14 December 2018
The WA Government has released its Security of Payment Reform in WA Building and Construction Industry final report.
In a time of financial distress for many participants in the construction industry, the report proposes various reforms to promote prompt payment to maintain a contractor’s cash flow. In doing so, the report provides an in-depth Western Australian view on this year’s national Review of Security of Payment Laws (Murray Review).
The Security of Payment Reform in WA Building and Construction Industry final report (Fiocco Review) was produced for the WA State Government by an independent advisory group chaired by prominent barrister John Fiocco and was undertaken in response to continuing payment delay and default in the construction industry. The independent advisory group was asked to consider, among other things, the extent to which WA should adopt the Murray Review’s recommendations.
The Fiocco Review recommends adopting a range of the Murray Review’s recommendations, but differs from the Murray Review in some significant respects. It also proposes key new reforms not considered by the Murray Review.
Regarding statutory adjudication, the Fiocco Review proposes movement away from the model used in Western Australia and the Northern Territory (West Coast Model) towards the significantly different model recommended by the Murray Review (Murray Model) (which itself was based on the various forms of the ‘East Coast Model’ adopted in the Eastern States).
The Fiocco Review also makes other significant recommendations aimed at bolstering payment security for contractors and subcontractors, including statutory trust schemes and penalties for builders with poor payment practices.
The Fiocco Review, in largely adopting the Murray Model, admitted it was more complex than the West Coast Model. However, it reasoned that ‘some additional complexity is a price worth paying to achieve’ the aim of ‘providing parties with statutory rights to claim and receive payment promptly and an efficacious means of enforcing their rights, rather than simply a rapid dispute resolution process.’
Some of the key aspects of the recommended model include:
The substantial proposed reforms to the adjudication regime should not overshadow the significance of the other recommendations made in the Fiocco Review.
Recommendations which are similar to, or adopt, Murray Review recommendations include:
The key new recommendations, not addressed in the Murray Report, include:
If adopted, the security of payment model recommended by the Fiocco Review would represent a significant step towards greater federal unity of security of payment laws. However, by retaining aspects of the WA Act and picking and choosing from the Eastern States, it would result in yet another unique form of the East Coast Model.
Whether a national regime will be implemented remains to be seen, but as the Fiocco Review points out, ‘while national harmonisation is an admirable objective, it may be more realistic to aim for greater national consistency, at least in the short term.’
Any move in WA towards the key components of the Murray Model for payment claim adjudication would require WA industry to invest significant time in adjusting to the working of the new, more prescriptive, regime. Parties would have to have a better understanding of their statutory rights and obligations than under the existing system. With these factors in mind, the Fiocco Review recommends a lead-in period of at least 12 months if the regime is adopted.
The recommendations for reforming the contract administration process could encourage timely responses to claims, which could in turn reduce cash flow uncertainty for those down the contractual chain. A consequence of the more rigorous requirements may be increased administration costs and less flexibility with cash flows. Further, the introduction of statutory deemed trusts could increase insolvency risk, particularly for head contractors.
 Fiocco Review at 135.
 Fiocco Review at 7 (Recommendation 21); Murray Review at xxx (Recommendation 84).
 Fiocco Review at 7 (Recommendation 21), 212, 214; Murray Review at xxx (Recommendation 84).
 Fiocco Review at 2, 156.
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