Push on for Federal Security of Payment Law

Tuesday, June 21st, 2016
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As the federal election draws nearer, opposition parties are lining up to support moves toward federal security of payment legislation in order to address issues associated with non-payment within the Australian construction sector.

As the Coalition delays its response until after the election, opposition parties including Labor, the Greens, the Nick Zenothon Team and independent MP Glen Lazarus have promised to support critical recommendations contained in the final report of the senate inquiry into construction industry insolvencies which was handed down last year.

In a recent announcement, Labor, for example, said it would provide a new federal framework for security of payment law which would sit alongside harmonised legislation at a state and territory level.

This would deliver a rapid dispute resolution system to ensure that small business could get access to cash flow allegedly owed to them in a prompt manner, the party said.

In addition, Labor would also trial the use of project bank accounts – ring fenced bank accounts into which money owing on the project is paid and from which funds are directly distributed to the various parties to which they are owed.

This would replace the current system under which the principal pays money directly to the head contractor who is then responsible for ensuring that all subcontractors are paid according to due dates.

According to Labour, the construction sector accounts for around one in five businesses which are currently in external administration, whilst around 80 percent of businesses within the sector are small businesses.

It says the current system is delivering inconsistent outcomes across jurisdictions and is allowing governments at the state level to introduce legislation which erodes  the level of protection available for subcontractors.

In absence of project bank accounts, meanwhile, there are fears about head contractors being able to use money paid to them by the principal which effectively relates to work performed by the subcontractor for the head contractor’s own working capital purposes – a phenomenon which is not possible under a project bank account situation as respective shares of project payments owing to different parties are paid directly to each party and do not pass through the head contractor.

Use of such accounts on the Highways England project in the United Kingdom, Labor says, has seen the amount of time which participants down the chain have to wait in order to receive payment for work performed slashed from around two months to typically less than seven days.

Labor’s promise comes as other opposition parties have backed the 44 recommendations contained in the aforementioned report, which talked of a culture of non-payment and an industry which is burdened by nearly $3 billion in unpaid debts each and every year.

Both the Nick Zenothon team and independent senator Glen Lazarus have indicated their universal support for all recommendations of the report whilst the Greens have given express support for national Security of Payment legislation and their in principle support for the other recommendations.

The Coalition has not responded to the report’s findings thus far., but federal minister for small business Kelly O’Dwyer has indicated that the government will provide a response to the recommendations after the election if the Coalition is reelected.

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