Security of Payment recommendations good news for contractors

Wednesday, 23 May, 2018

Security of Payment recommendations good news for contractors

The federal government’s report on the Review of Security of Payment Laws is good news for electrical contractors who are often the last in a long chain to receive payment, and therefore carry the most risk should a company fall into receivership during the project, said National Electrical and Communications Association (NECA).

The report makes 86 recommendations to improve consistency in security of payment legislation and enhance protections to ensure subcontractors get paid on time for work they have done, regardless of which state or territory they operate in.

Key among these is the recommendation to make security of payment laws nationally consistent with what is commonly known as the East Coast model, which is modelled on the NSW security of payment legislation.

Minister for Small and Family Business, the Workplace and Deregulation Craig Laundy said the government commissioned the review to look at protections for individuals and small businesses involved in subcontracting in the building and construction industry.

With payments on average 26.4 days late and the construction industry in Australia accounting for 20–25% of all insolvencies, more needs to be done to protect subcontractors and small businesses who are the industry’s most vulnerable participants. “For these operators, delayed and disputed payments can make or break them,” Minister Laundy said.

“As legislative responsibility for security of payment rests with the states and territories, the government will work cooperatively with them on the findings of the review.”

The government acknowledges that some states and territories have taken steps in the right direction on security of payments. “More needs to be done to harmonise the various state and territory security of payments laws so that businesses and subcontractors operating in the building and construction industry are not required to be across several complex pieces of legislation at any given time.”

“More also needs to be done to ensure that where payments are protect this protection flows through the entire contractual payment chain, not just to the first tier of building industry participants, as has been the case under various trials of Project Bank Accounts including currently in Queensland,” Minister Laundy said.

“The report findings address the feedback we’ve been receiving from our members for many years and we welcome the recommendations,” said Suresh Manickam, CEO National Electrical and Communications Association (NECA).

“NECA has long been calling for measures to reduce the risk of non-payment due to insolvency. Late payments and unfair contract terms that operate to prevent payment are a major issue for electrical contractors.

“As the majority of electrical contractors are small to medium enterprises, family owned and run businesses, they are particularly susceptible to cash-flow issues and non-payment can be devastating,” said Manickam.

The government has taken on board several of NECA’s submissions in their recommendations including: a single approach to claims, not the two-tier approach currently in use in Queensland; prohibiting pay-when-paid clauses in construction contracts; a period of 10 days for the default payment period; making it an offence to use coercive or threatening conduct to discourage claims.

As a finishing trade, electrical contractors are often the last in the line of credit to receive payment for work completed. They arguably provide the highest value inputs of all subcontractors by way of fixtures, fittings and labour. This makes them the most vulnerable with respect to payments in the event of receivership. In other words, electrical contractors are at a greater potential disadvantage than any other subcontractor.

NECA strongly encourages all state and territory governments to move quickly to harmonise their legislation in this area and looks forward to working with the government to progress the recommendations and increase the protection for individuals and small businesses.

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