Laws which are designed to ensure that building contractors and subcontractors throughout Australia are paid amounts owed to them are under scrutiny as the federal government has announced a review looking at how the laws can be made to operate more effectively.

In a recent announcement, Minister for Employment Michaela Cash said the government has appointed John Murray AM to conduct a review of security of payment laws throughout the country.

The review will look at how various states and territories around the country are approaching security of payment legislation and identify which approaches are delivering optimal results.

It will also consider how various types of contractual clauses restrict contractors and subcontractors in terms of their ability to obtain progress payments for work which has been completed.

Designed to ensure that contractors and subcontractors are able to receive money due to them for work performed, security of payment law entitles any party who performs building work to receive progress payments and provides for mechanisms by which this can occur.

Whilst there have been calls for such legislation to be enacted at a federal level, the laws as they stand operate through state based legislation which varies from state to state.

In a statement, Cash said the review would look at how to deliver the best outcomes.

“Across Australia, there are significant differences in approach to security of payments laws, which impact on the level of protection afforded to subcontractors,” Cash said.

“In order to identify best practice, Mr Murray will undertake a wide-ranging review in consultation with business, governments, unions and other relevant interested parties.”

Around Australia, the issue of security of payment has been an issue of significant public attention as a number of construction industry insolvencies have highlighted serious issues for subcontractors in terms of obtaining progress payments for their work.

In its report into construction sector insolvencies in 2015, the Senate Economics Reference Committee found that ‘serious imbalances in power of contractual relationships’ and ‘harsh, oppressive and unconscionable commercial conduct’ were partly to blame for the building sector to account for a disproportional number of insolvencies relative to the size of its economic output.

In addition to a trial of project bank accounts on major federal government project, it recommended the introduction of security of payment legislation at a federal level.

Although stopping short of referring specifically to federal security of payment laws, the terms of reference specify that the review will ‘take into account any reviews and inquiries that have recently been conducted in terms of security of payment’, including the Senate Inquiry.

Given that both federal security of payment law and the use of project bank accounts on federal projects were key recommendations which came out of this inquiry, this would almost certainly mean that these would also be considered as part of the current inquiry.

The inquiry is expected to deliver a progress report to the Minister by the end of September whilst a final report is expected by the end of the year.