HOUSE OF ASSEMBLY
Thursday 16 July 2009
BUILDING AND CONSTRUCTION INDUSTRY SECURITY OF PAYMENT BILL
Adjourned debate on second reading.
(Continued from 5 March 2009. Page 1860.)
Mr VENNING (Schubert) (11:12): South Australia is currently the only state in Australia which does not have legislation in place mandating good payment practices in the construction industry. I think we are all aware of this issue in our own personal lives, and this bill seeks to address this simply by implementing such legislation.
Security of payment is a term used mainly by subcontractors to describe the need to secure long-term guaranteed arrangements for payment for work performed or material supplied. The construction industry operates under a hierarchical chain of contracts system, which means that if one element in the chain collapses or fails to pay a debt it can create an enormous financial strain on other parties in the chain. In other words it is like a domino effect: one part of the chain needs to be paid so that, in turn, they can pay their bills.
We are all very much aware of companies who get into financial difficulties because of other contractors down the line; in fact, if one goes broke it often takes two or three others with them. This bill will provide the construction industry with a procedure for claims for progress payments by people carrying out construction work, for the provision of a payment schedule by a person owing money, indicating the amount they will pay, and referral of disputed claims to an adjudicator for determination on payments to be made.
It is my understanding that, following consultation with stakeholders, there is general support for this legislation and, as such, the opposition supports the bill. I believe the Hon. Iain Evans would certainly agree, being a member of this place and owning a building company. It is well worth supporting; I know that the opposition supports it and I hope the government will also, because I cannot see any reason at all—
Mrs Geraghty: The bill comes from this side.
Mr VENNING: It is your bill; Tom is waiting for amendments. The opposition supports this; I cannot understand why it was delayed.
Mrs Geraghty interjecting:
Mr VENNING: Can we not do those amendments between now and the other place? I cannot understand why you introduce a bill, we are well through it and now you—
Mrs Geraghty: Don't go down that path.
Mr VENNING: You want to bring in your own bill—that is all right: I am not getting excited. I am just wondering why we cannot speed this through the process as we are agreeing with it and people out there right now are certainly being affected by this. The quicker we can do this the better; we support the bill.
Mrs GERAGHTY (Torrens) (11:15): I will adjourn it, as we are waiting for amendments which will improve the bill.
Debate adjourned on motion of Mrs Geraghty.
HOUSE OF ASSEMBLY
Thursday 15 October 2009
BUILDING AND CONSTRUCTION INDUSTRY SECURITY OF PAYMENT BILL
Adjourned debate on second reading.
(Continued from 16 July 2009. Page 3578.)
Mrs GERAGHTY (Torrens) (10:45): I am pleased to have the opportunity to speak on this bill.
The Hon. I.F. EVANS: Sir, I rise on a point of order. I note that the government took the adjournment on its own motion on its own bill. My understanding of the procedure of the house is that if a private member from the government side moves a bill the adjournment is normally taken by the opposition.
The SPEAKER: No; the government took the adjournment after the member for Schubert spoke on the bill.
Mrs GERAGHTY: As I said, I am pleased to support this bill, which was introduced by the member for Newland, and I certainly acknowledge the work he has done on the bill, which will apply to the building and construction industry in South Australia. Security of payment legislation has been an issue in the building and construction industry since the 1990s. The Howard federal government's Cole royal commission in 2003 identified the need for state legislation to ensure a speedy process for timely adherence relating to contractual obligations in the building and construction industry.
To briefly explain, this legislation is about a process to deal with disputed payments for work done and/or supplies provided in the building industry. South Australia remains the only mainland state without some form of security of payment legislation. I have discussed this matter with a number of contractor organisations and contractors in the building industry over a very long period, and they have advised me that there are significant problems concerning contractors receiving timely payments for work undertaken and/or materials being provided. Whilst many building firms do the right thing and pay contractors in a timely way, others string out payments to their contractors, causing them considerable financial stress.
In the current economic climate (and I accept that it is improving) credit can be difficult to obtain for many small and medium size businesses. Delays in the payment for work done, be it progress payments or payments for completed work, can lead to a business folding. This in turn can see employees sacked, including apprentices, who are very hard done by and certainly are the future of our building industry.
Unfortunately, in many cases the contractual provisions for progress payments are flouted by building companies or perhaps the prime contractor. As I said, it can jeopardise the viability of contractors, particularly small contractors, who can have many tens of thousands of dollars outstanding for work done or materials they have supplied even though there has been no suggestion of shoddy work or materials. In effect, these contractors are asked to provide the cash flows for the builders. Again, not only can this have a significant negative impact on the contractor in question but there can also be dire consequences for many employees they may employ, including apprentices, as I said. To add insult to injury, if the contractor were to then withhold labour or materials to the builder they can be in breach of their contractual obligations and can be sued in a court of law for their failure to adhere to the contract.
On the issue of apprentices, it has been stressed many times over that our community faces a skills shortage, particularly with the prospect of a significant increase in our state's mining industry and the defence projects that are happening now. It would be a tragedy if the future of many apprentices was put at risk because some members of the building industry fail to act fairly and pay their contract obligations in a timely way.
I have even been advised that at the completion of some building projects there have been builders who have withheld the final payment and then bargained down the payment on bogus arguments of work quality, knowing full well that the contractor is not in a position to seek legal redress given the cost and time involved in doing so—and that is the fact. This security of payment legislation is a means to address that situation without the need for the parties to resort to costly and time-consuming litigation, which can take years to reach a conclusion. Security of payment legislation need not lead to a costly government bureaucracy, as the dispute resolution process can be industry funded.
Given the feedback I have had from various contractors and their peer organisations, I support this bill. Similar legislation operates in New South Wales, Victoria and Queensland, and the New South Wales legislation has been in force since I think 1999. In part, to explain my support for security of payment legislation, I put forward the following details for those who have concerns.
The proposed security of payment bans 'pay when paid clauses' in building contracts. To explain that, a builder cannot withhold payment for work or materials on the basis that they themselves have not been paid. It provides for the making of statutory claims for progress payments. It allows for the adjudication of disputed claims made under the act by accredited adjudicators. The cost of the adjudication (or arbitration, as some may want to call it) is determined by the adjudicator, who apportions it among the disputing parties. These costs may be high and as such this tends to limit frivolous claims.
The act provides for the creation of a statutory debt, so that if an adjudicator determines a claim in favour of the claimant contractor the claimant can then, if the respondent fails to pay the adjudicated amount, obtain an adjudication certificate and register it as a judgment, allowing them to have the right to sue for the debt in a court of law. Strict time frames are applied to the adjudication process to ensure that payment disputes are dealt with in a timely way—and that is the key: 'in a timely way'.
An example of the effectiveness of the security of payment legislation can be seen in New South Wales, where, under its act, there are nearly 1,000 claims a year. Some of them do not proceed to determination, but there has been a major reduction of building and construction industry contract disputes going to formal litigation and arbitration. The introduction of the Building and Construction Industry Security of Payments Act here would see a fair and cost-effective method of dealing with contract disputes in the industry, and it would provide reasonable protection to building contractors who are, as we have all acknowledged over our years in this place, the backbone of the building and construction industry in this state.
It is a fair piece of legislation and it is something that is certainly sought by many in the industry. As we all know, there are those—a few—who do not support this because they have been able to use contractors almost as a bank account for themselves, but we need to protect our contractors who are vast employers in the community and certainly take on many apprentices. I do support this bill and I commend the member for Newland for bringing it forward.
The Hon. I.F. EVANS (Davenport) (10:54): The government has decided to bring this particular bill on today. It is regrettable that it did not advise the opposition spokesperson (namely, me) that it wanted to bring it on today, because I could have advised it, as I now advise the house, that because the private member who introduced this bill filed amendments to the bill just three weeks ago, which I have sent to the industry groups for consultation and on which I have not received any feedback from the industry, of course, it is difficult for the opposition to finalise its position on the bill. So, having not been advised, I inform the house that I am speaking as the opposition spokesperson knowing that the Liberal Party has not reached a final decision on this bill because the industry groups have not got back to us on the member's amendments which he brought in just three weeks ago.
However, the government has decided to bring this on, so the opposition is locked into a position of at least having to debate the bill. The opposition will not be discourteous to the member and seek to adjourn it. Even though this government has for years sought to adjourn virtually every piece of private member's legislation before the house, we will not play the game of adjourning this legislation.
The Hon. M.J. Atkinson interjecting:
The Hon. I.F. EVANS: Because, Attorney, I think the industry groups deserve the bill to be debated on this side of the election. Right?
The Hon. M.J. Atkinson: You are virtue itself.
The Hon. I.F. EVANS: No, I am happy to have the debate. When this was first introduced, the industry groups had an anti position. When I talk about the 'industry groups', it was the Master Builders Association and the Housing Industry Association. When it was first introduced, I think Mr Xenophon or Mr Darley in another place opposed this principle, and they opposed it on a number of grounds, particularly because it did not take into account all the building industry chain, that is, right from the financing through to the lowest subcontractor.
They opposed it because of the privatisation of the arbitration system. It is interesting to see that the Labor Party is supporting the privatisation of the arbitration system in this bill, because they are private sector arbitrators, they are not government appointed arbitrators. That is what the government has locked itself into in this bill. It will be the first time, to my knowledge, that private sector arbitrators will deal with this sort of matter, but if that is the government's policy, so be it.
The industry groups were opposed to the principle of this bill for many months. Then the member for Newland picked up the bill and introduced this type of bill. I sent it out to the industry groups many months ago. The Housing Industry Association and the Master Builders Association, from memory (I do not have my documents here, because the government did not tell us that it was bringing it on today), opposed it at that point in time, because of a whole range of issues that were well-known to the government prior to the introduction of this bill.
My understanding is that the member for Newland has tabled some amendments, and I have sent them out to the industry groups. The Master Builders Association indicated to me last week, from memory, that it is generally supportive of most of the amendments but not all. I have not heard back from the other industry associations to whom I have sent them; certainly, the feedback has only been from one group. The opposition's view—and this is my view only at this stage, of course, because it has not gone to the party room—is that we are generally supportive of the principle. I think I am right in saying that I am the only member of parliament who comes from the building industry. I think I am right in saying that, having been a licensed builder.
The Hon. K.O. Foley: I sold steel.
The Hon. I.F. EVANS: The Treasurer says that he sold steel. My understanding is that that is the retail industry. I was actually building houses.
I am familiar with the problems that the bill seeks to address, but, unless the bill gets it right, it will create more problems for the industry than already exist. The member for Torrens talks about the issue of cash flow in the building industry. That has always been a problem, and the reason the building industry associations opposed the original bill was because it did not deal with the finances. So, if the banks did not pay the builder, the builder was still obligated to pay down the chain and, of course, that created huge cash flow problems for the builders. If the banks do not release the money to you, then how you pay is an interesting question to which the member for Torrens might like to turn her mind.
I am familiar with the cash flow problems existing in the building industry which this bill seeks to address. The groups that do strongly support this, of course, are the subcontractor-based industry groups. What I am talking about there is the Electrical Trades Association and the Plumbing Industry Association—those sorts of groups that contract to the main builders.
Mr Rankine and a number of representatives from other industry groups came to see me three or four months ago on this bill as part of the consultation process. At that point, they me that they understood that the government was looking at amendments and that, until they had seen the amendments, they were not sure what they were, either. Again, we have not heard back from those groups about what they think of these amendments before the house today. My view, as the small business shadow, is that, in principle, the Liberal Party would support a bill that would attempt to try to bring some better certainty to the payment system within the building industry, but at this stage we will not support a bill that does not have the broad agreement of the industry.
I cannot confirm to my side of the house that it does have the broad agreement of the industry, because the amendments being tabled were sent to the industry groups only a matter of weeks ago. If I knew that the government wanted to bring this on today we might have been able to track that down earlier, but the reality is that we have not received back the position of the industry groups. I know that the Master Builders Association had a major problem with the arbitration system, which is still proposed under this bill.
I suspect that the Housing Industry Association would have exactly the same problem with the arbitration system. The building industry is a very complex industry. You might have on any one site hundreds of different businesses, all with different contractual arrangements, all with different responsibilities, and cash flow has always been the problem. There are two different models of security payment legislation in Australia. There is essentially the eastern states model, which the member for Newland picked up originally and which he has now altered through a series of amendments.
There is the Western Australian model, which is the industry-preferred model—and when I say the 'industry' I mean the building industry, not necessarily the subcontractors. The building industry prefers the Western Australian model, which is used in that state and in the Northern Territory. The government has looked at both models, I assume, and has gone with the New South Wales model. I think it is a pity that the process adopted has occurred in this manner. There was goodwill—and there is goodwill—on this issue from the industry groups and, indeed, the opposition and the government.
Why the government did not ring me a week or even three days ago and say, 'We're going to bring this on on Thursday—'
Mrs Geraghty: Because it's a private member's bill.
The Hon. I.F. EVANS: It may well be a private member's bill, Madam Whip, but the whip on the private member's behalf can ring the opposition and suggest that you are going to bring it on. That never occurred, to my knowledge. That is a pity because we could have had a complete debate, but why bring it on for a half-informed debate? The position of the Liberal Party, which I am putting down without the consultation of the party room, is that in principle we support the position, but we will not support a bill that does not have broad industry support. The arbitration clause is still an issue in the industry which needs to be sorted out.
Mr GRIFFITHS (Goyder—Deputy Leader of the Opposition) (11:04): I also wish to make a brief contribution on this bill. I congratulate the member for Davenport, the shadow minister, on his summation of the concerns at the moment. Since the member for Newland introduced this bill, and in the period that I had responsibility for small business as shadow minister, I did have a lot of contact—nearly on a weekly basis when the parliament was sitting—with the member for Newland to determine when it was intended to bring this bill forward.
