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Government Responds to Report on Construction Industry and Insolvency Inquiry

In August 2012, the NSW Government commissioned an inquiry into insolvency in the construction industry.

The purpose of the inquiry was to assess the cause and extent of insolvency within the construction industry and to recommend ways in which the government could better regulate the industry.

After some preliminary findings, a Final Report by the inquiry was published on 28 January 2013.

Key Recommendations of the Inquiry

Some of the key recommendations of the inquiry include:

  1. the establishment of a NSW Building and Construction Commission with powers to regulate the building industry;
  2. the licensing of commercial builders which requires all builders and contractors to qualify within a particular license category according to demonstrated financial backing;
  3. the introduction of a statutory construction trust so that funds paid by clients are retained in trust for contractors down the chain;
  4. retention sums to be paid into a trust account and retention monies be paid in accordance with a relevant certificate, agreement between the parties, Security of Payments determination, judgment of a Court, arbitrator or expert determination; and
  5. significant changes to the Building and Construction Industry Security of Payment Act.

On 18 April 2013, the Minister for Finance and Services released the response of the NSW Government to the recommendations.

The NSW Government has indicated support for some of the recommendations and has requested clarifications with respect to other recommendations.

Government response to recommendations

With respect to the key recommendations, the government has indicated the following:

Recommendation

NSW Government Response

Establishment of NSW Building and Construction Commission The NSW Government is considering this recommendation and intends to conduct a cost benefit analysis
Licensing of Commercial Builders The NSW Government has stated that this recommendation should be subject to the public release of a regulatory impact statement.
Construction trusts Not supported by the NSW Government in full. The NSW Government however, has agreed to trial use of trust accounts on some selected projects.
Retention Sums The NSW Government in principle supports retention to be held in a trust fund administered by the Office of the Small Business Commissioner.
Amendments to SOPA The NSW Government has supported in principle the following recommendations:

  1. Adjudicators have power to decide on bank guarantees on an interim basis
  2. Adjudicators have power to resolve disputes in respect of projects valued in excess of $1m
  3. Adjudicators have power to issue a final certificate for dispute under $40k
  4. Abolish requirement that payment claims include a statement that it is made under the SOPA
  5. Removal of right of claimant to choose adjudicator
  6. requirement that contractors provide statutory declarations that subcontracts have been paid
  7. increase of time limits but still to be consistent with a speedy resolution of claims
  8. Requirement that adjudicators under take more through training.

Additionally, the NSW Government has indicated, in an effort to increase cash flow in the industry, that it will begin drafting proposed amendments to the Act, likely to include provisions to the following effect:

  1. payment of undisputed amounts to be made by Principals to Head Contractors within 15 days;
  2. payment of undisputed amounts to be made by Head Contractors to Subcontractors within 30 days; and
  3. that a penalty interest payment is applicable in the event of a delayed payment of undisputed amounts.

 

Download a printable version of this newsletter here.

If you would like more information about the Construction Industry and Insolvency Inquiry please contact David Glinatsis on (02) 8239 6500.