Proposals to introduce Queensland-style reforms to security of payment legislation in South Australia would make it more difficult for subcontractors to enforce their right to receive prompt payment for work which they performed on projects, a leading adjudicator has warned.
In a submission to the review of the Building and Construction Security of Payment Act 2009 being conducted by the Office of the Small Business Commissioner in South Australia, Phillip Martin – an adjudicator who has been actively involved within the adjudication process across all eastern states of Australia - warned that proposals to abolish authorised nominating authorities (ANAs) and to draw a distinction between simple and complex claims as had been done in Queensland would undermine the ability of subcontractors to use security of payment law to enforce their rights to prompt payment.
“The proposals in the discussion paper to abolish ANAs and replace them with the SBC and introduce a concept of complex claims will result in the same outcome as is being experienced in Queensland,” Martin said, referring to a situation in Queensland whereby the number of claims which have fallen over prior to reaching a decision has skyrocketed and few claims worth more than $750,000 (and thus deemed to be a complex claim) have been brought to adjudication.
“The result will be an increased difficulty in claimants pursuing the payment to which they are entitled and (will) no doubt lead to financial distress of many small businesses in the building and construction industry.”
Martin’s comments came as the South Australian government undertakes a review process with regard to the Building and Construction Industry Security of Payment Act 2009.
Following the release of a review undertaken by retired District Court Judge Alan Moss, which was tabled in May and made 11 recommendations, the government has proposed a three stage process for change.
Under the first stage, ANAs would lose the authority to appoint adjudicators to hear applications for adjudication made under the Act and to provide administrative support to the respective parties with regard to the adjudication process.
Instead, adjudicators would be appointed by the Small Business Commissioner, who would become the sole ANA and would provide administrative support to the parties throughout the process.
Further changes under the first stage would see the insertion of a penalty for intimidation, the development of a code under the Fair Trading Act to provide alternative dispute resolution services, and the implementation of procedures to ensure subcontractors working on government projects worth more than $1 million get paid on a regular basis.
Later stages would see different adjudication procedures applying to claims according to whether they are considered ‘simple’ or ‘complex’ claims, an extension of the Act to make it apply to residential builders, the development of a ‘good behaviour’ test, the introduction of trust arrangements for retention payments on all projects worth more than $10 million, and the establishment of mandatory project bank accounts for government projects.
The removal of ANAs has been controversial in Queensland amid a surge in the number of claims which have ‘fallen over’ and were withdrawn prior to an adjudication decision being reached following the abolition of ANAs in that state and the takeover of functions previously performed by ANAs by the Queensland Building and Construction Commission.
Over the past financial year, a whopping 333 claims for adjudication ‘fell over’ in Queensland prior to reaching a decision – almost equaling the 363 claims with regard to which a decision was released.
A whopping 228 claims had to be withdrawn because of ‘validation issue’ relating to areas where claims have had to be withdrawn because of errors contained within the application.
Prior to the abolition of ANAs, by contrast, decisions released outnumbered claims which were withdrawn in 2013/14 by a factor of almost three to one.
Martin says the situation in Queensland has seen many claims rejected because of ‘poor advice’ (provided by the QBCC) – a situation he says has led to claimants either being subject to unnecessary delay in making their application or not pursuing the application.
A further area which Martin says would hurt subcontractors revolves around the introduction of standard and complex claims – particularly given a more respondent friendly process exists for the latter, with more lenient deadlines and greater opportunities for extensions of time.
Morris says the period of time taken to have a complex claim decided in Queensland (average 59 days as opposed to 19 days for a standard claim) "makes a mockery of the aim of the Act to provide a prompt payment mechanism for a party to have a dispute over a payment resolved."
Whilst Morris’s claims are supported by subcontractor advocacy groups such as the Subcontractor’s Alliance, not all subcontractor groups fear the removal of ANAs will hurt subcontractors and trade contractors.
The Masonry Contractors Association, for example, has through is broad support behind the proposal to remove ANAs whilst the Master Plumbers Association says it’s views on the situation were ‘mixed.’
ANAs were removed in Queensland amid perceptions amongst some in the industry that claimant friendly ANAs were shopping around for ‘claimant friendly’ adjudicators.
Major building industry lobby groups such as the Master Builders Association and Housing Industry Association generally support the removal of ANAs and adoption of a single agency to perform the ANA role, but caution that an independent body such as the Magistrates’ Court or SACAT rather than the Small Business Commissioner should perform the role.
This was not only to capitalise on economies of scale from access to existing systems, but would also protect the Commissioner from a conflict of interest.