The words the honourable member quoted to me every week were, 'Amendments are being considered.' I suppose that fact has created some uncertainty from our side of the chamber as to when this bill would come on for debate. As the member for Davenport said, we certainly understand the intent behind it; we certainly appreciate the fact that to the very large number of contractors involved in the building industry timely payment is critical for them and the cash flow situation that results. Unless bills are paid promptly, contractors are put under enormous pressure. The intent is clear.
The concerns that exist from various sectors within the industry—certainly in Western Australia and the Eastern States, and I met with one industry group which also expressed some varied opinions about this bill—make our position even more firm that industry groups must have the opportunity to consider the amendments that have been introduced by the member for Newland. Those comments come back to what the shadow minister said about the party having the opportunity to consider those amendments and form its final position. There is general in-principle support of the intent behind the bill, but it is that lack of opportunity to ensure consultation to the fullest extent that really concerns us. The Master Builders Association and the Housing Industry Association expressed concerns earlier on. Subcontractors support this measure because it is vital to the people with whom they are involved but, unless we get it right we could create a greater problem. I urge the member for Newland to consider the problem that exists. Yes, support existed several months ago and general in-principle support is there, but we would seek an opportunity to ensure that full consultation allows an informed debate to occur in the house.
Dr McFETRIDGE (Morphett) (11:06): As the member for Davenport pointed out, the opposition's view is not settled on this piece of legislation, although there is in-principle support. I for one will be giving it in-principle support but I want to look at the detail and just go through the amendments and, as the member for Davenport said, seek the opinions of the industry, not just the subcontractors but the big players in the industry—the Housing Industry Association and other members of the construction industry.
I know that, as a small business owner who issued hundreds of invoices every week, it was very frustrating not to get paid. That was just in the veterinary practice. Although most vets do not give credit, I gave credit to people who presented at my practice. They had pets that were victims of a circumstance in many cases: it was not the pet's fault, people could not pay, and so I did give credit; and, in the vast majority of cases, those bills got paid.
But what happens in some cases is that you get part of the payment and not all of it. Chasing those very amounts, particularly in small business—and this is an issue for all small businesses chasing small accounts—is a real issue. Perhaps this bill needs to go a bit further, or more legislation needs to be introduced to extend this sort of security of payments to small businesses, because issuing summonses, making phone calls or sending letters is just not good enough.
At one stage I put up the names of my bad debtors on my noticeboard in the clinic, with a few dud cheques that had come through as well. I was told that you could not do that because of the privacy legislation, so I reluctantly took them down. Chasing small debts, for businesses, is a real hassle when you are out there. It is sometimes a wheelbarrow business: if you do not keep pushing that wheelbarrow, the business stops, and you need to get paid.
I had one particular client who was a farmer. He was known as Mr 10 Per Cent, because he always took 10 per cent off any bill he ever paid. That fellow did not get any discounts; I can guarantee that. Where I might have been feeling a bit generous on a particular day—
The Hon. I.F. Evans: Did you put his bill up 20 per cent?
Dr McFETRIDGE: I was very tempted, as the member for Davenport says, to put his bill up 20 per cent, but I did not do that. I resisted that temptation. I always delivered the service, because, as I said, it was not his animals' fault that he was a bit of a scrooge. Getting paid is so important for small business.
I have had a number of constituents come and see me about the building industry and their subbies, who are out there working very hard to get paid, to do the work, to get paid, to run the business. They need to get paid because they have to then buy their supplies, pay their apprentices, pay all the people working for them. It is a supply chain. If you break that chain at any stage you are in real strife. The fact that there is a deliberate ploy on behalf of some of the big building companies to delay payments for financial purposes, for accounting purposes or for taxation purposes, there is a ploy there—
Ms Chapman: To save money.
Dr McFETRIDGE: To save money, I suppose, in some cases, as the member for Bragg says. There are good business decisions and there are bad business decisions. In many cases, the reason that we get this sort of legislation is because of those business decisions which do unfairly affect some of these subbies and those lower down in the food chain, the supply chain, of the building industry.
What we need to do is make sure that everybody in that supply chain is comfortable. The money has to come from somewhere. It has to end up distributed throughout the whole of the industry. We have to make sure that this piece of legislation is not going to in any way force people into circumstances which really are beyond their control.
If the banks, for some reason, do not forward a payment on time, or if it is a day late after the prescribed time of the legislation, then the person involved could be in a bad position through no fault of their own. They have done their best, but there has been a bit of a break in the supply chain, there has been a bit of a breakdown in communication—for instance, the fax did not arrive, the email did not arrive, or it has been overlooked. If there is a breakdown in the supply chain we have to be very careful that there are no unintended consequences. Until we get feedback from the other players, the stakeholders, who the member for Davenport has contacted, we cannot form a final position on this.
I do know of some South Australian building companies who, unfortunately, have a reputation of not paying all of their bills. It is a bit like my Mr 10 per cent, they only pay part. It is a deliberate ploy, and I think it is a disgraceful thing if those building companies are not exposed. If this legislation is not going to capture those sorts of people, well, I would be very disappointed.
We need to know that it is going to do its job. We need to know that those involved in the building industry are going to be comfortable with the private adjudicators—an interesting bit of privatisation there. We need to know that the subcontractors are going to be happy with that system. If you are a subbie, if you are out there working your backside off, and you are a sole trader, it is a bit hard to take a day off to visit the adjudicator and to go through more difficult red tape, as they might see it.
It needs to be simplified to the point where the honest processes that should apply do apply. We do not have all the feedback from the stakeholders. We have some amendments here. I am not across these at the moment, and I make no excuse for that, because this is a piece of legislation that is important. I will make sure that I do follow it up as an individual and, having had representations from some constituents a while ago, it is important that we make sure it is going to work properly.
I know that the member for Newland is well-meaning in this, but it is not good enough just to be well-meaning. It cannot be rushed, it has to be put through this place in a constructive fashion, a fashion that is going to be examined and looked at, so that we do not have to come back and make amendments in a few weeks' time.
I remember the legislation that was put through this place for codes of conduct for sporting groups. It was rushed through this place. It was needed, it was needed to save all the sporting groups. What happened? We had to come back and we had to move amendments through, because we realised we needed waivers for the Masters Games that were being held in Adelaide. We should not be doing that.
We should not have to come back and repeatedly revisit pieces of legislation. If we had done the work in the first place, if we had made sure that the legislation was agreed to by all those who have a stakehold in it and it is given the opportunity to be examined by members of the opposition, then the situation we find today is one that we will see over and over again, and we will be revisiting legislation, taking up the time of the house unnecessarily. It is a position that everybody in this place needs to be aware of.
What we need to do now is recognise that this is in principle a very good piece of legislation, but the practicality of the situation that we are faced with today is that we need to have a further look at what is going on so that we do get it right, so that the subbies out there can get paid for the work they are doing, so that their families can enjoy life without having to worry about the old man, or the tradesperson, coming home and saying, 'Well, we're not getting paid, so what do we do this week?' It is a very important piece of legislation, and I look forward to seeing the final results of it, because I hope it does what is intended.
The Hon. R.B. SUCH (Fisher) (11:15): I will make some brief comments regarding this bill but extend the argument to broaden it a bit. I have felt for a long time, and I have done some preliminary research on this, that the issue of bad debt in our community is extensive and it really hurts small business, in particular, when people do not pay their bills. I regard a bad debt, or an unpaid debt, as a form of theft. It is no different in terms of its impact from someone stealing from the small business operator.
The big business concerns can usually protect themselves somewhat against bad debts and people who do not want to pay, but for small operators it can literally put them out of business; it does not matter whether they are a subby in the building industry or whether they are doing any other type of activity.
For a long time I have been amazed that as a community we do not seem to take this seriously. I know we have a small claims court and that people can take legal action but, from the cases that I have seen, by the time people take action—in some cases, they have to engage a lawyer—with the time and money that it takes it is really almost counterproductive. I am not sure what the answer is. I am trying to work on some approaches, but the point is that the current system is not fair and reasonable for a lot of small business people.
We would all know, I guess, through our contact with schools, of the number of parents who do not pay the minimum required contribution to their school. Some of them use the argument that it is supposed to be a free system. We all know that there is no such thing as a free anything in life; there is no such thing as a free lunch or a free education, that is all theory. What is often galling is that many of the people who can afford to pay choose not to pay, and it becomes for them a habit and a practice which is not only bad for small business, in particular, but it is unethical, in my view, to put someone in a position where they are on the verge of going out of business.
I support any measure which will help address this issue of bad debts or lack of payment. I am not totally convinced that this bill is the right strategy, but the issue of bad debts is certainly one where I think you need the resources of government to have a look at it to see if we can bring some fairness and equity into the system of payments. I have had contact with some business organisations, and it is very difficult to get some of the data that you would need to spell out some reforms, but I will continue to work on it. It is a big issue and I think the sooner we can rein in people who bludge off others, the better.
Mr HANNA (Mitchell) (11:18): I am addressing some issues which have been brought into this parliament by the member for Newland, Mr Tom Kenyon. He is a fine young member, at least when he is playing rugby union. He has brought in the issue of payment to subcontractors in the building industry.
Before I get on to the substantive issue of the bill I must make a procedural point, that is, that this piece of legislation has only been in the parliament for a few weeks, whereas other non-executive members of the House of Assembly have brought in pieces of non-government legislation, which we call private members' legislation, that have been around for much longer.
I will give an example. I have a bill, which in my own humble way I would consider quite worthy, to prevent the owners of nursing homes from signing death certificates for the residents of their own homes. That was a proposal that I brought into this place on 25 September 2008, so it has been around for more than a year, and yet the government chooses not to deal with such measures.
So, I just highlight the one-sided view of the government. Of course, it is entitled to do that, but the problem is that, in this place, what goes around, comes around; it is perpetuating a harsh and ruthless method of operation in this place when, in fact, all non-government proposals ought to get a fair hearing in this place in the one hour a week allotted for such discussion.
In relation to the Building and Construction Industry Security of Payment Bill that has been brought in by Mr Kenyon, the first point I would make is that it is extremely broad. When you look at the definition of those involved in building and construction work, it pretty well covers everything to do with the construction and finishing of any sort of building that you could imagine. It would cover every kind of trade, including painters, fitters, decorators, bricklayers, electricians, plumbers, gasfitters, you name it.
That fits, of course, with the intention of the bill that these people, when they do work, ought to be paid, and I do not have a problem with that principle. However, it is not quite as straightforward as it might appear. One point that has already been made in debate, which I think is a critical one that has not yet been addressed by Mr Kenyon or Mrs Geraghty on the government side, is the issue of enforced payment of subcontractors when the builder, at the head of the chain of contracting, does not have the money to pay.
It may be that a young couple orders a new home to be built, the builder is happy to do that and engages all of the various subcontractors, and they start work, then the young couple might split up, they might lose their jobs, or some other tragedy might occur and they cannot continue with the building of the house, so the builder does not get paid.
Under this legislation, the builder must, nonetheless, pay the subcontractors for the work they have done, so the question is: why should the builder lose out? There does seem to be a lack of equity in that. It is all very well to say that some of these building firms are big firms that can withstand that sort of imposition, but there are plenty of other small builders, sole practice builders, who are really in as much of a difficult situation as the contractors they use to finish their work. I am sorry that I have only 10 minutes today to speak on this bill (that is the restriction on time to speak on these issues) because I am actually quite impassioned about it.
We also need to bear in mind that there is already a course of action for subcontractors who are in the position of not being paid. I know that all sorts of criticisms can be made about the court system, but it also has a lot of advantages. I have to say that the debt collection system has really improved a lot over the last 10 or 20 years. In the Magistrates Court, they have made huge efforts to streamline the process of getting money that is owed to people, and that is particularly so in the case of a straight-out debt that remains unpaid.
When we get into the area of disputed workmanship, and whether a certain level of building has been completed, we do get into a grey area. The member for Newland would wish to send those issues off to an adjudicator, a private sector adjudicator. I believe those issues actually do need to go to court. It is not necessarily just a matter of whether the right colour paint was chosen; some of these issues are incredibly complex. I remember when I was involved in legal practice (I am a lawyer only in name now), but when—
The Hon. R.B. Such: And by reputation.
Mr HANNA: Thank you.
Mr Pengilly: Once a lawyer, always a lawyer.
Mr HANNA: That's right. It is a bit like the priesthood: if you keep up your practising certificate, you are always a lawyer, even if you do not practise. When I was practising law, one of the cases I had involved a boat at Adelaide Brighton Cement. The key issue in the case was whether or not the electrical wiring of the boat was adequate. It was of such vast complexity (it was a trial that went for a number of days) that I have to say that I could not have expected the sort of private sector adjudicator envisaged under this bill to have presided over such a complex issue.
The people involved in that trial virtually had to become instant experts on complex electrical wiring to come to a reasonable conclusion about the answers that needed to be arrived at in that case. So, the adjudication provisions are not as attractive as they might appear at first. After all, who are these adjudicators going to be?
I presume there will be people who are actively involved in the building industry or perhaps retired from the building industry. However, to cover every aspect of the building industry with the expertise that is sometimes required, especially in more complex cases, I am not sure that you will get the full range of adjudicators to cover all those eventualities.
The member for Torrens mentioned that this might have to be industry funded. I am not sure that the building and construction industry has been properly consulted about how much it will have to pay for a separate adjudication process. The court process, in a sense, we all pay for as taxpayers; however, this adjudication process, which might amount to hundreds of thousands of dollars or maybe even millions of dollars a year (I do not know how many building and construction disputes there are) could be a very expensive imposition on the building and construction industry.
