Legislative Council Fifty-First Parliament, Third Session (51-3) 51 3 Parliament of South Australia Legislative Council published Bills Building and Construction Industry Security of Payment Bill BUILDING AND CONSTRUCTION INDUSTRY SECURITY OF PAYMENT BILL Second Reading Second Reading Second reading. The Hon. R.P. WORTLEY Legislative Council The Hon. R.P. WORTLEY (17:42): 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. This bill seeks to ensure that a person who undertakes construction work, or who supplies related goods and services under a construction contract, is entitled to receive and is able to recover progress payments for the carrying out of that work or the supplying of those goods and services. The bill addresses what is known in building and construction industry parlance as the 'security of payment problem'. This problem arises when the subcontractors and suppliers in the building and construction industry are unable to secure in a timely fashion, or sometimes at all, payment for work performed or goods and services supplied—despite, in many cases, having a contractual right to such payments. As much of the building and construction industry operates under a system of hierarchical contract chains (head contractor, subcontractors, suppliers and consultants), the industry is particularly vulnerable to security of payment problems. This is clearly due to the fact that the failure of any one party in the contractual chain to honour its obligations can have a flow-on effect on other parties. Such a failure will obviously restrict cash flow, and it is the case that insolvencies have ultimately been caused. 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 indeed a matter that justified government action. A consistent theme across the reviews was that traditional legal remedies provide inadequate protection to subcontractors and suppliers. These reviews initiated government action. New South Wales, Queensland, Victoria, Western Australia, the Northern Territory and New Zealand have all legislated to address the security of payment problem in their building and construction industries. To date, there has been no formal, specific examination of the scope of the security of payment problem in South Australia. However, I am aware that a number of members in the other place have been approached by industry participants who have reported the existence of such a problem in this state. I am entirely convinced that action in the form of legislation is required. The bill I put before the Chamber today is based on the Building and Construction Industry Security of Payment Act 1999 of New South Wales. The bill applies to most forms of construction contracts other than contracts involving 'resident owners' under the Building Work Contractors Act 1995. Importantly, however, the bill will cover owner/builders who engage contractors and trades people in a building contractor role. The bill provides that, irrespective of the terms of a construction contract, a person who performs work or supplies related to goods and services under the contract is entitled to a progress payment. The amount and timing of a progress payment is calculated either in accordance with the terms of the contract or, if the contract does not provide for this, in accordance with a formula set out in the legislation. The notorious 'pay when paid' and 'pay if paid' provisions are consequently rendered invalid. Under the bill: a person who has carried out construction work or provided related goods or services may make a claim for progress payments; upon receipt of a payment claim, the respondent will have 10 business days in which to serve a payment schedule on the claimant. If the respondent seeks to withhold in whole or in part a claimed progress payment, he or she will be required to state the reason in the payment schedule; if the respondent fails to provide a payment schedule, he or she becomes liable to pay the whole amount of the payment claim on the due date; if the respondent serves a payment schedule that includes reasons for withholding payment, the claimant will have 10 business days to accept the response or submit the payment claim to adjudication. (A claimant will also be able to submit a claim to adjudication where no payment schedule is provided); adjudicators will be non-government individuals or companies offering specialist adjudication services to industry participants. Their fees will be payable by the parties to an adjudication. Adjudicators will be nominated by nominating authorities and nominating authorities will be authorised by the minister; after an adjudicator accepts an adjudication application, he or she will have 10 business days to make a determination. The parties may extend this; upon completing adjudication, an adjudicator will be required to determine the amount (if any) of progress payments due to the claimant, the due date for payment and interest, and a successful claimant will have the right to suspend work under the contract and enforce the adjudication decision