Page 18 - MPA

Plumbers have had enough
The Murray Review on Security of Payment Legislation
Purpose of the Review
The Review was announced on 21 December 2016. The purpose of the Review was to identify legislative best practice, with a view to improving consistency in security of payment legislation and the level of protection afforded to construction industry subcontractors to ensure they obtain payment for work they have completed of for goods and services they have supplied.
Conduct of the Review
The Review was conducted by Mr John Murray AM with assistance from the Australian Government Department of Jobs and Small Business. Mr Murray is the former National Executive Director of Master Builders Australia and a specialist in building contract disputations and security of payment legislation. He became a Member of the Order of Australia in 2014 for his service to the construction industry.
Current security of payment legislative models
Over the past 18 years, every state and territory government has progressively enacted security of payment legislation with the prime objective of facilitating prompt progress payments. All of the jurisdictions, other than Western Australia and Northern Territory (at the time of this report) have passed their legislation on the Building and Construction Industry Security of Payment ACT 1999 (NSW) and such legislation regimes have come to be referred to as “the East Coast model”. The legislative regimes that operate in Western Australia and the Northern Territory are based on a different model, referred to “the West Coast model”. There are significant differences, not only between the two models, but particularly within those jurisdictions that have adopted the East Coast model.
South Australian’s have had many opportunities to make submissions on the Security of Payment legislation. In summary the East Coast model has provided the best solutions.
One of the major points that has caused much discussion is the provision of either a Project Trust Account or Cascading Trust.
MPA SA and other Subcontractor Associations support the Cascading Statutory Trust arrangement as it has the following advantages (taken from the Murray Report):
- It provides a means for ensuring that a head contractor and subcontractors are paid for their services and for the materials supplied while keeping contract moneys within the control of the parties to project.
- It imposes ethical standards on the payment of participants in the industry for work done or materials supplied in an industry which has failed to use self – regulation to control the use of various unfair or unscrupulous practices.
- It reinforces good practice in distribution of funds for a project to the participants in the project and is consistent with the concept of cooperative contracting, which is seen as a way of improving the efficiency of the industry.
- Because the moneys are held in trusty, they cannot be seized or frozen by a receiver or liquidator of the trustee of the estate of a bankrupt trustee. This means that the position of a person further down the chain can be secured and the payment of funds downward can still take place because the project funds held in trust will not form part of the property distributed in the bankruptcy or winding up of the trustee.
- A wider range of remedies is available for a breach or possible breach of trust than for a breach of contract.
- It may result in a speedier resolution of disputes between, for example, a head contractor and a subcontractor, because generally the head contractor cannot withdraw money from the trust fund until all the claims of the fund’s beneficiaries have been met. It removes the incentives for those holding funds to create artificial disputes and resolve them through purely commercial pressure.
- For the same reason, it may result in speedier payment of subcontractors.
(This information was sourced from the “Review of Security of Payment Laws – Building Trust and Harmony” by J Murray AM)
MPA SA has one message on the concept of Cascading Statutory Trusts – why the hell aren’t Governments around Australia implementing this process. If you can come up with logical reasons why not – then tell us!
This is important and it will ensure there is payment for work completed. NO OTHER SYSTEM WORKS!
Issue 3 – Collapsing Builders – Do you, do your due diligence
COLLAPSING BUILDERS -
DO YOU, DO YOUR DUE DILIGENCE!!
The recent belly-up of builders such as Endeavour Quality Homes, and the much recently publicised Tagara Builders, again reinforces the need for small and medium size businesses to have a sound pre-contractual risk management guide in place.
Securing a new client is the ultimate aim of any business. However, given the current volatility of the construction industry it is also paramount to ensure that the credit worthiness of your potential new client is assessed in advance.
Highlighted on the next page is a due diligence checklist which you may adopt, and customise according to your business needs.
16