Another issue I raise in relation to this is the interrelationship between the enforced payment of subcontractor bills and insolvency laws. If someone in the chain of subcontracting becomes insolvent, what happens then? We have state legislation that provides that the next person down the chain needs to be paid, but we also have an insolvency practitioner, who is looking at a range of debts of the person one step higher in the chain, who has to decide which debts are paid and which are not. So, I think that is an issue that has not been addressed. No doubt, in discussing the bill in detail at the committee stage, we can sort through some of these issues.
It has also been pointed out that legislation like this operates in some other states, and that raises another interesting point: perhaps this whole thing ought to be resolved federally through the Corporations Law. If people think that is a silly idea, it is exactly the argument that Premier Rann uses in relation to having an independent commission against corruption. He says, 'Why would you do it on a state-by-state basis when you could have one overall scheme?'
I believe that could work very well. If we must have such a scheme for enforced payment of subcontractor debts, why not do it on a national basis for all corporations? I think you will find that most of the parties affected would be a company, even if it were a sole director company or a family company. I think that the exemptions that are provided for in the bill also need to be pointed out.
Time expired.
Mr KENYON (Newland) (11:29): I thank all members for their contribution and make a few very brief points. While the amendments have been on file for only three weeks, they have been out to the industry for a bit longer than that. It is my recollection that I gave the amendments to the opposition before I tabled them formally. However, I gave them to the member for Goyder; that was my mistake, as I had not realised that had changed.
For the member for Mitchell, the amendments I put forward are all the result of industry consultation that took place after I introduced the bill in March. That said, the MBA has been completely consulted, and it has a fundamental problem with the method of resolving these issues, but we will get to that at the committee stage. I commend the bill to the house and thank members for their contribution.
Bill read a second time.
In committee.
Clause 1 passed.
Progress reported; committee to sit again.
Members interjecting:
The SPEAKER: For those members who are whingeing 'The bell, the bell, the bell,' it is the practice of the chair—not just this chair but all chairs—to allow a certain stage of proceedings in which we can conclude what is being done, and that is done mainly for the efficient running of the house and as a courtesy that is extended to all members, and members who have been here much longer than I have should know that.
HOUSE OF ASSEMBLY
Thursday 29 October 2009
BUILDING AND CONSTRUCTION INDUSTRY SECURITY OF PAYMENT BILL
In committee.
(Continued from 15 October 2009. Page 4324.)
Clause 2 passed.
Clause 3.
The Hon. I.F. EVANS: The objects of the act relate to those who undertake to supply related goods and services. My understanding is that, in similar bills around Australia, goods and services are not included. Can the government explain why it has included it?
The CHAIR: Member for Davenport, this is a private member's bill and I will ask the member for Newland to respond.
The Hon. I.F. EVANS: Sorry, Madam Chair, I understand the government has suspended standing orders to bring in the private member's bill, so obviously the government is supporting it, and so I assumed it was a government bill.
The CHAIR: However, the bill is being managed by the member for Newland as a private member's bill. The member for Newland.
Mr KENYON: This bill is pretty much a straight copy of the New South Wales act, and because I am not amending this particular clause in any way, it has just been lifted straight from the New South Wales act. So, in fact, they are included in New South Wales in this case. That is my understanding of it.
Clause passed.
Clause 4.
Mr KENYON: I move:
Page 4, line 22—After '31 December;' insert:
or
(c) any other day on which there is a statewide shut-down of the operations of the building and construction industry;
This amendment gives effect to including industry-wide shutdown days and days that are not included for the purposes of calculating the number of days to respond. This amendment arose out of consultation with industry, particularly the MBA in this particular case. It means that, particularly over Christmas when there is an industry-wide shutdown for quite a number of days or rostered days off for the whole of the industry (which I am told occur once a month), they are not included for the purposes of calculating response times, adjudication times and the like.
Amendment carried.
Mr KENYON: I move:
Page 5, lines 9 and 10—Delete the definition of recognised financial institution
This amendment deletes the definition of 'recognised financial institution' and part of the amendment is designed to include the banking agreements within the chain so that the whole chain from the lower subcontractors (if I can use that term) right up to the builders and financiers, or the developers of a project are included in the chain for claims.
The Hon. I.F. EVANS: I will make some comments in relation to this particular amendment. As the member for Newland has suggested in the amendments to his own bill, he is now deleting the words 'recognised financial institution' from the bill which has the impact of making the bill apply to financial institutions. Now the banking industry tells me that this is the only bill in Australia that will apply to financial institutions. When I rang the banking industry and asked them whether they had been consulted about the bill and the amendments, the answer was no. For the sake of the record—and I do not have the numbers in this chamber—and for the purposes of the committee, I will read the banking industry's view on the member for Newland's amendment to his bill.
The letter is dated 27 October and it is from Ian Gilbert. Ian Gilbert is the Director, Retail Policy, Australian Bankers' Association, Sydney. The letter states:
Dear Mr Evans
Thank you for bringing this matter to our attention and seeking our views. In the limited time available I provide some points for consideration.
The impact of the proposed amendments, if passed, on financial institutions is not entirely clear but we believe the following points ought to be taken into account to conclude that the Amendment to include financed construction contracts should not proceed.
1. Comparable legislation in New South Wales—
The Hon. M.J. Atkinson: Comparable.
The Hon. I.F. EVANS: Well, the Attorney keeps giving me grammar lessons.
The Hon. M.J. Atkinson: No; pronunciation in this case.
The Hon. I.F. EVANS: Yes; that as well. I will continue:
1. Comparable legislation in New South Wales excludes construction contracts that are financed by banks or other prescribed financiers. We assume from the fact of this exclusion that the Parliament of New South Wales was concerned about the possible harmful impact on the construction industry that might eventuate where a financier's exposure to increased credit risk would be increased by the legislation.
2. The second reading speech in the Assembly on 8 September 1999 included this passage: 'Particular types of contract are excluded from the operation of the legislation. The main exclusions are: contracts for residential building work with the person who resides in or proposes to reside in the premises on which the work is carried out; employment contracts; contracts of insurance or loans or guarantees with recognised financial institutions; contracts where the payment is not made in monetary terms, for example, a contract where in return for carrying out constructing work, the contractor is to receive the right to lease or operate the building or structure; and contracts for construction work carried out outside New South Wales' (my emphasis) but is silent on the reasons for these exclusions.
3. The exclusion of the bank financed construction contracts was a deliberate policy decision that enjoyed general bi-partisan support. We conclude that this reflects the recognition and understanding of the risk to the construction industry in New South Wales if bank financed construction contracts were included.
4. The meaning of 'construction contract' would include both the head contract with an owner and the subcontracts between the head contractor and the subcontractors. Despite the terms of the contract, a party to a 'construction contract' may claim progress payments according to the legislation which may have cash flow implications for head contractors and owners flowing through to financiers. A claim would be an unpredictable and therefore relevant event in a bank's assessment of its credit risk exposure.
5. Feedback from members of the [Australian Bankers Association], indicates that if bank financed construction contracts are to be covered in the South Australian Bill, a bank would need to undertake additional due diligence to ensure that its developer/owner customer would have the ability to meet the call of the subcontractor in the event that the bank determined not to make a progress payment because, for example, a concern over the loan to the value ratio if the payment were to be made at that stage of the construction.
6. Further, a claim for progress payments outside the normal terms of the construction contract could place additional stress on the cash flow of the bank's developer/owner customer, potentially increasing the risk to the bank. This may result in a broader approach by banks to credit risk in this industry in [South Australia]. How much this would impact is unclear but the effect would need to be taken into consideration deal by deal. A bank may have to review its standard form construction finance contracts and its credit risk assessment to account for untimed progress payment claims.
7. Another implication with the Amendment is that it will, in effect, disturb the contractual relationship between a bank and its customer where an assessed and prudent provision of finance according to the terms of the associated construction contract is displaced by an unpredictable and untimed alternative obligation reached by an adjudicator that may have the effect of an order of the court.
It is possible further feedback may become available before Thursday which I will provide to you in that event.
Sincerely
Ian Gilbert.
The reason I read that into Hansard is that, because the banking industry had not been consulted on the bill until this week, that information has not gone to the Housing Industry Association from the mover of the bill or, indeed, the Master Builders Association or the subcontracting associations.
Obviously I am distributing it to those organisations to seek their views because it was one of the building associations—the Master Builders Association or the Housing Industry Association—that lobbied hard to have the banks actually included in the system. It is obvious from the banking industry's advice that the South Australian legislation, it appears at least, would be the only legislation in Australia that would bring the banking system into this particular process. The banking industry says that would put South Australia's construction/developer industry into a different pool of law, which would add a risk component. Obviously, that would lead to a higher cost in South Australia.
I understand why the member would move the amendments, because they were requested by the various building associations. Unfortunately the banking industry was not consulted, or the government was unaware of that advice until this moment—indeed, the housing industry and master builders associations have not really had a chance to grasp it. However, on that basis the opposition will not support the amendment at this stage.
We will talk to various building associations between the houses but, based on the advice that it could put a higher cost and a higher risk on construction contracts in South Australia, and based on the advice that it does not exist in other states, I am not convinced at this stage that the opposition needs to support the amendment. I am not sure why the Housing Industry or Master Builders would argue that South Australia should adopt a different position to everywhere else in Australia on this point, and at this stage the opposition will not support the amendment, subject to further advice from the industry.
Mr KENYON: I understand the points raised by the member for Davenport, and would like to make the following comments. The amendment came as a result of consultation on this issue, with the Master Builders in particular, who were very keen for the entire chain to be included. As it is, I can see how the concerns of the banks may arise, and there may be an increase in due diligence. However, what is becoming payable is not more than what would ordinarily become payable. I am assuming that we are not seeing a cost blow-out or work over and above what should have been approved.
I suppose we again come down to the issue of variations within the building industry or with variations from contract. However, this bill aims to see payment through to subcontractors from contractors or builders, to people who have undertaken work or bought the material. The aim of the bill is to ensure that people receive due compensation, in a timely manner, for their labour and for the materials they have purchased. We all know that the smaller the business, or the lower the amount of cash flow for a subcontractor, the more difficult it is for them to bear that cost. The premise of this bill is that the people who bear the cost are the people who are most able to pay the cost, right up through the contractual stage.
So, having consulted with the building industry about it, particularly the MBA, and having come to this amendment through that consultation, I think I will continue forward with it. We would probably be keen to see what comes out of further consultation that may arise with the banking industry; in fact, I am happy to contact the banking industry and see how that goes. However, for the moment, it is not an unreasonable burden placed on banks because it is paying money that they have already contracted and agreed to pay, for the most part, through their contracting process.
The Hon. I.F. EVANS: I will not hold the house long; the member knows that the opposition supports the bill in principle and will not hold it up unduly. However, I think I am the only member in the house who comes, basically, from a building background. I may be wrong, but I think I am correct.
The bank is really saying that it contracts to the builder based on contracted progress payments. So, at certain stages of work certain amounts of money will be paid through. Under the bill, claimants can claim money outside of the progress payments. So the bank contracts for certain finance based on a certain cash flow provision—in lay terms, footings X amount, walls another amount, roof another amount, second fix another amount, etc.
Under the bill, the reality is that the claims do not have line up just with the progress claims as per the contract; so they can actually claim for work in between the progress claims, particularly goods and services. So, if you have supplied the equipment but that stage of the work is not finished and you are not getting paid, then you can claim. That is outside of the bank's contracted progress claim, so the bank is then saying that that is fine, that it is going to look at the building company and say, 'If we only pay you according to the progress payments we are contracted to, how are you going to finance any other claim in between time?'
The reality is that it will compromise and compress the builder's cash flow, and that, obviously, has implications for trading terms for builders. That is what the bank is actually saying and that is why, I think, the MBA and HIA may have to rethink their position.
Amendment carried.
The Hon. I.F. EVANS: I have a question relating to construction contract. Is it the intention of the bill to cover all types of contracts, including cost plus contracts, where there are no progress payments, necessarily, and is it also going to cover all domestic work, commercial work and industrial work, or is domestic work excluded?
Mr KENYON: No, all contracts, including the cost plus contracts that you mentioned, are envisioned to be covered. One of the specific objects of the act is to outlaw, for instance, 'pay when paid' provisions in contracts, and the like. It specifically gives subcontractors, or those involved, the opportunity to claim progress payments even where they are not envisaged in the contract between the contractor and the subcontractor. So, with the proviso that I have a fairly limited knowledge of the types of contracts, I am assuming that I am correct on that. Again, I will give an undertaking to the member that I will investigate that and get back to him so that he can have various amendments made in the upper house, should he choose to do that.
Clause as amended passed.
Clause 5.
Mr KENYON: I move:
Page 6, line 6 [clause 5(1)(e)(iii)]—After 'dismantling of' insert: fences or
Amendments Nos 3 and 4 increase the definition of services that are included.
The CHAIR: Thank you, but I can only consider amendment No. 3 at the moment.
Mr KENYON: That is my explanation for amendment No. 3, but the same applies for amendment No. 4.
Amendment carried; clause as amended passed.
Clause 6.
Mr KENYON: I move:
Page 6, line 36 [clause 6(1)(b)(iii)]—After 'advisory' insert: or technical
As previously stated, this expands the services that can be included.
Amendment carried.
The Hon. I.F. EVANS: Clause 6(2), at the bottom of the page provides that, 'related goods and services does not include goods or services of a kind prescribed by the regulations'. Could you give the house some indication of what goods and services you think will be exempt from the operation of the act that you may be looking to put into regulation?
