What was the intention of the Building Industry Fairness (Security of Payment) Act 2017 and has it been effective?
The Building Industry Fairness Act (BIF) overarching policy intention was to make systematic changes that would affect cultural change in the building and construction industry. This was implemented to encourage the building and construction industry to get better at paying subcontractors fairly and on time and to avoid construction disputes.
The BIF Act introduced changes to progress payments, adjudication and subcontractors charges. The act implemented new requirements for payment claims and payment schedules.
To see if the BIF Act was working effectively, in May of 2018 an Evaluation Panel was established. The panel utilised consultations and evaluations to make a report and recommendation for improvement, the panel was appointed for 12 months. The Panel found that the BIF Act does a good job of reflecting the ability to encourage the building and construction industry to get better at paying subcontractors fairly and on time. To further improve the BIF Act, the Panel identified 20 recommendations to enhance the already existing framework and improve the security of payment outcomes for the industry.
The 20 recommendations are grouped into three themes, these are as follows;
- Managing the financial transition to enable the industry to get ready for future implementation
- Simplifying the framework to reduce administrative costs while providing for effective monitoring and enforcement
- Improving protections, including having a single retention trust account to be held by all contractors and private principals in the contractual chain.
The Government implemented this by establishing a framework for project bank accounts, this is where money is held on trust for subcontractors. They also amended the BIF Act to include these recommendations by enacting the Building Industry Fairness (Security of Payment) and Other Legislation Amendment Act 2020.
The Panel included a review of Project Bank Accounts, payment claims, payment schedules, adjudication, subcontractors’ charges and defects liability period and retention monies.
The Panel found that Project Bank Accounts could be improved to a simplified more effective model. In March 2021, a new trust account framework commenced. This framework applies to eligible state government contracts with a value between $ 1 million and $ 10 million. The framework has been overall simplified by reducing three trust accounts to one project trust account to be established for each eligible contract. Further changes implemented include that the disputed funds account will no longer exist, however, this means that subcontractors will be better protected the trust account will cover a larger range of work. A statutory charge over retention amounts now must be held, this charge makes the subcontractor a secured creditor in the event of bankruptcy or insolvency. Principals now also no longer have viewing access to the trust accounts.
A payment claim is a written document that requests payment for construction work or the supply of related goods or services that identify the construction work or related goods and services, states the amount claimed or requests that the claimed amount be paid. From 1 October 2020, any payment claims given by the head contractor must also have attached a supporting statement that declares that all subcontractors have been paid. If they have not been paid it must include the reasons why.
If you receive a payment claim and you don’t intend to pay the amount claimed in full by the date, you must give a payment schedule to the claimant. The amount stated in the said schedule must be completed by the due date. A payment schedule is a written response to a payment claim. A penalty of 100 units may apply if you fail you fail to issue the payment schedule in the required time.
Adjudication is a quick low -cost way to resolve a payment dispute. Adjudication is available to a claimant who made a valid payment claim and:
– Has not been paid the payment claim amount in full by the due date; or
– Has not been paid the full amount in the payment schedule; or
– Disagrees with the amount proposed to be paid in a payment schedule.
As of 1 October 2020, the respondent must also notify the registrar within 5 business days after making the payment of the adjudicated amounts, they must also provide the registrar with evidence that the payment has been made.
Subcontractors charges ensure that unpaid contractors can secure a claim over the money owed to them from a higher party in the contractual chain. This ensures to ‘leapfrog’ the contractor who owes you money to a higher power, by doing this money owed to the contractor can be frozen, this is while the dispute is being decided and is redirected to you after the dispute is decided.
Retentions may be withheld until after the defect’s liability period, if the contract provides. The defects liability period is set out in the BIF Act, which defaults it to 12 months after the date of practical completion if the contract does not provide a defects liability period.
Overall, the BIF Act is intended to lead to better financial practices, reduced family breakdown, greater business confidence and more fairness in the building industry.
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