the show cause period) why the action should not be taken (which must be a period ending not less than 21 days after the show case notice is given to the adjudicator).

28P—Representations

This section allows the adjudicator who has been given a show cause notice to make representations to the Commissioner about the notice during the show cause period.

28Q—Ending show cause process without further action

This section provides for the Commissioner to notify the adjudicator and take no further action in relation to a show cause notice if, after considering representations, the Commissioner no longer believes that grounds exist for the suspension or cancellation of their registration.

28R—Suspension or cancellation

This section sets out the process by which the Commissioner may suspend or cancel a registration if—

the Commissioner, after considering representations made by the adjudicator, still believes a ground exists to suspend or cancel their registration; or

there is no written representation in response to a show cause notice.

28S—Immediate suspension of registration

This section provides for the process by which the Commissioner may suspend the registration of an adjudicator at any time if—

a ground exists to suspend or cancel the registration; and

it is necessary to suspend the registration because there is an immediate and serious risk of harm to the effectiveness of the adjudication of payment claims under the Act.

28T—Return of cancelled or suspended registration

This section makes it an offence for an adjudicator whose registration has been suspended or cancelled to fail, without reasonable excuse, to return the certificate of registration to the Commissioner within 7 days after receiving notice of the suspension or cancellation of their registration, with a maximum penalty of $10,000 applying.

28U—Effect of suspension or cancellation of registration

This section sets out the effect of the suspension or cancellation of the registration of an adjudicator on an adjudication application referred to them in respect of which the adjudicator has not made a decision before the suspension or cancellation of their registration.

Subdivision 5—Appeal

28V—Appeals

This section provides for the manner in which a person who is dissatisfied with a decision of the Commissioner listed in the section may appeal against the decision to the Administrative and Disciplinary Division of the District Court.

Subdivision 6—Miscellaneous

28W—Grading of adjudicators

This section requires the Commissioner to develop guidelines for the grading of adjudicators and to publish those guidelines in the Gazette and on the Commissioner's website.

28X—Adjudicator to provide information

This section provides that a registered adjudicator must provide the Commissioner with such information as may be requested by the Commissioner in relation to the activities of the adjudicator under the Act (including as to fees charged by the adjudicator), with a maximum penalty of $10,000 applying.

21—Amendment of section 29—Authorised nominating authorities

This clause inserts several new provisions and consequential amendments allowing the Commissioner to authorise an applicant under the section to nominate adjudicators for the purposes of the Act. The section currently provides for a system whereby the Minister gives this authorisation.

22—Insertion of section 29A

This clause inserts a new section as follows:

29A—Code of conduct

The proposed section provides that the Governor may, by regulation, prescribe a code of conduct to be observed by ANAs and adjudicators. Proposed subsection (3) makes it an offence, with a maximum penalty of $5 000 or an expiation fee of $210 for an ANA or adjudicator to fail to comply with a provision of a code of conduct specified in the code.

23—Amendment of section 30—Adjudicator's fees

The clause amends the provisions relating to the fees payable to an adjudicator for adjudicating an adjudication application, including inserting a provision to allow the adjudicator to apply to a court of competent jurisdiction for an order that the amount of fees and expenses be paid in the event that a party fails to pay the adjudicator.

24—Insertion of section 31A

This clause inserts a new section as follows:

31A—Recording and publishing of adjudication determinations

The proposed section provides for the manner and circumstances in which the Commissioner is to keep records and publish adjudication determinations.

25—Insertion of sections 32L and 32M

This clause inserts new offence provisions as follows:

32L—Offence relating to assault etc in relation to progress payments

The proposed section makes it an offence with a maximum penalty of $50,000 in the case of a natural person and $250,000 in the case of a body corporate, for a person to directly, or indirectly assault, threaten or intimidate, or attempt to assault, threaten or intimidate a person in relation to an entitlement to or claim for a progress payment.

32M—Imputing conduct to bodies corporate

The proposed section provides an evidentiary provision for the purposes of an offence against the Act, that the state of mind of an officer, employee or agent of a body corporate acting within the scope of their actual, usual or ostensible authority will be imputed to the body corporate.

26—Amendment of section 33—Certain contract provisions void

The clause inserts a new subsection 33(3) providing that a provision of a contract or other agreement under the Act that is conditional on giving notice will be void if compliance with the requirement would not be possible, be unreasonably onerous or serve no commercial purpose.

27—Amendment of section 34—Service of notices

The clause substitutes section 34(1) to update the service of notice provisions in the Act.

28—Insertion of section 34A

This clause inserts a new section as follows:

34A—Annual report

The proposed section requires the Commissioner to provide an annual report to the Minister in accordance with the requirements set out in the proposed section.

29—Amendment of section 35—Regulations

The clause adds a power to make transitional regulations for the purposes of the measure.

30—Amendment of section 36—Review of Act

The clause adds a requirement for a review of the amendments in this measure.

Schedule 1—Related amendments

Part 1—Amendment of Building Work Contractors Act 1995

1—Amendment of section 11—Duration of licence and periodic fee and return etc

This clause amends section 11 to allow a prescribed proportion of the prescribed fee payable by a licensed building work contractor to be paid to the Small Business Commissioner to be applied by the Commissioner towards the administrative and regulatory costs associated with carrying out their functions under the Building and Construction Industry Security of Payment Act 2009.

Part 2—Amendment of Plumbers, Gas Fitters and Electricians Act 1995

2—Amendment of section 11—Duration of licence and periodic fee and return etc

This clause amends section 11 to allow a prescribed proportion of the prescribed fee payable by a licensed contractor to be paid to the Small Business Commissioner to be applied by the Commissioner towards the administrative and regulatory costs associated with carrying out their functions under the Building and Construction Industry Security of Payment Act 2009.

Schedule 2—Transitional provisions

This Schedule contains transitional provision consequential on the enactment of the measure.

Debate adjourned on motion of Hon. Z.L. Bettison.