Mr KENYON: In fact, I cannot. We would be relying very heavily on the New South Wales regulations, I suspect, when we draw them up. I apologise to the member for Davenport for not being able to answer his question. Again, I undertake to get that answer back to him between the houses.
Clause as amended passed.
Clause 7.
Mr KENYON: I move:
Page 7—Lines 7 to 25 [clause 7(2)]—Delete subclause (2) and substitute:
(2) This Act does not apply to a construction contract under which it is agreed that the consideration payable for construction work carried out under the contract, or for related goods and services supplied under the contract, is to be calculated otherwise than by reference to the value of the work carried out or the value of the goods and services supplied.
Lines 31 to 33 [clause 7(3)(b)]—Delete paragraph (b).
After discussions with the MBA and private builders, these clauses bring in residential housing. This particularly affects smaller builders who often find that they finish a house and put in their final invoice, which may be for an amount of $5,000 or $10,000, to the homeowner for completion of the house and the homeowner just does not pay. This particularly affects smaller builders; it is not as much a problem for larger builders. Going back to the principle of the other clause with the financial institutions, it brings in the entire chain from the customer right through to the smallest contractor; everyone is involved in the process.
The Hon. I.F. EVANS: Can the member confirm for the committee that the HIA supports this amendment?
Mr KENYON: I have received correspondence from the HIA just recently—in fact, in the past couple of days—and it is happy with this amendment. I am happy to show the documentation to the member.
The Hon. I.F. EVANS: I would be interested to see that, because I will read a letter that the opposition has received from the HIA in relation to this matter. The HIA wrote to me on Tuesday 20 October regarding the bill in response to a letter that I sent seeking feedback in relation to the amendments tabled by the member for Newland. So, it is in direct response to the amendments. It states:
I refer to previous correspondence in relation to the above Bill, in particular your letter dated 23 September seeking feedback in relation to the amendments tabled by Mr Kenyon. HIA believes that any new legislation must be based on a demonstrated need for increased regulation, in the case of this Bill, HIA does not see such a need in the residential construction sector in South Australia. It is our experience that payment disputes between builders and their sub-contractors are usually dealt with in a timely and effective manner by invoking the procedures available pursuant to the Worker's Liens Act 1893.
Having reviewed the Act, it our view that the Security of Payment system proposed under the Act would add another layer of complexity and regulation, which ultimately would result in our members being forced to seek legal advice and incur the expense associated with doing so, this is something often avoided under the current arrangements. Furthermore, we are concerned that the timeframes and penalties strictly imposed by the Act may result in an unjust outcome simply as a result of an administrative oversight.
If the chair would indulge me for 10 seconds I will finish reading the rest of the letter and that way we will not have to deal with it in another clause. The letter continues:
Despite our concerns with the Act as a whole, we do commend some of the amendments tabled by Mr Kenyon. HIA believes the amendment number 5 (to clause 7(2)) will make the Bill much more effective. By far the largest volume of payment disputes arises between a home owner and a builder and the failure of a home owner to make a payment then impacts on a builder's cash flow and in turn their ability to remit payment to their sub-contractors. The removal of the restriction on taking a Security of Payment action against a home owner is a welcome step.
The way I interpret the HIA's letter is that it supports amendment 5 to clause 7(2) which we are dealing with at the moment. They reason they support it is that the homeowner is going to be brought into the provisions of the security payment legislation so that they could be subject to a claim by a builder for a security of payment under the scheme. For that reason, the HIA supports it. Individuals who contract with a builder will now be subjected to this particular provision.
I think this goes back to what the banking industry is saying. Given that that is going to occur, if the bank has a problem with the site, for some reason, or with the agreement with their customer as to at what point they are going to pay the money, the question becomes: how will that private citizen fund the payments of the builder if the bank has not paid them?
I will not talk any longer. The HIA supports this and the member has outlined the reasons for the particular amendment. It is clear to the committee what it is voting on.
Mr KENYON: With the indulgence of the member for Davenport, the information I was going to provide is very similar to that letter and if he is okay with it, then that is fine.
Amendments carried; clause as amended passed.
Clauses 8 to 10 passed.
Clause 11.
Mr KENYON: I move:
Page 9, line 18 [clause 11(1)(b)]—Delete '10' and substitute: 15
It may be possible to do amendments 7 through—
The CHAIR: We cannot, member for Newland, because they apply to different clauses. However, if you speak to one we will put them very quickly.
Mr KENYON: Suffice to say that, after consultation with industry, it was decided that 10 days to respond and adjudicate was, in fact, far too short and it was extended to 15 days, mirroring the New South Wales legislation.
The Hon. I.F. EVANS: I am not going to hold up the committee unduly. Some of the industry groups think that should be 21 days and it is likely that the opposition will move an amendment to that effect in the other place.
Amendment carried; clause as amended passed.
Clause 12 passed.
Clause 13.
Mr KENYON: I move:
Page 10, line 35 [clause 13(4)(b)]—Delete '12' and substitute: 6
In the present bill, people wishing to avail themselves of the provisions of the bill have 12 months to do so. Again, after discussion with industry, it was decided to reduce that from 12 months to six months. Given that the time to respond is quite short, when the claim is put in it is best to try to minimise the burden as much as possible on those who have to respond and ensure that they do not have to go back through 12 months of records, so it was reduced to six. That is the purpose of this amendment.
The Hon. I.F. EVANS: The committee needs to understand what the process is. The person wishing to lodge a claim, under the member for Newland's amendment, will now not have 12 months to do so, but will have six months to do so. The person responding will have 15 days, instead of 10 days. One side of the ledger had 12 months but it is now six months to lodge a claim, and the other party gets only 15 days to respond. The proposal was to make it 12 months and 10 days. The opposition will, at least, support the shorter time frame down to six months.
The reason the industry has sought these different time reasons to stop what they call ambush claims. You can imagine, finding on your doorstep on a Friday night a claim that dates back to figures 12 months and all the paperwork you have to do and you have only 10 days to respond, how one party could ambush the other, in effect.
So, what the industry is trying to protect itself from—I think quite fairly—are ambush claims. There has to be reasonable time to act in the first place (if it is a serious issue, then let's act) and a reasonable time in which to respond. Certainly, the opposition will be supporting the six month time frame.
Amendment carried; clause as amended passed.
Clause 14.
Mr KENYON: I move:
Page 11, line 20 [clause 14(4)(b)(ii)]—Delete '10' and substitute: 15
Amendment carried; clause as amended passed.
Clause 15 passed.
Clause 16.
Mr KENYON: I move:
Page 12, line 20 [clause 16(1)(b)(ii)]—Delete '10' and substitute: 15
Amendment carried; clause as amended passed. Page 4616 HOUSE OF ASSEMBLY Thursday 29 October 2009
Clause 17.
Mr KENYON: I move:
Page 13—
Line 34 [clause 17(3)(c)]—Delete '10' and substitute: 15
Line 38 [clause 17(3)(e)]—Delete '10' and substitute: 15
Amendments carried; clause as amended passed.
Clause 18.
Mr KENYON: I move:
Page 14, after line 20 [clause 18(2)]—Insert:
(ab) if either or both of the parties have nominated the person to be an adjudicator in relation to the contract; or
This amendment is the result of consultation, as are all the amendments. There were concerns that it may be possible for a nominated adjudicator to be written into building contracts and that that would prejudice one party over the other. I think this is a reasonable amendment, and hence I move it. Essentially, it should rule out an agreed adjudicator.
If one or other party nominates an adjudicator, they are not allowed to undertake the adjudication. It prevents the stipulation in a contract or an unfair use of adjudicators. The intent is to have, pretty much as close as possible, allowing for experience, the first cab off the rank—an adjudicator comes along the line and adjudicates on the dispute.
The Hon. I.F. EVANS: What the member for Newland is trying to prevent by way of this legislation is the more powerful party in the contract negotiation demanding of the other party to the contract to agree to a pre-nominated adjudicator. The reason he has that concern is that you might, for instance, have the more powerful party in the contract demand that the adjudicator come from a panel of adjudicators who come from a particular industry that might favour the more powerful party to the contract.
The opposition thinks that the amendment is reasonable, and we will be supporting it. The industry groups have a mixed reaction to the provision. Something I think the member for Newland needs to check between the houses is whether the act protects against a contract having a different adjudication process rather than a different adjudicator. For instance, could a contract say that, in the event of an adjudication being required, the adjudicator will be nominated by a process established by the Australian institute of adjudicators? So, the contract does not nominate the adjudicator but, rather, nominates a process for a different adjudicator outside of the intent of the legislation.
The member may want to have parliamentary counsel look at that to see whether the legislation is strong enough to protect against that avenue, because I am sure that some lawyer will try to think up a way around it if they think it is in their party's interests. However, the opposition supports the principle and we will be supporting the amendment.
Mr KENYON: I undertake to obtain that information for the member for Davenport. My suspicion is that the act will take precedence over the contract, because the act specifies an adjudication process and to whom the claimant must make a request for adjudication. However, I will obtain that information and bring it back.
Amendment carried.
The Hon. I.F. EVANS: If the chair gives me some tolerance here, the committee stage will not last a lot longer, because this clause starts to deal with one of the main issues in the bill and once we resolve that issue the rest of the bill can go through without much debate at all.
Clause 18 deals with the eligibility criteria for adjudicators, and the following clauses deal with things such as the appointment of adjudicators, adjudicator responses and adjudication procedures. One of the key issues about the consultation in relation to this bill between what I will call in general terms the subcontracting groups as against the building groups has been this issue of the adjudication appointment process. There is essentially, for want of an easier description, what is called in the industry a Western Australian/Northern Territory model and then there is an east coast model. Thursday 29 October 2009 HOUSE OF ASSEMBLY Page 4617
The member for Newland has picked the east coast model, and this has attracted some criticism from the industry groups, particularly the Housing Industry Association and the Master Builders Association. It has the support generally of the subcontracting groups. The concern of the Master Builders Association and the Housing Industry Association is essentially to do with the issue of what they call the for-profit adjudicator nominating authority.
They do not have a problem with the adjudicators being private individuals operating a private enterprise as an adjudicator; that is not the issue. That is covered because there is generally a schedule of fees. So, it is not an open market fee process in that sense; there is a cap, a schedule of fees, generally in all the pieces of legislation, and my understanding of the member for Newland's legislation is that there will be a schedule of fees for the adjudicators.
The question then is about what is called the nominating authorities, for ease of description: should they be for-profit, should they be a government agency or should they be not-for-profit? That is essentially the argument. The Master Builders Association and other building industry groups do not like the for-profit model, which is the Eastern States model. They prefer the Western Australian model, which is the not-for-profit model. The subcontracting groups tend to support the for-profit model, which is the Eastern States model. This has been one of the more complex areas of the consultation in relation to this matter, and I have found that the more I delve into it the more complex it can get.
The opposition had amendments drawn to make the Commissioner for Consumer Affairs the person who, essentially, nominates the adjudicator. In response to industry concerns about the for-profit model, we had drafted a model that was run by a government agency. We have put that out for consultation, but we have not had feedback from all the industry groups as yet. Although, in fairness to the committee, I have to say it is now my least preferred model, having listened to some of the groups. That is why we drafted the amendments; that is, to listen to what the industry wants, because this is quite a complicated piece of legislation. Then I looked at the for-profit model—and that is probably an unfair description. The for-profit model is what the member for Newland is using in his bill, which is the Eastern States model. It is probably an unfair description to a degree because it is not an open market model.
I am reading from the 2008-09 annual report of the Queensland Building Services Authority which regulates all the building activity in Queensland. On page 5, the report deals with the issue of adjudication fees. This is interesting because I think this clarifies a few things for the committee. It sets out the level of adjudication fees under their particular security of payment provision. I will read some examples. If the range of the claim is under $5,000, the average fee for the respondent is $661; the average claimant fee is $129; and so the total fee is around $790.
Then there is a scale of fees which increase for claims under $10,000, claims under $25,000, claims under $40,000, claims under $100,000, claims under $250,000 and claims over half a million. Then there is another series of fees and I will quote the highest fees. I am giving the committee the lowest and highest fees. The highest fee is if the claim is over $500,000, then the average respondent fee is $12,105 and the average claimant fee is $4,219. So, the total fee is $16,324.
I met with Mr John Thomas and Dr Tony Sidwell, who have had experience with the Queensland system. They got back to me quite quickly with their response. It is fair to say that they are adjudicators in the Queensland system and have some experience with it. They tell me that those fees, whether they be the $790 fee for the under $5,000 claim or the $16,324 fee for the over $500,000 claim, are then split between the adjudicator and the nominating authority. The people involved in the dispute, say, if it is over $500,000 will pay between them a total of $16,324, and then the adjudicator gets a set amount of that fee and the nominating authority gets another set amount of the fee, which I think is 40 per cent. I think it is split 60-40. It is not an open market approach necessarily.
I would be interested in the member for Newland clarifying for the committee whether, under his bill, there will be a schedule of fees for the respondents and the claimants, and can the nominating authority only then get its payment out of the schedule of fees? What I am trying to establish for the committee is whether the nominating authority, under the member's bill, will be an open market charge or is it limited to take its income source for the nominating authority purely out of the schedule of fees for the respondent and the claimant?
If the nominating authority's income source is restricted to a schedule of fees for the claimant and the respondent, then it is hard to argue that it is an open market and therefore an open-ended cost to the industry. There is a cap on the cost. If there is not a cap on the cost, then I can understand the industry's concern about having a for-profit model. That is the Eastern States model. I will give the member for Newland a bit more time to think about that.
