At the end of 2019, the Australian Building and Construction Commission (ABCC) announced its intention to conduct an audit campaign of the security of payment regime, focusing on code covered entities that have failed to report disputed or delayed payments to the ABCC.
The Code for Tendering and Performance of Building Work 2016 (Code), issued under section 34 of the Building and Construction Industry (Improving Productivity) Act 2016 (Cth) (Act), sets out the Commonwealth Government’s expected standards of conduct for all building contractors and building industry participants that seek to be, or are, involved in ‘building work’ (as defined in s 6 of the Act) that is directly or indirectly funded by the Commonwealth.
Prior to the Code coming into effect, the Building Code 2013 (2013 Code) applied to Commonwealth funded building work. The 2013 Code will continue to apply to any building work to which it applied prior to the introduction of the new Code in 2016.
A building contractor or building industry participant becomes subject to the Code from the first time they submit an expression of interest or tender (howsoever described) for Commonwealth funded building work on or after 2 December 2016. These building contractors or building industry participants are referred to as ‘code covered entities’.
A code covered entity is subject to the Code in respect of all building work under Schedule 1 of the Code for which an expression of interest or request for tender was called, on or after the commencement of the Code. Importantly, s 6(3) of the Code states that once a building contractor or building industry participant becomes subject to the Code, it and its related entities must comply with the Code on all new projects – including projects that are privately funded. Although there are some obligations that only apply in respect of Commonwealth funded work, the reporting obligations for delayed or disputed payments do not form part of this carve out.
The relevant sections of the Code for the purposes of mandatory reporting obligations are sections 11D and 11E, covering security of payment and disputed payments respectively.
Section 11D requires code covered entities to, among other things, comply with all applicable security of payment laws, ensure payments are made in a timely manner and are not unreasonably withheld, have a documented subcontractor dispute settlement process, ensure that payment disputes are resolved in a reasonable, timely and cooperative way, and report any disputed or delayed progress payment to the ABCC and the relevant funding entity as soon as practicable after the date on which the payment falls due.
Section 11E requires code covered entities to, among other things, ensure that disputes about payments are resolved in a reasonable, timely and cooperative way, and report any disputed or delayed progress payment to the ABCC and the relevant funding entity as soon as practicable after the date on which the payment falls due.
If there is a breach or suspected breach of the Code, the code covered entity must notify the ABCC as soon as practicable, but no later than two working days after becoming aware of the breach or suspected breach. They then must advise the ABCC of the proposed steps to rectify the breach. Within 14 days of providing the notification, the code covered entity must then notify the ABCC of the steps that were taken to rectify the breach.
Since 1 September 2018, mandatory reporting obligations have applied under the Code requiring all disputed and delayed payments to subcontractors to be reported to the ABCC as soon as practicable after the date on which the payment falls due. This reporting obligation arises where:
A breach of these reporting requirements may subject the code covered entity to an exclusion sanction imposed by the Minister that precludes them from tendering for Commonwealth funded building work for a defined period of up to 12 months.
Although the ABCC may assist subcontractors in receiving payment as the ABCC can seek that a company voluntarily rectify its Code breach, the ABCC cannot order an entity to take any action or make any payments in the same way that a court can. Instead, the ABCC refers complaints on to state bodies, such as the NSW Fair Trading, the Queensland Building and Construction Commission and the Victorian Building Authority.
Making the reporting obligations mandatory from 1 September 2018 appears to have resulted in an escalating number of reports requiring the ABCC’s intervention. The ABCC received 614 reports, enquiries and complaints on payment matters in 2018-19. This is broken down as 321 reports, 260 enquiries and 33 complaints. This is a four-fold increase on the 145 enquiries and notifications received a year earlier. The majority of reported issues involved subcontractors experiencing security of payments issues with head contractors. The ABCC, which has the power to recommend offenders be prevented for tendering for Commonwealth projects for up to 12 months, prefers to encourage contractors to voluntarily speed up payments when breaches are identified and encourages them to "self-report" disputes or delays.
Only one entity has been barred from bidding for Commonwealth projects and only for a month. In the 2018-2019 reporting period, the Minister imposed one sanction in relation to disputed and delayed payments (albeit under the 2013 Code). APM Group (Aust) Pty Ltd (APM) was found to have breached the 2013 Code by failing to pay a subcontractor an adjudicated amount of over $40,000, failing to ensure that payment disputes were resolved in a reasonable, timely and cooperative way, and threatening to cash a subcontractor’s bank guarantees if the subcontractor took a dispute to adjudication. APM and a related entity were excluded from submitting expressions of interest, tendering for or being awarded Commonwealth funded building work between 1 May 2019 and 31 May 2019.
Whilst subcontractors have called on the ABCC to be more assertive about investigating companies for delayed payments and to stop offenders from bidding for infrastructure projects, there is at the same time a reluctance among subcontractors to make formal complaints, lest such action should poison future contractual relations.
An audit program could be seen as the perfect vehicle to address this tension. It has the capacity to allow contractors to discover their obligations and to ponder the impact on their work pipeline of potential sanctions, each without the trigger of a complaint by a subcontractor.
Authors: Christine Jones & Rebecca Weakley
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.
Published by Christine Jones, Rebecca Weakley