in court. The rights and liabilities created under the bill do not affect any other entitlement a person may have under a construction contract or any other remedy a person may have for recovering any such entitlement. However, in court proceedings in relation to a matter arising under a construction contract, the court must allow for an amount paid to a party to the contract as a result of an adjudication under the legislation in any order or award it makes to those proceedings. It follows that the court may make orders for the restitution of any amount paid as a result of the adjudication. The time frames set out by the bill for responding to payment claim and for the making of an adjudication are tight. They are aimed at ensuring that the disputes under legislation are resolved rapidly and at minimal expense to the parties. The bill has undergone a number of amendments in Committee. I will address the clauses in turn. Clauses 1, 2 and 3 remain intact. Clause 4 has been amended so that on page 4, line 22, there has been inserted: 'or (c)	any other day on which there is a statewide shut-down of the operations of the building and construction industry;' This amendment, which springs from consultation with industry and in particular the MBA, takes into account industry shut-down days and days - such as rostered days off - not included in the calculation of response times. Clause 5 has been amended so that on page 6 line 6 [clause (5)(1)(e)(iii)], after 'dismantling of', there has been inserted: 'fences or' This amendment increases the definition of services that are included. Clause 6 has been amended so that on page 6 line 36, [clause 6(i)(b)(iii)] after 'advisory', there has been inserted: 'or technical' Again, this amendment increases the definition of services that are included. Clauses 8 to 10 remain intact. Clause 11 has been amended so that on page 9 line 18, [clause 11(1)(b)], the number '10' has been deleted and the number '15' substituted. This increases the number of days for response and adjudication from 10 to 15. This is a reasonable extension and is in line with the NSW legislation. Clause 12 remains intact. Clause 13 has been amended so that on page 10 line 35, [clause 13(4)(b)], the number '12' has been deleted and the number '6' substituted. This decreases the number of months during which persons wishing to avail themselves of the provisions of this legislation may do so. This amendment is intended to stop the practice of 'ambush' claims, whereby a person may make a claim dating back nearly twelve months while the other party had (prior to the amendment of Clause 11) only 10 days to respond. Clause 14 has been amended so that on page 11 line 20, [clause 14(4)(b)(ii)], the number '10' has been deleted and the number '15' substituted. Clause 15 remains intact. Clause 16 has been amended so that on page 12 line 20, [clause 16(1)(b)(ii)], the number '10' has been deleted and the number '15' substituted. Clause 17 has been amended so that on page 13 line 20, [clause 17(3)(c)], the number '10' has been deleted and the number '15' substituted, and so that on page 13 line 38, [clause 17(3)(e)], the number '10' has been deleted and the number '15' substituted. Clause 18 has been amended so that on page 14 after line 20, [clause 182] there has been inserted: '(ab)	if either or both of the parties have nominated the person to be an adjudicator in relation to the contract; or' This removes any perception of prejudice or actual prejudice on the part of one party over another if a nominated adjudicator is written into a building contract. The amendment prevents stipulation in a contract, or an unfair selection or use of an adjudicator. The remaining clauses—19 to 35—remain intact. Schedule 1 page 22, after line 30, has been amended as follows: Part 1A—Amendment of Building Work Contractors Act 1995 1A—Amendment of section 30—Payments under or in relation to domestic building work contracts Section 30(1)—delete 'the payment' Section 30(1)(a)—before 'constitutes' insert: the payment Section 30(1)—after paragraph (a) insert: (ab)	the person is entitled to the payment under the Building and Construction Industry Security of Payment Act 2009 ; or Section 30(1)(b)—before 'is of a' insert: the payment Section 30(2)—delete 'paragraph (a) or (b)' and substitute: paragraph (a), (ab) or (b) Section 30(3)—delete subsection (3) Amendment to the Building Work Contractors Act consequent to the inclusion of the full chain, including residential houses, is required. These provisions allow that synchronicity. Finally, the Title has been amended to delete 'a related amendment to the' and substitute: related amendments to the Building Work Contractors Act 1995 and the'. Mr President, these provisions are the result of lengthy consultation with industry representatives and the product of fruitful discussions with those opposite at the Committee stage. I commend the Bill. Debate adjourned on motion of Hon. J.M.A. Lensink. At 17:43 the council adjourned until Tuesday 1 December 2009 at 14:15.