The Western Australian model is a little bit different, and I thank Dr Tony Sidwell for his response almost the same day in relation to some questions that I asked him. One of the questions I asked him was: 'In Western Australia, if it is not a government authority that then plays the role of a nominating authority, and if it is not a for-profit business, then who actually nominates?'
In Western Australia, the nominating authority is what I would call not-for-profit groups and they are groups like the Australian Institute of Arbiters or it might be the architects and those sort of groups. In fact, I have misled the committee to a degree. Dr Sidwell did get back to me with some information but it was not that. It was actually Tom Earls in the Housing Industry Association and I have found the list.
The prescribed appointers in Western Australia are: the Australian Institute of Building, the Australian Institute of Project Management, the Australian Institute of Quantity Surveyors, the Electrical and Communications Association of Western Australia, the Institute of Arbitrators and Mediators Australia, the Master Builders Association of Western Australia, the Royal Institute of Chartered Surveyors and the Royal Australian Institute of Architects. They are the groups that can, if you like, provide the adjudicators in Western Australia.
This is really the nub of the industry complaint. I should make it clear that the MBA and the HIA do not really want the legislation, but I think they are resigned to the fact that they are going to get it in one form or other, so the issue for the committee and ultimately the other place is: which model?
The opposition will not be proceeding at this stage with any amendment in relation to making the Commissioner of Consumer Affairs the group, so we come back to the two existing models. I will be interested in the member's answer as to the for-profit groups and the schedule of fees because that will give the opposition some guidance to what the intent of the legislation is.
Mr KENYON: I will just make some comments. I think it is probably fair to say that the differences between the Western Australian model and the east coast model are greater than just the profit motive or otherwise of the nominating authorities. My understanding of it is that there are significant differences in the way the adjudications are heard and carried out, and it is a little bit more court-like, for want of a better word.
The east coast model is specifically designed to avoid being court-like. It is more a quick assembling of the information and then a decision. It is specifically designed to be a quick process and avoid a more court-like process because, as I understand it, it is the court-like process—the Western Australian model—that is responsible for delays in payment, and of course the delays in payment are the thing that we are trying to avoid. I suspect that it is not possible to effectively achieve the goal of a quick process of payments and have a model that is more like Western Australia. That is the reason for going down the east coast road.
The member for Davenport asked if there was a cap on the fees. My understanding of the bill is that there is no cap on fees. Clause 29(1)(a) provides:
such amount, by way of fees and expenses, as is agreed between the adjudicator and the parties to the adjudication, or—
if there is no such agreed amount, then reasonable expenses should be paid.
There is also the opportunity for a claimant to withdraw a claim and make another claim, because there is more than one nominating authority. That may include the HIA, because there is nothing that precludes the HIA or the MBA, or other contractor associations, from becoming nominating authorities. As it is possible for them to become a nominating authority—there may even be a number of for-profit nominating authorities—I suspect that there will be a certain amount of competitive tension in the area, and that should put a bit of a brake on fees.
I am having a bit of a guess here—and I apologise to the member for Davenport for that—but I suspect that it would be possible in regulation to have a schedule of fees—or perhaps not, the way the act is written. However, I come back to the fact that in this respect it is pretty much a mirror of the New South Wales act and, for want of a better defence, it is working there and I assume it will work here because we are not that different from New South Wales.
The Hon. I.F. EVANS: There is the nub of the issue, and it will make interesting reading in Hansard for those who wish to follow the debate. The building industry associations, the HIA and the MBA, ask: how can the industry have certainty if there is an open-ended fee structure? The member for Newland, the mover of the bill, suggests that in New South Wales the nominating authorities can set a fee with the agreement of the parties. So the question comes: what happens if there is no agreement with the parties? Will that be the first dispute about the adjudication: how much we have to pay?
The issue is that the nominating authorities then have a for-profit motive. I suspect that there is some truth in the suggestion that there might be some competitive tension, but there will not be that many nominating authorities. I think I listed six or seven in Western Australia. So, I can understand the industry's concerns regarding this for-profit motive about the nominating authorities.
The member for Newland may want to contemplate, between the houses (because I do not have the numbers to stop it here), that having the private sector as the nominating authorities does not make it less court-like. It is the other provisions of the bill that make it less court-like, the other processes; it is not the for-profit nominating authorities that make it less court-like. Therefore, I think it is possible to pick up the Western Australian concept of having the not-for-profit organisations as the nominating authorities and still leave in place the not-for-profit court-like processes that the member for Newland wishes to have the upper house debate and consider.
It does concern me to some degree that there is no schedule of fees. The way I read this—and my apologies to Tony Sidwell and John Thomas if I have misunderstood their briefing; I must say that I was fairly tough on them the other day, I really did quiz them to make sure I understood what they were talking about—is that if there is a schedule of fees, as per Queensland, the industry knows that there is a cap. If it is going to be over $500,000 then there is a fee, and that brings uncertainty to the industry.
I am not going to hold the committee any longer on this point, because the member for Newland has accurately outlined his view of the bill. I have put on the record, as best I can, the two industry associations' views. I am happy to discuss the issue with the member for Newland in between houses.
The member for Newland came to my office the other week and we tried to work through this issue, or a number of issues relating to this particular principle, and that is where the idea of the Commissioner for Consumer Affairs came up. It was an example of the two sides of politics trying to work through an industry issue, and we will still try to do that in between houses, because I think that both sides of politics do want to bring certainty to the payment system in the building industry, but we want to end up with a model that the industry can live with.
I will not hold the house any longer, other than to say that we will continue to talk to the member for Newland between the houses, but I think it is fair to say to the member that the opposition still has concerns with the open-ended nature of the fee structure as it stands.
Mr KENYON: I understand the points the member for Davenport is making, and I am happy to speak with him again between the houses. I make the point that there is nothing to stop, under this bill, not only for profit but at the same time should they choose to nominate as authorised nominating authorities, the appointment of the HIA and the MBA and other like bodies as nominating authorities. In fact, it would probably be of great benefit if they were to do that and were to be appointed because you would have somewhat of a break on the fees. I understand the point the member is making about fees and the certainty of fees and I have to say that I am not violently opposed to it but, again, discussion between the houses is probably the best way to deal with that.
Clause as amended passed.
Remaining clauses (19 to 35) passed.
Schedule 1.
Mr KENYON: I move:
New Part, page 22, after line 30—Insert:
Part 1A—Amendment of Building Work Contractors Act 1995
1A—Amendment of section 30—Payments under or in relation to domestic building work contracts
(1) Section 30(1)—delete 'the payment'
(2) Section 30(1)(a)—before 'constitutes' insert:
the payment
(3) Section 30(1)—after paragraph (a) insert:
(ab) the person is entitled to the payment under the Building and Construction Industry Security of Payment Act 2009; or
(4) Section 30(1)(b)—before 'is of a' insert:
the payment
(5) Section 30(2)—delete 'paragraph (a) or (b)' and substitute:
paragraph (a), (ab) or (b)
(6) Section 30(3)—delete subsection (3)
As a result of including the full chain, including residential houses in the bill, there is a need to amend the Building Work Contractors Act, and that is what these provisions do, synchronise the two bills.
Amendment carried; schedule as amended passed.
Title.
Mr KENYON: I move:
Delete 'a related amendment to the' and substitute:
related amendments to the Building Work Contractors Act 1995 and the
Amendment carried; title as amended passed.
Bill reported with amendment.
Mr KENYON (Newland) (17:50): I move:
That this bill be now read a third time.
I thank members for their contributions. I particularly thank the members for Torrens and Hartley for their efforts with this bill and the member for Davenport for his contribution. A fair amount of work has been done behind the scenes with the Attorney-General's Department, and also parliamentary counsel have suffered my running backwards and forwards asking questions, and I thank them for their efforts.
I make the note that I forgot to mention something regarding the point about the Western Australian model versus the east coast model. It has been put to me that there is some movement for change about that in Western Australia and that they may be looking to move across to the east coast model. I want to include that in my remarks now and I apologise for not including it in the committee debate. Having said that, I commend the bill to the house and I thank everybody involved.
Bill read a third time and passed.
LEGISLATIVE COUNCIL
Thursday 29 October 2009
BUILDING AND CONSTRUCTION INDUSTRY SECURITY OF PAYMENT BILL
Received from the House of Assembly and read a first time
Thursday 19 November 2009
BUILDING AND CONSTRUCTION INDUSTRY SECURITY OF PAYMENT BILL
Second reading.
The Hon. R.P. WORTLEY (17:42): I move:
That this bill be now read a second time.
I seek leave to have the second reading explanation inserted in Hansard without my reading it.
Leave granted.
This bill seeks to ensure that a person who undertakes construction work, or who supplies related goods and services under a construction contract, is entitled to receive and is able to recover progress payments for the carrying out of that work or the supplying of those goods and services.
The bill addresses what is known in building and construction industry parlance as the 'security of payment problem'.
This problem arises when the subcontractors and suppliers in the building and construction industry are unable to secure in a timely fashion, or sometimes at all, payment for work performed or goods and services supplied—despite, in many cases, having a contractual right to such payments.
As much of the building and construction industry operates under a system of hierarchical contract chains (head contractor, subcontractors, suppliers and consultants), the industry is particularly vulnerable to security of payment problems.
This is clearly due to the fact that the failure of any one party in the contractual chain to honour its obligations can have a flow-on effect on other parties.
Such a failure will obviously restrict cash flow, and it is the case that insolvencies have ultimately been caused.
There have been a number of inquiries into the security of payment problem in Australia.
In general, these reviews have concluded that the security of payment problem was indeed a matter that justified government action. A consistent theme across the reviews was that traditional legal remedies provide inadequate protection to subcontractors and suppliers. These reviews initiated government action.
New South Wales, Queensland, Victoria, Western Australia, the Northern Territory and New Zealand have all legislated to address the security of payment problem in their building and construction industries.
To date, there has been no formal, specific examination of the scope of the security of payment problem in South Australia.
However, I am aware that a number of members in the other place have been approached by industry participants who have reported the existence of such a problem in this state. I am entirely convinced that action in the form of legislation is required.
The bill I put before the Chamber today is based on the Building and Construction Industry Security of Payment Act 1999 of New South Wales.
The bill applies to most forms of construction contracts other than contracts involving 'resident owners' under the Building Work Contractors Act 1995.
Importantly, however, the bill will cover owner/builders who engage contractors and trades people in a building contractor role.
The bill provides that, irrespective of the terms of a construction contract, a person who performs work or supplies related to goods and services under the contract is entitled to a progress payment.
The amount and timing of a progress payment is calculated either in accordance with the terms of the contract or, if the contract does not provide for this, in accordance with a formula set out in the legislation.
The notorious 'pay when paid' and 'pay if paid' provisions are consequently rendered invalid.
Under the bill:
- a person who has carried out construction work or provided related goods or services may make a claim for progress payments;
- upon receipt of a payment claim, the respondent will have 10 business days in which to serve a payment schedule on the claimant. If the respondent seeks to withhold in whole or in part a claimed progress payment, he or she will be required to state the reason in the payment schedule;
- if the respondent fails to provide a payment schedule, he or she becomes liable to pay the whole amount of the payment claim on the due date;
- if the respondent serves a payment schedule that includes reasons for withholding payment, the claimant will have 10 business days to accept the response or submit the payment claim to adjudication. (A claimant will also be able to submit a claim to adjudication where no payment schedule is provided);
- adjudicators will be non-government individuals or companies offering specialist adjudication services to industry participants. Their fees will be payable by the parties to an adjudication. Adjudicators will be nominated by nominating authorities and nominating authorities will be authorised by the minister;
- after an adjudicator accepts an adjudication application, he or she will have 10 business days to make a determination. The parties may extend this;
- upon completing adjudication, an adjudicator will be required to determine the amount (if any) of progress payments due to the claimant, the due date for payment and interest, and
- a successful claimant will have the right to suspend work under the contract and enforce the adjudication decision in court.
The rights and liabilities created under the bill do not affect any other entitlement a person may have under a construction contract or any other remedy a person may have for recovering any such entitlement.
However, in court proceedings in relation to a matter arising under a construction contract, the court must allow for an amount paid to a party to the contract as a result of an adjudication under the legislation in any order or award it makes to those proceedings.
It follows that the court may make orders for the restitution of any amount paid as a result of the adjudication.
The time frames set out by the bill for responding to payment claim and for the making of an adjudication are tight.
They are aimed at ensuring that the disputes under legislation are resolved rapidly and at minimal expense to the parties.
The bill has undergone a number of amendments in Committee. I will address the clauses in turn.
Clauses 1, 2 and 3 remain intact.
Clause 4 has been amended so that on page 4, line 22, there has been inserted:
'or
(c) any other day on which there is a statewide shut-down of the operations of the building and construction industry;'
This amendment, which springs from consultation with industry and in particular the MBA, takes into account industry shut-down days and days - such as rostered days off - not included in the calculation of response times.
Clause 5 has been amended so that on page 6 line 6 [clause (5)(1)(e)(iii)], after 'dismantling of', there has been inserted:
'fences or'
This amendment increases the definition of services that are included.
Clause 6 has been amended so that on page 6 line 36, [clause 6(i)(b)(iii)] after 'advisory', there has been inserted:
'or technical'
Again, this amendment increases the definition of services that are included.
Clauses 8 to 10 remain intact.
Clause 11 has been amended so that on page 9 line 18, [clause 11(1)(b)], the number '10' has been deleted and the number '15' substituted.
This increases the number of days for response and adjudication from 10 to 15. This is a reasonable extension and is in line with the NSW legislation.
Clause 12 remains intact.
Clause 13 has been amended so that on page 10 line 35, [clause 13(4)(b)], the number '12' has been deleted and the number '6' substituted.
