Laws intended to protect contractors with regard to cash flow on large projects in Australia are ineffective, out of date and cause friction between building contractors and their principals, a building and construction industry group says.
Describing security of payments laws as a ‘bug bear’ issue for the industry, Master Builders Australia chief executive officer Wilhelm Harnisch says many of the laws do not make sense and are in desperate need of an overhaul.
For example, under the current system, a $1,000 claim is subject to the same procedures as a $10 million claim – a concept Harnisch describes as ‘practical nonsense.’
“Rather than protecting contractors, the laws are creating cash flow bottlenecks which curtail the industry’s viability and lead to project delays through the sidelining of resources,” he says.
First introduced by New South Wales in 1999, security of payment laws are now in effect across all states and territories in Australia.
Essentially, the laws aim to protect the cash flow of contractors and sub-contractors at the lower end of the chain in large construction projects by granting them a legal right to receive payment on a progressive basis as work is completed throughout the project rather than having to wait until the entire project or job in question is completely finished.
Harnisch says that since their inception in 1999, security of payment laws have grown inconsistently, with each state and territory now having different laws as a result.
Therefore, in a submission to the Australian Procurement and Construction Council, Master Builders has called for harmonised, open and balanced legislation.
Toward this end, the construction industry group commissioned Australian National University professor emeritus Jim Davis to develop 10 new best practice principles to improve security of payment law.
Harnisch says these principles should form the foundation for national action to achieve a greater degree of uniformity in legislation throughout the country.
“Differing laws have led to issues surrounding the selection process for adjudicators,” Harnisch says. “In particular, most states do not require adjudicators to have formal qualifications or experience, which is not acceptable.”
Harnisch’s calls for change are backed by respected legal minds throughout the country.
In his paper on the security of payment laws released in October last year, for example, Honorary Justice Peter Vickery wrote that differences in legislation among states and territories developed essentially by accident, and that work was needed to ensure greater consistency in laws around Australia.
“We now have a national scheme comprising eight Acts,” Vickery says. “It is a scheme which has at least two common themes – the recognition of a common objective and a manifest divergence in approach to achieving it. It is surely now time to capture the best from all jurisdictions and consolidate them into a coherent national framework.”