A potential impediment to the commencement of the South Austrlian Act has now been removed with the passing of the Independent Contractors Amendment Regulations 2010, which received the Royal Assent on 15th July 2010. See our legal note on this issue.
The paper Towards Harmonisation of Construction Industry Payment Legislation: A Consideration of the Success Afforded by the East and West Coast Models in Australia by Jeremy Coggins, Robert Fenwick Elliott and Mathew Bell was delivered in Perth last month.
The new Building and Construction Industry Security of Payment Act 2009 (SA) is bound to occupy a great deal of our attention in this and following years. This website contains a considerable amount of information about this extremely complex topic, including our Australian Adjudication Casebook, with over 5,000 pages of judicial interpretation of the legislation.
Sometimes, when we are out and about with our laptops, we do not have ready or fast access to the internet, and so we have produced our Fenwick Elliot Grace adjudication toolkit on a 2GB USB Flash drive. This contains all of the useful equipment, including an annotated copy of the Act, our flowchart and list of drop dead dates, and all of the legal authorities. The toolkit can of course also be used as your usual USB Flash drive for every day purposes as well.
These toolkits are available at a price of $25.00 plus GST each; email office@feg.com.au to order.
The Building and Construction Industry Security of Payment Bill (SA) was passed by the both houses on 3 December 2009.
As expected, the final form of the legislation excludes residential occupiers (section 7(2)(b)), and also introduces a few smaller amendments suggested during the well-attended IAMA session on 24 November 2009.
No date has yet been fixed for the commencement of the legislation.
The Building and Construction Industry Security of Payment Act 2009 (“the Act”) was passed by the South Australian Parliament on 3 December 2009. The Act is based on the New South Wales legislation, but with some amendments.
Under the Act, a contractor, subcontractor or supplier who undertakes construction work or supplies materials or services for construction work can make a Payment Claim. To turn an ordinary invoice into a Payment Claim, all they have to do is to state that it is made under the Act.
The paying party then has 15 business days to serve a Payment Schedule identifying the amount, if any, that they propose to pay.
If the paying party proposes in their Payment Schedule to pay less than what has been claimed, fails to pay what they have proposed to pay or fails to provide a Payment Schedule at all, then the claimant may apply for adjudication. If the claimant opts for adjudication, the paying party has another opportunity to provide a Payment Schedule within 5 business days.
The Act forbids the parties from agreeing who the adjudicator should be. The claimant can choose any Adjudicator Nominating Authority (“ANA”). These ANAs can either be professional organisations or private “for profit” companies.
The adjudicator has to make a decision within 10 business days. The adjudicator will normally make his decision on the basis of the documents alone; if a conference is called by the adjudicator, then the parties are not allowed to have any legal representation. The paying party is allowed to put in an adjudication response but is forbidden from putting anything in the adjudication response that has not already been included in the Payment Schedule.
The adjudicator determines the amount of the progress payment, not on the basis of what is really due, but on the basis of what appears from the written material. Accordingly, it is vital that the parties get the paperwork required by the Act in on time. If they do not do so, the Act is unforgiving. Experience from similar legislation on the east coast shows that a very large proportion of cases (about half) are determined, not on the basis of what is really due, but on the basis that the paying party has failed to get a sufficiently detailed Payment Schedule in on time.
Decisions of adjudicators can be registered as judgments. If the paying party does not pay, then the amount of the adjudicator’s decision, including interest, is enforceable as a judgment debt of the Court; the losing party has to pay, and is not allowed to challenge the adjudicators determination on the grounds that the money was not really due. The losing party can still issue fresh proceedings in Court, and if they can eventually show that the money was never due, they would be entitled to repayment.
There are a couple of other noteworthy provisions in the Act:
It is not possible to legally contract out of the Act.
There are some exclusions from the Act:
This Act is likely to have a massive effect on the ability of contractors and subcontractors to recover their accounts relatively quickly and cheaply. The typical cost of an adjudication is about 10% of the cost of a Court case or a traditional arbitration. On the east coast, there are now thousands of adjudications per year.
No date as yet has been set for the commencement of the new Act; it is likely to start in the first half of 2010.
Contributor: Robert Fenwick Elliott
Robert has been closely involved in adjudication for the last 15 years in the UK, internationally and in Australia. He has trained and appointed many adjudicators and adjudicated or represented parties in many adjudications with an aggregate value of thousands of millions of dollars.
In 2007, Robert was described by the Construction Law Journal as “of the single most influential figures in shaping the way in which statutory adjudication was introduced into the UK”. Since that time, he has lectured in several states on adjudication topics.