This decreases the number of months during which persons wishing to avail themselves of the provisions of this legislation may do so.
This amendment is intended to stop the practice of 'ambush' claims, whereby a person may make a claim dating back nearly twelve months while the other party had (prior to the amendment of Clause 11) only 10 days to respond.
Clause 14 has been amended so that on page 11 line 20, [clause 14(4)(b)(ii)], the number '10' has been deleted and the number '15' substituted.
Clause 15 remains intact.
Clause 16 has been amended so that on page 12 line 20, [clause 16(1)(b)(ii)], the number '10' has been deleted and the number '15' substituted.
Clause 17 has been amended so that on page 13 line 20, [clause 17(3)(c)], the number '10' has been deleted and the number '15' substituted, and so that on page 13 line 38, [clause 17(3)(e)], the number '10' has been deleted and the number '15' substituted.
Clause 18 has been amended so that on page 14 after line 20, [clause 182] there has been inserted:
'(ab) if either or both of the parties have nominated the person to be an adjudicator in relation to the contract;
or'
This removes any perception of prejudice or actual prejudice on the part of one party over another if a nominated adjudicator is written into a building contract. The amendment prevents stipulation in a contract, or an unfair selection or use of an adjudicator.
The remaining clauses—19 to 35—remain intact.
Schedule 1 page 22, after line 30, has been amended as follows:
Part 1A—Amendment of Building Work Contractors Act 1995
1A—Amendment of section 30—Payments under or in relation to domestic building work contracts
Section 30(1)—delete 'the payment'
Section 30(1)(a)—before 'constitutes' insert:
the payment
Section 30(1)—after paragraph (a) insert:
(ab) the person is entitled to the payment under the Building and Construction Industry Security of Payment Act 2009 ; or
Section 30(1)(b)—before 'is of a' insert:
the payment
Section 30(2)—delete 'paragraph (a) or (b)' and substitute:
paragraph (a), (ab) or (b)
Section 30(3)—delete subsection (3)
Amendment to the Building Work Contractors Act consequent to the inclusion of the full chain, including residential houses, is required. These provisions allow that synchronicity.
Finally, the Title has been amended to delete 'a related amendment to the' and substitute:
related amendments to the Building Work Contractors Act 1995 and the'.
Mr President, these provisions are the result of lengthy consultation with industry representatives and the product of fruitful discussions with those opposite at the Committee stage.
I commend the Bill.
Debate adjourned on motion of Hon. J.M.A. Lensink.
At 17:43 the council adjourned until Tuesday 1 December 2009 at 14:15.
3 December 2009
BUILDING AND CONSTRUCTION INDUSTRY SECURITY OF PAYMENT BILL
Adjourned debate on second reading.
(Continued from 19 November 2009. Page 4095.)
The Hon. D.W. RIDGWAY (Leader of the Opposition) (12:03): I rise, on behalf of the opposition, to indicate that we will be supporting the bill. I note that we have this bill, which has come from the House of Assembly, and one on the Notice Paper that the Hon. Mr Darley has introduced. My recollection is that the Hon. Nick Xenophon introduced it in this chamber and the Hon. Mr Darley is progressing it. Notwithstanding that, I think that this bill will ensure that the Hon. Mr Darley will not need to proceed with his bill later in the day.
The opposition has always supported security of payment legislation, a policy that we took to the last election, and we are very happy now that we have reached this point where we have a bill before us, although the one that has been proposed does require some amendment. It is interesting to note that the Hon. Mr Darley has an amendment to remove the banks and financial institutions from this legislation. That is something that I do not think occurs anywhere else in the nation; in any other state that has security of payments legislation the banks are included. So, I indicate that the opposition will certainly be supporting Mr Darley's amendment.
The shadow minister in the other place, Iain Evans, recently travelled to Queensland and met with Mr Michael Chesterman, who is the adjudication registrar in Queensland (he is like the compliance officer or the registrar of the scheme). This bill does not propose to have a registrar of adjudicators or some governance model from overseas, and, clearly, that is what is needed. You cannot have adjudicators out in the marketplace without somebody lining them up with responsibilities. For example, if you have a small issue of, say, a $10,000 claim on a residential property, if there is a dispute you need to have an adjudicator who has experience and is qualified to deal with those issues. Likewise, if you have a dispute over a multistorey, multimillion dollar issue, clearly, you would need an adjudicator who had the responsibility and also the expertise to understand those issues.
Of course, the role of the registrar in the Queensland model, and certainly in other states, is to actually collect the information from the aggrieved parties, make a judgment as to how difficult
Page 4188 LEGISLATIVE COUNCIL Wednesday 2 December 2009
and complex the issue may be, and then line up the adjudicators with the particular clients so that there is an outcome where you are matching up people with the same skills.
We understand that the HIA, the MBA and some of the other major stakeholders had a concern about not having a registrar involved to act in this way, because they saw an opportunity for fees to spiral out of control. It appears that has not been the case in Queensland, and to protect everybody in Queensland every decision of the adjudicator is published on a website, and I think there are currently some 2,000 decisions on that website.
As I said, the HIA, the MBA and other stakeholders were concerned that the market forces would not prevail in relation to price, although it seems that that is working in Queensland, where market forces are keeping the fees being charged reasonable, shall we say. So, we are proposing some amendments, and the first would be to make the Commissioner of Consumer Affairs the registrar for the adjudicators and the nominating authorities. Clearly you have somebody who is responsible and acts in that role. We also propose an amendment to allow for different classes of registration of adjudicators. Again, that is to give some clarity to the registrar as to who has suitable qualifications to deal with particular issues.
It seems to be working well in Queensland. There has been a significant amount of debate as to whether we have the Western Australian or eastern states model. I have also been advised that currently the Northern Territory model in some industry circles is seen as the best model, although I am not sure whether it is. I am sure there will be more tinkering with this legislation after the election, irrespective of the result of the election, but the opposition sees this measure as a step in the right direction to give some certainty to players in the industry, both tradespeople and clients of those people, whether small domestic homes or multi-million dollar projects are involved. It is a step in the right direction, and we will be moving the amendments that I have outlined. I also indicate that we will support Mr Darley's amendment to remove banks and financial institutions from the scheme. As we have a significant amount of business to deal with today, I will not prolong the debate any further. We support the bill.
The Hon. J.A. DARLEY (12:10): I rise to indicate that I will support the bill. Members will no doubt be aware that the bill is essentially the same as that introduced by me in September 2008. Members will also recall that the bill I introduced in 2008 was the same as that introduced by my predecessor Nick Xenophon in 2007, so it is an issue with which we would all by now be familiar.
The bill seeks to provide for progress payments for persons who carry out construction work or supply related goods and services under construction contracts. In short, it will ensure that contractors receive regular payment for work that has been completed, without which they simply cannot afford to carry on their businesses. As members would be aware, the bill is based on what is broadly referred to as the East Coast Model, as adopted by New South Wales, Victoria and Queensland. The alternative model is the West Coast Model, as adopted by Western Australia and the Northern Territory.
I will briefly discuss the different aspects of the legislation shortly, but before I do that I foreshadow that it is my intention to move a series of amendments to the bill. The first lot of amendments relate to recognised financial institutions, and the effect of them will be to ensure the act does not apply to construction contracts that form part of a loan agreement, a contract of guarantee or contract of insurance. Another amendment relates to adjudicators' fees. The amendment is intended to overcome any concerns regarding unreasonable adjudication fees by providing for the option of having those fees prescribed by regulation.
I will also move amendments that relate to the inclusion of owner builders in the scheme. Presently the only states considering including owner builders in their respective security of payment schemes are Queensland and Tasmania. In New South Wales they are specifically excluded from the legislation. At the outset I wish to make clear that I do not necessarily think that owner builders should be excluded from the ambit of the bill, but I believe that additional mechanisms are required to ensure a level playing field for owner builders, particularly home owners.
Whilst I agree in principle with the argument that all participants in the building and construction industry ought to be treated equally, I also acknowledge that owner builders and, more specifically, home owners may have little or no experience in the building and construction industry. As was proposed in Tasmania, there is merit in having additional mechanisms in place to ensure that those individuals are afforded special consideration as a result of their lack of experience
Wednesday 2 December 2009 LEGISLATIVE COUNCIL Page 4189
within the industry. On that basis I foreshadow that I intend to revisit this issue during the next session of parliament in order to give further consideration to the Tasmanian legislation. I also add that stakeholder representatives with whom I have been meeting are in consensus with regard to all the proposed amendments. In relation to the last mentioned amendment, they also agree that owner builders should be included in the scheme but are sympathetic to the concerns I have raised with them.
Finally, I will also move a number of minor amendments that are simply intended to make the bill clear in terms of the relevant time frames applicable to the determination of an adjudication application and circumstances where either the claimant wishes to discontinue an adjudication application or an adjudicator chooses to withdraw from an adjudication application. I was recently invited to attend a professional development information night held by the South Australian Chapter of the Institute of Arbitrators and Mediators Australia. These amendments are the result of suggestions made by one of the speakers at that event—Mr David Campbell-Williams—as a means of improving the current bill.
As mentioned previously, there are, as we know, two different models of security of payment legislation. Members will have no doubt been contacted by industry representatives with differing opinions on which model is the preferred option for South Australia. It is fair to say that the Master Builders Association and the Housing Industry Association are in favour of the Western Australian model, if any. Stakeholders who represent electricians, communications contractors, air-conditioning installers, mechanical services, plumbers, ventilation installers, refrigeration and air-conditioning technicians, civil contractors, machine and plant operators, plumbers, tilers and plasterers, amongst others, on the other hand have been lobbying for security of payment legislation based on the New South Wales model, and they have been doing so for good reason.
As highlighted by Philip Davenport in a paper entitled 'A summary of adjudication acts in Australia' and at the risk of repeating what has been said in the past, the key difference between the two models is as follows: the New South Wales, Victorian and Queensland legislation all provide a similar statutory right to the party—namely, the claimant—who is contracted to provide construction work or related goods and services, to make progress payment claims against the other party to the contract, being the respondent.
The acts all provide for the claimant to have disputed progress payment claims adjudicated. Where the respondent fails to serve a payment schedule within a set time frame, they create a statutory debt and they also allow the claimant to suspend work if the statutory debt is not paid on time. The procedures for adjudication are very similar under each of the acts. The Victorian legislation differs in that after a determination the respondent has the option of providing security for the adjudicated amount as opposed to paying it. The Queensland legislation differs in that it creates an adjudication registrar and adjudicators, and authorised nominating authorities must be registered.
Under the Western Australian and Northern Territory legislation, there is no automatic statutory debt when a payment schedule is not issued in time. The contractor has a right to progress payment only if the construction contract provides for that right. The contract provides how the principal is to respond to a claim for payment. Where no response is provided or where a response is not provided within the prescribed time frame, the contractor is entitled to the claimed amount only if this is provided for in the contract.
The Western Australian and Northern Territory acts have no provisions similar to that in the other acts to the effect that the claimant can recover the amount as a statutory debt and, in proceedings, to recover the amount, the respondent cannot bring any cross-claim against the claimant or raise any defence in relation to matters arising under the construction contract. The legislation also differs in that it does not give the claimant a right to suspend work if there is no payment schedule and the claimed amount is not paid on time.
The right to suspend work arises only if the principal fails to pay the contractor in accordance with a determination by the adjudicator. The only similarity between the two models is that, like the Queensland legislation, the Western Australian and Northern Territory legislation provides for registration of adjudicators. The acts do provide for the adjudication of payment disputes and either party may initiate adjudication. This precis highlights the shortcomings of the Western Australian model, which is far too restrictive.
I am advised that on 19 November Tasmania also passed a bill dealing with the same issue. The bill is expected to receive royal assent on 17 December. For the most part, that
Page 4190 LEGISLATIVE COUNCIL Wednesday 2 December 2009
legislation is also based on what has been referred to as the New South Wales or East Coast model. It departs from the New South Wales model only in the sense that, like the bill before us today, Tasmania has also opted to include some additional provisions not included in the New South Wales legislation.
I am further advised that on 19 November the Australian Capital Territory also passed a bill based on the New South Wales legislation. The New South Wales model has been referred to as a tried and tested legislative framework. It is considered a benchmark model for security of payment legislation. It provides much more protection for the person who undertakes to carry out construction work or to supply goods and services than the model available in Western Australia and the Northern Territory.
It is, in short, the preferred model, and I will go so far as to suggest that those who oppose this legislation on the basis that it is based on the New South Wales legislation do so out of self-interest. The mere fact that every other jurisdiction has chosen to follow the New South Wales legislation highlights that it provides the most ideal model.
In concluding, I would, once again, like to acknowledge the cooperation and the work that has been done by key stakeholder bodies who have been lobbying for this legislation for years—some for as many as 20 years. The include: the National Electrical and Communications Association, the Air-Conditioning and Mechanical Contractors Association, the Association of Wall and Ceiling Industries of South Australia, the Plumbing Industry Association of South Australia and the Civil Contractors Federation of South Australia. Their efforts follow on from recommendations made by the Cole royal commission into the building and construction industry in 2003. The fact that we are finally dealing with this bill is a tribute to years of hard work on their part, and they ought to be commended for their efforts.
As already mentioned, Tasmania and the ACTU have very recently implemented security of payment legislation, so South Australia is now the only state without legislation of this type. This legislation is long overdue in South Australia, and I am keen to see its expedient passage through the parliament.
I commend Mr Tom Kenyon MP (in another place) for progressing this matter and I, too, urge all honourable members to support the bill.
Bill read a second time.
In committee.
Clauses 1 to 3 passed.
