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Mr KENYON (Newland) (10:35): Obtained leave and introduced a bill for an act to provide payments for construction works carried out, and related goods and services supplied, under construction contracts; to make a related amendment to the Commercial Arbitration and Industrial Referral Agreements Act 1986; and for other purposes. Read a first time.

Mr KENYON (Newland) (10:36): I move:

That this bill be now read a second time.

This bill seeks to secure 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 commonly known in the building and construction industry 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, because the failure of any one party in the contractual chain to honour its obligations can have a flow-on effect on other parties by restricting cash flow and ultimately causing insolvencies.

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 a matter that warranted 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 detailed review of the extent of the security of payment problem in South Australia. However, I, along with a number of other members (particularly the members for Torrens and Hartley), have been approached by industry participants who have reported the existence of a problem in this state. I am convinced that action in the form of legislation is required.

The bill I put before the house 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. The bill will, however, 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 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. 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 and 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 and aimed at ensuring that the disputes under legislation are resolved rapidly and at minimal expense to the parties. It is my intention for this bill to remain available for consultation for the next six weeks before proceeding with it, and I commend it to the house.

Debate adjourned on motion of Hon. I.F. Evans.