Note:
This newsflash is going out as Construction Law Update No 907. To subscribe to our Construction Law Updates, visit our home page or contact Kerrin Burrow on (08) 8110 8000 or by email at kerrin.burrow@feg.com.au.
John Darley MLC last night (24th November) released his proposed amendment intended to reverse the inclusion of domestic contracts. Tom Kenyon MP has indicated he will support this amendment, which reflects strong criticism of the mixing of the East Coast (default) system with domestic application.
For the amendment to go through it will need to be debated and passed in the Legislative Assembly, and would then have to go back to the House of Assembly. With just 3 sitting days left, this is a challenging agenda for the Bill.
If the Bill does get through this time, it will thus be in a very similar form the the NSW model (i.e. no application to domestic contracts). If it does not, then growing scepticism as to the wisdom of the East Coast model suggests that the WA model may well be more likely for SA.
Meanwhile, Queensland is now looking at extending their (currently default) system to the residential sector, but their Agency anticipates that to do that, something a lot different from their current model would be required. It may well be that they will adopt for the residential sector something along the lines of the WA model, which is not based on default, and appears to present no difficulties in terms of its application to the domestic sector.
Despite expectations, the 2nd reading of the Kenyon Bill has been adjourned in the South Australian Legislative Assembly; see SA Adjudication Billboard.
The Kenyon Bill has been passed by the South Australian House of Assembly, and had its first reading in the Legislative Council on 29th October. It is due for its 2nd reading on 18th November, and the word on the street is that both the government and the opposition are proposing to nod it through.
The Bill has not adopted any of the conclusions of the Northern Territory Department of Justice Review Team, but instead leaves the Workers Liens Act legislation in place, and adopts the East Coast model, with the added twist that it covers domestic contracts, and also that if the parties have agreed upon the identity of a suitable adjudicator to determine their dispute, then that person is automatically disqualified.
It thus looks as though South Australia will very shortly have its Building and Construction Industry Security of Payment Act.
The impact of the new regime will be reviewed at the IAMA event on 24th November. It is understood that a good number of the stakeholders will be there, including Tom Kenyon MP, John Darley MP and others.
A number of people have asked to see a copy of Robert Fenwick Elliott's letter to Tom Kenyon MP of 23rd May 2009, commenting on the proposed South Australian legislation. It is here.
There will be an IAMA forum on the proposed South Australian legislation on 24th November. The flyer is as follows:
ADJUDICATION PROCESS AND PROPOSED SECURITY OF PAYMENT LEGISLATION
This CPD session will discuss the adjudication process associated with resolving payment claims and the status of the proposed legislation which is currently before the South Australian Parliament (Building and Construction Industry Security of Payment Bill). Mr. John Darley (Legislative Council) and Mr. Tom Kenyon (House of Assembly) have been invited to attend.
The session will be designed to allow the opportunity for stakeholders to express their views as to how the legislation should be implemented in South Australia.
Stakeholder representatives who have been actively involved during the consultation process associated with the development of the proposed legislation have also been invited to attend (includes subcontractors, builders, government department representatives and lawyers).
The proposed format for the session is as follows:
Introduction: Colin Fullerton – IAMA SA Chapter Committee (Session Chair)
Presentation: Robert Fenwick Elliott
Robert is an accredited Adjudicator and internationally recognized expert for the adjudication process and will provide his views on the adjudication process generally and the proposed legislation.
Robert is a Barrister and Solicitor of the Supreme Court. Robert has been involved as lead lawyer in the resolution of disputes in the construction field in a number of countries and is the author of “Building Contract Disputes: Practices and Precedents” which covers a range of ADR processes.
Discussion: Participants will have the opportunity to put questions to a panel of industry representatives and stakeholders.
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Venue: Piper Alderman Lawyers, 167 Flinders Street Adelaide.
Time: 5.30pm – 7.00pm Tuesday 24 November 2009
The following extract from the Hansard record of proceedings in the House of Assembly on 16 July 2009 shows that the Bill is continuing to make slow progress:
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.
An analysis of the latest figures available compare the take up rates for adjudication in various states; see take up page.
See South Australia Adjudication Billboard.
The arbitrator & mediator, which is the journal of the Institute of Arbitrators and Mediators Australia, has published in Volume 27, No 2, page 33 the paper delivered at the 2008 IAMA conference of Peter Gow on the Construction Contracts Act in Western Australia. His overall conclusion is that the WA Act is working pretty much as intended, with only a few decisions having been challenged in the courts.
See legal news item.
It is thought that the South Australian government has decided in principle to support the passage of the Building and Construction Industry Security of Payment Bill 2008, a copy of which is on the SA Attorney-General's site.
South Australia will probably thus have some legislation in 2009.
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