Clause 4.
The Hon. D.W. RIDGWAY: I move:
Page 4, lines 17 and 18 [clause 4, definition of adjudicator]—Delete the definition and substitute:
adjudicator means a person who is registered as an adjudicator under Part 3A;
As I indicated in my relatively brief second reading comments, we are moving a range of amendments to establish the Commissioner of Consumer Affairs as the registrar for adjudicators and nominating authorities. So, this first amendment deletes the definition and substitutes: 'a person who is registered as an adjudicator under Part 3A'. All the other amendments relating to this are somewhat consequential, so I will move this one to test the will of the chamber.
The Hon. R.P. WORTLEY: We reject this amendment, mainly because we will be opposing Part 3A of the bill. This bill is heavily based on the New South Wales model. There are about 5 million people in New South Wales. It has the largest contractor workforce, and it works quite well. So, we will oppose all the amendments put up by Mr Ridgway.
The Hon. D.G.E. HOOD: I think we will get to the substantive debate as the amendments are presented, but I indicate that we intend to support the amendments.
The Hon. A. BRESSINGTON: I indicate that I will not be supporting the amendments, the reason being probably poor lobbying on behalf of the Hon. David Ridgway. The only feedback that we have actually had is from industry, which has indicated that it does not support these amendments. In an ideal world, yes, it would be desirable, but the industry is quite happy with the bill as it is, with the Hon. John Darley's amendments. That is essentially what I have based my decision on.
Wednesday 2 December 2009 LEGISLATIVE COUNCIL Page 4191
The Hon. J.A. DARLEY: While I appreciate what the honourable member and the opposition are trying to achieve by moving these amendments, I indicate that I will not be supporting them. These amendments will eventually result in a restructure of the way the scheme operates in South Australia and, at this late stage, I do not think we should be going down that path. I would like to see this bill pass in its current form, and perhaps we can address these concerns later down the track.
The committee divided on the amendment:
AYES (9)
Brokenshire, R.L.
Dawkins, J.S.L.
Hood, D.G.E.
Lawson, R.D.
Lensink, J.M.A.
Lucas, R.I.
Ridgway, D.W. (teller)
Schaefer, C.V.
Wade, S.G.
NOES (10)
Bressington, A.
Darley, J.A.
Finnigan, B.V.
Gago, G.E.
Gazzola, J.M.
Holloway, P.
Parnell, M.
Winderlich, D.N.
Wortley, R.P. (teller)
Zollo, C.
PAIRS (2)
Stephens, T.J.
Hunter, I.K.
Majority of 1 for the noes.
Amendment thus negatived.
The CHAIRMAN: Mr Ridgway, do you want to move all your amendments to clause 4?
The Hon. D.W. RIDGWAY: I indicated to the Hon. Mr Hood that I would pursue them but, clearly, I do not have the support, which is disappointing. I wonder whether Mr Hood wants to make some comments and whether he would like me to move another of these amendments. Certainly, I will be moving an amendment in relation to the different classes of registration of adjudicators, but this is a range of amendments to appoint the Commissioner for Consumer Affairs as a registrar and, clearly, that is not going to be accepted.
The Hon. D.G.E. Hood: I will speak to this one.
The Hon. D.W. RIDGWAY: I will move amendment No. 2 so that Mr Hood can make some comments. I move:
Page 4, lines 19 and 20 [clause 4, definition of authorised nominating authority]—Delete 'authorised by the Minister under section 28 to nominate persons to determine adjudication applications' and substitute:
who is registered as an authorised nominating authority under Part 3A
The Hon. D.G.E. HOOD: I thank the Hon. Mr Ridgway for that. Briefly, we intended to support these amendments, and I say that because we met with a number of industry groups and there seems to be a good deal of support amongst them for the amendments. There were some dissenting voices, and we would all acknowledge that. No doubt we have all been lobbied fairly extensively on this bill, but I think, on the whole, the amendments strike a particularly good balance. I agree with the Hon. Mr Ridgway that there is no point going through them if they are clearly going to lose, but I want to put on the record that we were sympathetic to them and intended to support them. Also, I think, by and large, it is the position of industry.
Amendment negatived.
The Hon. J.A. DARLEY: I move:
Page 5, after line 8—After the definition of progress payment insert:
recognised financial institution means a bank or any other person or body prescribed by the regulations for the purposes of this definition;
Page 4192 LEGISLATIVE COUNCIL Wednesday 2 December 2009
This amendment relates to recognised financial institutions. For the sake of convenience, I will speak to amendments Nos 1 to 3 together in so far as they relate to recognised financial institutions. The effect of these amendments will be to ensure that the bill does not apply to construction contracts that form part of a loan agreement, a contract of guarantee or a contract of insurance. It effectively deletes the amendment passed in another place and reinstates the bill to its former position.
Financial institutions are specifically excluded from the New South Wales legislation. According to Mr Ian Gilbert, Director of Retail Regulatory Policy of the Australian Bankers Association, this is thought to have been a deliberate policy decision that enjoyed general bipartisan support in New South Wales, and this decision reflects the recognition and understanding of the risk to the construction industry in New South Wales if bank finance construction contracts were included. Mr Gilbert, on behalf of the Australian Bankers Association, has expressed concerns about the potential impact that the inclusion of financial institutions will have, both on the banking industry and the building industry. Mr Gilbert states:
The meaning of 'construction contract' would include both the head contract with an owner and the subcontracts between the head contractor and the subcontractor. Despite the terms of the contract a party to a construction contract may claim progress payments according to the legislation which may have cash flow implications for head contractors and owners flowing through to financiers. A claim would be unpredictable and therefore a relevant event in a bank's assessment of its credit risk exposure.
Mr Gilbert goes on to say:
Feedback from members of the ABA indicates that if bank financed construction contracts are to be covered in the South Australian bill, a bank would need to undertake additional due diligence that its developer/owner/customer would have the ability to meet the call of a subcontractor in the event that the bank determined not to make the progress payment because of, for example, a concern over the loan to value ratio if the payment were to be made at that stage of the construction.
Further, a claim for progress payment outside the normal terms of the construction contract could place additional stress on the cash flow of the bank's developer/owner/customer, potentially increasing the risk to the bank. This may result in a broader approach from banks to credit risk in this industry in South Australia. How much this would impact is unclear but the effect would need to be taken into consideration deal by deal. A bank may have to review its standard form construction finance contracts and its credit risk assessment to account for untimed progress payment claims.
Another implication with the amendment is that it will, in effect, disturb the contractual relationship between a bank and its customer where an assessed and prudent provision of finance according to the terms of the associated construction contract is displaced by an unpredictable and untimed alternative obligation reached by an adjudicator that may have the effect of the order of the court.
Similar concerns have been raised by Mr Phillip Davenport, chief adjudicator and trainer from Adjudicate Today. By way of background, Mr Davenport has over 40 years' experience in construction law and has worked as an adjudicator in New South Wales, Queensland and Victoria. He is also the author and co-author of a number of books on construction law. He is regarded as an authority in this area. Mr Davenport highlights that banks would potentially incur two risks as a result of the inclusion of financial institutions: the first is being sued for progress payments by the borrower; and the second is being pursued by the borrower's contractor. As highlighted by Mr Davenport, under the legislation banks are not in a position to defend claims for progress payments from their customers, namely, the developers and owners or their customers' contractors.
Given that financial institutions will probably have to review their standard form contracts, the inclusion of financial institutions may also result in more red tape as a result of having to create new documentation applicable to contracts entered into in South Australia. It would probably be fair to assume that these costs will be passed on to the customers.
There is a very real concern that, in addition to an increase in red tape and compliance costs, banks simply will not be willing to lend to the developer or owner if that involves the risk of their being sued for progress payments—and, according to Mr Davenport, this is the precise reason for their exclusion from the New South Wales legislation. This same reasoning also extends to insurers and other financial institutions being excluded from the legislation. I strongly urge all members to support these amendments.
The Hon. D.W. RIDGWAY: As I indicated in my second reading contribution, the opposition will be supporting the amendment. It is interesting to note that the sponsor of this bill in the other chamber included the financial institutions (banks) by actually consulting with them. So, I am a little concerned that the member opposite, the Hon. Mr Wortley, talks about not supporting
Wednesday 2 December 2009 LEGISLATIVE COUNCIL Page 4193
amendments and having a particular point of view. I just wonder how widely the government backbenchers have consulted on this bill. Notwithstanding that, we will be supporting this amendment.
The Hon. R.P. WORTLEY: We will be supporting this amendment. I think the sentiments expressed by the Hon. Mr Darley are quite appropriate. In regard to the comments made by the Hon. Mr Ridgway, there has been extensive consultation by the sponsor of this bill. I will read excerpts from a letter from Christopher Rankin of the Air Conditioning and Mechanical Contractors' Association. This is also signed by the organisations that support the bill: the Air Conditioning and Mechanical Contractors Association; the Australian Wall and Ceiling Association, Mr Bernie Biggs; the Civil Contractors Federation, Mr Peter Nolan; the National Electrical and Communications Association, Mr Larry Moore (an absolute legend in the industry, of course); the National Fire Industry Association South Australia, Christopher Rankin; the Plumbing Industry Association (South Australia), Andrew Clarke; the Refrigeration and Air Conditioning Contractors Association, Mr Larry Moore again; and the Master Painters Association (SA), which actually sent me a letter saying, basically, that it supports the bill introduced by Mr Tom Kenyon. Obviously, the opposition leader has it totally wrong. There has been wide consultation on this—
The Hon. D.W. Ridgway interjecting:
The CHAIRMAN: Order!
The Hon. R.P. WORTLEY: Our main concern was that the people who were actually building these in the construction industry, the many thousands of contractors, were treated fairly. That is what this bill is all about: protecting them and ensuring that they are paid for the work they do.
The CHAIRMAN: Order! We are not going to have the bill debated.
The Hon. R.P. WORTLEY: The government supports the amendment.
The Hon. D.G.E. HOOD: That was our primary concern in the bill, and I think this amendment largely addresses that concern. Members may have seen Family First make some comments about this issue on, I think, Channel 7 a couple of weeks ago. In my best estimation, this amendment remedies what we perceived to be an issue with the bill, so Family First is very happy to support the amendment.
Amendment carried; clause as amended passed.
Clauses 5 and 6 passed.
Clause 7.
The Hon. J.A. DARLEY: I move:
Page 7, lines 9 to 13 [clause 7(2)]—Delete subclause (2) and substitute:
(2) This act does not apply to—
(a) a construction contract that forms part of the loan agreement, a contract of guarantee or contract of insurance under which a recognised financial institution undertakes—
(i) to lend money or to repay money lent; or
(ii) to guarantee payment of money owing or repayment of money lent; or
(iii) to provide an indemnity with respect to construction work carried out, or related goods and services supplied, under the construction contract; or
(b) a construction contract for the carrying out of domestic building work (within the meaning of the Building Work Contracts Act 1995) on such part of the premises that the party for whom the work is carried out resides in or proposes to reside in; or
(c) a construction contract under which it is agreed that the consideration payable for construction work carried out under the contract, or for related goods and services supplied under the contract, is to be calculated otherwise than by reference to the value of the work carried out or the value of the goods and services supplied.
Page 4194 LEGISLATIVE COUNCIL Wednesday 2 December 2009
There are two elements to this amendment. The first relates to the exclusion of financial institutions from the scope of the bill, and I refer honourable members to what I have said already on that. In this regard the amendment is consequential.
The second element seeks to exclude from the ambit of the bill a construction contract for the carrying out of domestic work where the party for whom the work is carried out resides or proposes to reside in. The meaning given to domestic building work is the same as that provided by the Building Work Contractors Act 1995, namely:
(a) the whole or part of the work of constructing, erecting, underpinning, altering, repairing, improving, adding to or demolishing a building; or
(b) the whole or part of the work of excavating or filling a site for work referred to in paragraph (a); or
(c) work of a class prescribed by regulation;
At present, the only states considering including owner-builders in their respective security of payment schemes are Queensland and Tasmania. In New South Wales, they are specifically excluded from the legislation.
As mentioned in my second reading contribution, I wish to make it clear that I do not necessarily think that owner-builders should be excluded from the ambit of the bill, but I do believe that additional mechanisms are required to ensure a level playing field for owner-builders, particularly homeowners. That being said, I also acknowledge that owner-builders—and, more specifically, homeowners—may have little or no experience in the building and construction industry. I think there is merit in having additional mechanisms in place to ensure that those individuals are afforded special consideration because of their lack of experience within the industry.
Members will recall that during my second reading contribution I mentioned that I was recently invited to an information night held by the South Australian chapter of the Institute of Arbitrators and Mediators Australia, as was Mr Tom Kenyon MP. A lot of support for the amendment was expressed on the night, particularly from the two speakers, who have extensive experience in construction law. Without additional safety mechanisms I do not think that the inclusion of owner-builders will be well received. On that basis I propose to exclude owner-builders from the scope of the legislation. I urge all honourable members to support the amendment.
The Hon. D.W. RIDGWAY: The opposition supports the amendment.
The Hon. D.G.E. HOOD: Again, very briefly for the record, I think this amendment is related to the previous amendment, and for the same reasons we will be supporting it.
The Hon. R.P. WORTLEY: I indicate that we support the amendment.
Amendment carried.
The Hon. J.A. DARLEY: I move:
Page 7, after line 18 [clause 7(3)]—After paragraph (a) insert:
(ab) provisions under which a party undertakes to carry out construction work, or to supply related goods and services, as a condition of a loan agreement with a recognised financial institution; or
This amendment forms part of a series of amendments related to the exclusion of financial institutions from the scope of the bill and is consequential in nature. Based on the reasons already provided in that regard, I urge all honourable members to support this amendment.
Amendment carried; clause as amended passed.
Clauses 8 to 16 passed.
Clause 17.
The Hon. D.W. RIDGWAY: I move:
Page 13, lines 36 and 37 [clause 17(6)]—Delete 'a person who is eligible to be an adjudicator as referred to in section 18' and substitute:
an adjudicator whose registration authorises him or her to be an adjudicator in relation to the dispute that is the subject of the application
I guess this will be a test clause in relation to the registration of different classes of adjudicators. We see it as important that we have that registration so that, when you are looking to appoint
Wednesday 2 December 2009 LEGISLATIVE COUNCIL Page 4195
adjudicators and decide on who can adjudicate on what issues and the expertise of the adjudicators to be able to handle certain cases, especially if they are complex in nature or many hundreds of thousands or millions of dollars, it seems sensible to the opposition to have a grading system or classification of adjudicators so you are matching people with appropriate skills to handle the issues they are dealing with or the conflict or complaints they are trying to adjudicate on. I will not go on any longer. Members are well aware of the intention of our amendments, and we see this as a test clause for the following amendments.
The Hon. D.G.E. HOOD: This is another issue that Family First raised in the media, and this amendment really nails the situation by fixing what we saw as a potential issue in the bill—not necessarily a problem in all cases, but certainly the potential to create a problem. To our understanding, this will right that situation and therefore we support the amendment.
The Hon. R.P. WORTLEY: The government opposes this amendment. The reason is that this bill is based on the New South Wales legislation. It operates quite efficiently, and it is basically recognised as probably the best system of all, so we oppose the amendment.
The Hon. J.A. DARLEY: I will also not support this amendment.
The Hon. A. BRESSINGTON: I am not supporting the amendment, either.
The committee divided on the amendment:
AYES (9)
Brokenshire, R.L.
Dawkins, J.S.L.
Hood, D.G.E.
Lawson, R.D.
Lensink, J.M.A.
Lucas, R.I.
Ridgway, D.W. (teller)
Schaefer, C.V.
Wade, S.G.
NOES (10)
Bressington, A.
Darley, J.A.
Finnigan, B.V.
Gago, G.E.
Gazzola, J.M.
Holloway, P.
Parnell, M.
Winderlich, D.N.
Wortley, R.P. (teller)
Zollo, C.
PAIRS (2)
Stephens, T.J.
Hunter, I.K.
Majority of 1 for the noes.
Amendment thus negatived; clause passed.
Clauses 18 to 20 passed.
Clause 21.
The Hon. J.A. DARLEY: I move:
Page 15, lines 5 and 6 [clause 21(3)(a)]—Delete 'the date on which the adjudicator notified the claimant and the respondent as to his or her acceptance of the application' and substitute:
—
(i) the date on which an adjudication response is lodged with the adjudicator; or
(ii) if an adjudication response is not lodged with the adjudicator on or before the last date on which the response may be lodged with the adjudicator under section 20(1)—that date; or
(iii) if the respondent is not entitled under section 20 to lodge an adjudication response—the date on which the respondent receives a copy of the adjudication application; or
Members will recall that during my second reading contribution I mentioned that I recently attended a professional development information night in order to discuss the bill. At that event, one of the key speakers suggested a number of minor amendments aimed at improving the current bill, and
Page 4196 LEGISLATIVE COUNCIL Wednesday 2 December 2009
this is one of those amendments. Clause 21 of the bill deals with adjudication procedures. Currently, subclause (3) provides:
(3) Subject to subsections (1) and (2), an adjudicator is to determine an adjudication application as expeditiously as possible and, in any case—
(a) within 10 business days after the date on which the adjudicator notified the claimant and the respondent as to his or her acceptance of the application; or
(b) within any further time that the claimant and the respondent may agree.
The amendment relates to circumstances where no agreement has been reached between the claimant and the respondent regarding an extended time frame. The reason for this amendment is to overcome the timing disconnect that sometimes can occur between the 10 day time frame within which the adjudicator is required to make a determination and the period within which a respondent becomes aware of the adjudication and may be entitled to lodge an adjudication response. I am advised that in some instances (and this may be where the claimant is a little careless in the service of documents) the adjudicator is actually required to make a determination in circumstances where the respondent has been served only one or two days prior to the expiration of 10 days. Sometimes this timing disconnect can lead to situations where the adjudicator is making a determination without having a complete set of documents and therefore a complete picture before him.
The amendment effectively will ensure that the 10-day time frame for the determination applies after the date on which the respondent has either lodged an adjudication response or the date on which the respondent receives a copy of the adjudication application. It will ensure that the respondent receives the full benefit of process and that the adjudicator has 10 full business days within which to make a determination based on a complete set of documents relating to the application. This is a very sensible amendment and I urge all members to support it.
The Hon. D.W. RIDGWAY: The opposition supports the amendment.
The Hon. R.P. WORTLEY: With regard to subclause (3), will the honourable member advise how the adjudicator will become aware of the date on which the respondent received a copy of the adjudication application?
The Hon. J.A. DARLEY: I am advised that in practice an adjudicator who accepts an adjudication application, or in some cases the nominating authority to whom the application has been referred, would ask the claimant, or both the claimant and the respondent, for details about when the respondent was served with the adjudication application, and that would be the date that applies to subclause (3).
In cases of a default adjudication, it would still be open to the respondent to argue that they did not know about the application. If the nature of the claim was outside the jurisdiction of the adjudicator, there would be nothing preventing the respondent from lodging an objection on jurisdictional grounds. I have spoken to adjudicators who work in this field in other states and they have advised me that there is a big emphasis on adjudicators being aware of the relevant dates for an adjudication application. These sorts of issues in particular all form an important part of the extensive training provided to adjudicators by nominating authorities.
The Hon. R.P. WORTLEY: I thank the honourable member for his answer and indicate that we support the amendment.
Amendment carried; clause as amended passed.
Clauses 22 to 25 passed.
Progress reported; committee to sit again.
BUILDING AND CONSTRUCTION INDUSTRY SECURITY OF PAYMENT BILL
In committee (resumed on motion).
(Continued from page 4196.)
Clause 26.
The Hon. J.A. DARLEY: I move:
Page 18, after line 7 [clause 26(1)]—After paragraph (b) insert:
or
(c) an adjudicator who accepts an adjudication application notifies the claimant and the respondent that he or she has withdrawn from the adjudication.
The amendment is intended to ensure that an adjudicator can withdraw from an adjudication. This situation would probably be likely to arise only where the adjudicator has accepted an adjudication application but on further consideration has become aware of a possible conflict of interest.
I have been advised by one adjudicator that, on the surface, it may not be apparent to an adjudicator that a conflict exists and that, when it does arise, the only mechanism available to overcome it is to call the parties in, explain the situation and allow them to decide how to progress with the matter.
In some cases, the parties may not have an objection to the adjudicated proceeding to determine the application. However, the amendment would provide the adjudicator with that ability if, in the circumstances, they considered it appropriate to withdraw. I am sure that there are other situations, such as illness, that could also lead to an adjudicator wishing to withdraw, and this amendment would facilitate that process.
This amendment, together with the next three amendments, which are all consequential in nature, are all minor amendments aimed at improving the bill and making it that little bit better. The
Wednesday 2 December 2009 LEGISLATIVE COUNCIL Page 4281
amendments do not change the operation of the bill in any significant way, but they do provide clarity for the parties involved. I urge all honourable members to support the amendments.
The Hon. D.W. RIDGWAY: The opposition supports the amendment.
The Hon. D.G.E. HOOD: Family First also supports the amendment.
The Hon. R.P. WORTLEY: Having talked to the Hon. Mr Darley, he has provided a little more clarity, and we support the amendment.
Amendment carried.
The Hon. J.A. DARLEY: I move:
Page 18, line 8 [clause 26(2)]—Delete 'those circumstances' and substitute:
the circumstances specified in subsection (1)(a) or (b)
This amendment is a consequential amendment relating to the previous amendment.
Amendment carried.
The Hon. J.A. DARLEY: I move:
Page 18, after line 12—After subclause (2) insert:
(2a) In the circumstances specified in subsection (1)(c), the application is discontinued and the claimant may make a new adjudication application under section 17.
This amendment is also a consequential amendment. It provides that, where an adjudicator withdraws from an adjudication application pursuant to subsection (1)(c) as inserted, the application is discontinued and the claimant may make a new adjudication application under section 17. The amendment essentially makes it clear that the claimant is still entitled to pursue adjudication in relation to the dispute.
Amendment carried.
The Hon. J.A. DARLEY: I move:
Page 18, lines 14 and 15 [clause 26(3)]—Delete 'becomes entitled to withdraw the previous adjudication application under subsection (2).' and substitute:
(a) becomes entitled to withdraw the previous adjudication application under subsection (2); or
(b) is notified by the adjudicator that he or she has withdrawn from the adjudication.
Again, this is a consequential amendment relating to the previous amendments.
Amendment carried; clause as amended passed.
New clause 26A.
The Hon. J.A. DARLEY: I move:
Page 18, after line 17—After clause 26 insert:
26A—Claimant may discontinue adjudication
A claimant may withdraw an adjudication application at any time before the application is determined by notice in writing served on the respondent, the adjudicator and the authorised nominating authority to whom the application was made.
Again, like the previous set of amendments relating to the withdrawal of an adjudicator, this amendment is intended to make it clear that a claimant may also withdraw an adjudication application at any time prior to a determination by an adjudicator. This is to be done by serving the respondent, the adjudicator and the nominating authority to whom the application was made with written notification of that intention. Like the previous amendments relating to the withdrawal of an adjudicator, this amendment is simply aimed at providing clarity for the parties.
The Hon. D.W. RIDGWAY: I indicate that the opposition supports the amendment.
New clause inserted.
Clauses 27 and 28 passed.
Clause 29.
Page 4282 LEGISLATIVE COUNCIL Wednesday 2 December 2009
The Hon. J.A. DARLEY: I move:
Page 19, lines 30 to 32 [clause 29(1)(b)]—Delete paragraph (b) and substitute:
(b) if no such amount is agreed—the hourly rate (if any) prescribed by regulation adjudicator in addition to reasonable expenses; or
(c) if no such amount is agreed and no hourly rate has been prescribed—such amount, by way of fees and expenses, as is reasonable having regard to the work done and expenses incurred by the adjudicator.
This amendment relates to an adjudicator's fees. The amendment is intended to overcome any concerns regarding unreasonable adjudication fees by providing for the option of having those fees prescribed by regulation. Clause 29 of the bill provides that an adjudicator is entitled to be paid for adjudicating the adjudication application such amount by way of fees and expenses as agreed between the adjudicator and the parties to the adjudication or, if no such amount is agreed, such amount by way of fees and expenses as is reasonable having regard to the work done and expenses incurred by the adjudicator.
The amendment seeks to broaden clause 29 by also providing the further option of having an hourly rate prescribed by regulation which would be payable where there is no agreement between the adjudicator and the parties to the adjudication. Where there are no fees prescribed by regulation, the effect of the amendment is to revert back to the current position in the bill.
I have had several discussions with key stakeholders and other industry experts regarding the issue of an adjudicator's fees. Certainly, from the stakeholder's point of view, they would like a system that is affordable and, therefore, accessible. Industry experts have indicated that the fees payable should vary depending on the complexity of the adjudication application and the experience of the adjudicator. For instance, an adjudication application worth $50,000 will not cost as much and may not necessarily require an adjudicator with as much experience as an adjudication worth $1 million.
The fees should be flexible enough to provide for this situation and, certainly, if there is to be an hourly rate prescribed by regulation, those rates should take into account the degree of complexity or the level of experience required. I am advised that in New South Wales complaints in relation to an adjudicator's fees are virtually negligible. In the one instance that was highlighted to me where the adjudicator was overcharging, the adjudicator was dropped by the nominating authority. I am extremely mindful of the issues raised with me by stakeholders in relation to the affordability of this process. This legislation will represent a first for those stakeholders so it is, in some ways, difficult to predict whether the issue of adjudicator fees will result in any of the concerns raised by those who oppose the current fee structure.
With that in mind I move this amendment to allow these concerns to be addressed either now or in the future. I am certain that stakeholder groups and industry representatives alike would be keen to be involved in any consultation regarding the regulations. If there are concerns raised by stakeholders regarding adjudicator fees later down the track, we could revisit the issue. I urge all honourable members to support this amendment.
Amendment carried; clause as amended passed.
Remaining clauses (30 to 35) passed.
Schedule 1.
The Hon. J.A. DARLEY: I move:
Clause 2, page 22, line 33 [Schedule 1, clause 2(6)]—Delete subclause (6) and substitute:
(6) Section 30(3)—delete 'unless the building work contractor has requested the payment by notice in writing given to building owner or an agent authorised to act on behalf of the building owner.' and substitute:
unless—
(a) the building work contractor has requested the payment by notice in writing to the building owner or an agent authorised to act on behalf the building owner; or
(b) the domestic building work contract is a contract to which the Building and Construction Industry Security of Payment Act 2009 applies (in which case the provisions of that act relating to progress payments apply).
Wednesday 2 December 2009 LEGISLATIVE COUNCIL Page 4283
This is a consequential amendment relating to the exclusion of owner-builders, as already outlined. There are a small number of contracts which may fall within the ambit of the bill, and it would be only because they do not relate to premises that the party for whom the work is carried out resides in or proposes to reside in. I urge all honourable members to support the amendment.
Amendment carried; schedule as amended passed.
Title passed.
Bill reported with amendments.
Bill read a third time and passed.