Building And Construction Industry Security Of Payment Bill (No 2)

About this Item
SpeakersBrogden Mr John; McBride Mr Grant
BusinessBill, Second Reading

Second Reading

Debate resumed from 8 September.

Mr BROGDEN (Pittwater) [12.34 p.m.]: I lead for the Opposition, particularly on behalf of my colleague the shadow minister for public works and shadow minister for western Sydney, the Hon. Charlie Lynn, in another place, who will outline in more detail the Coalition’s position on the bill. It is with some interest today that I speak to the bill. The
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Minister will recall the pressure he placed on the Opposition in the last sitting to bring this bill forward. As honourable members will recall, the second reading speech was delivered by the Minister in the last session of Parliament prior to its prorogation. In that last heady week of Parliament the Minister had industry associations lobby me directly. We were blamed for the delay in the progress of the bill. The Minister will well recall that we were delaying the progress of the bill.

At the end of last session the Government pulled up the House quick smart because it did not want any analysis in this Chamber at that time of the activities of a few of its members with respect to the Industrial Relations Commission. Rather than deal sensibly with the legislation, as the Opposition was keen to do in June this year, the Government pulled up the House and prorogued, forcing the bill into the waste bin. The bill has now been brought forward. However, the Opposition is happy to deal with the bill, which I am happy to indicate the Coalition will support, with some reservations. We intend no amendments to the legislation. The industry groups that were concerned at the time are aware that it was not the Coalition that delayed the progress of the bill. The Government’s suspension of Parliament in the last few days of June 1999 pushed the bill back. The bill is now being dealt with some months later, in September.

The main purpose of the bill is to overcome delays in payments in the construction industry. The bill is intended to create a payment standard for construction contracts. It is for the benefit of contractors and subcontractors, including professionals who provide architectural and engineering advice and supplies. Standards include use of progress payments, quick adjudication of disputes over progress payment amounts, and provision of security for disputed payments. The bill is intended to split up payments and to remove any incentive to delay payments. Reforms include the power for an unpaid contractor or subcontractor to suspend work and a ban on pay-if-paid, and pay-when-paid clauses. The key objectives of the bill are:
      (a) to entitle certain persons who carry out construction work (or who supply related goods and services) to timely payment for the work they carry out and the goods and services they supply, and
      (b) to provide a procedure for securing payments to which persons become entitled under this Act, and
      (c) to make consequential amendments to the Commercial Arbitration Act 1984, and
      (d) to enact provisions of a savings or transitional nature.

We appreciate the background of the bill coming from the findings of the Joint Standing Committee upon Small Business and note that the Government sought to act on them. Non-payment for services provided has long been a problem for small business owners in the building industry. We note that the bill provides a new mechanism to seek to guarantee payment for small business owners. Both my father and my brother are carpenters. My father, before his recent retirement, was a subcontractor. I know from his business procedures that it can be difficult for tradesmen to receive payment. Some years ago my father was involved in the construction of the new building on this site. I do not know whether he was involved in the bugging of the building, probably not, but he was involved in the construction of this and many other buildings.

Mr Iemma: He would be too honourable for that.

Mr BROGDEN: He is much too honourable for that. My father is a very good carpenter.

Mr Merton: Can he fix chairs?

Mr BROGDEN: He can fix chairs. Although he might live in a good electorate, Mr Speaker, I do not know whether he still votes for you these days. He used to vote for you. I think I have been able to turn him around after many years. Building works in New South Wales are estimated to be worth $13.5 billion for the financial year ending 2000, so it is important that contractors and subcontractors have some guarantee of payment in this process. Although the Opposition supports the bill it has some concerns which I would like to outline.

The Opposition notes that the bill exempts residential builders from the legislation. The joint parliamentary committee identified that 94 per cent of participants in the building and construction industry are small business people. Most of these will be excluded from the benefits of the adjudication processes and security of payment provisions of the bill. The bill does not address final payment for residential builders. This is the hardest of all payments for builders to obtain and can have a negative impact upon a builder’s financial position. This legislation misses an important opportunity to create a level playing field for all parties to a building contract.

It is noted that residential builders will have to continue to operate with the Fair Trading Tribunal. The Master Builders Association is concerned about the delays of several months under this system and the bill does not provide any relief in this area. In
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reaching its position on the bill the Coalition consulted widely with the Master Builders Association, the Housing Industry Association, the Property Council of Australia, the Master Painters Association, the Master Plumbers and Mechanical Contractors Association, the National Electrical Contractors Association of New South Wales, the Australian Industry Group and individual subcontractors. The Opposition acknowledges the benefits of the bill. To this end it supports the bill and will do so in the Legislative Council, but not without identifying some concerns. The Opposition hopes that the Minister will be able to give a guarantee to the Parliament and those in the industry to continue to monitor the progress of the bill in an endeavour to continue the reform and to provide greater surety to contractors in this process.

Mr McBRIDE (The Entrance) [12.42 p.m.]: I am pleased to speak to the bill because it is landmark legislation. It is about changing the culture of the engine room of industry in New South Wales, namely, the building and construction industry. It has been a long and tortuous path to get to this point and I congratulate the Minister for Public Works and Services and those involved in the process. I have been involved in the process for 4½ years. I thought at one stage that the forces of opposition were rallying again and that we would not reach this point. Many people in the building industry do not want this bill because it changes the culture of how things are done in that industry. New Ministers are often under enormous pressure, particularly where there is a huge vested interest, and the building industry had hoped that the policy could be attacked and taken off the agenda.

However, it was clear from my discussions with the Minister that he saw the benefit of the legislation to ordinary people, namely, the subcontractors, who in the past had not been represented and who basically had been grist to the mill for the building industry throughout its history in New South Wales. I congratulate the Minister on this legislation. The Hon. Eddie Obeid chaired the joint small business committee. He understood the building industry and, as a businessman, understood the predatory culture associated with the building industry and the fact there was little protection for people within that industry. He drove the committee in its deliberations and in its drafting of the bill. I commend also members of the committee, in particular, the honourable member for Fairfield and the honourable member for Cabramatta because ethnic people often are most exploited through the existing culture.

I congratulate those from the industry who also drove the legislation, in particular, Geoffrey Jochelson, the Business and Commercial Manager of the National Electrical and Communication Association [NECA] and his colleague in this process, Bryan Sullivan, Vice-President of the Master Plumbers and Mechanical Contractors Association of New South Wales and Vice Chairman of the Construction Payment Group. They have had many years of hands-on experience in the industry. Bryan has his own business and knows exactly what is going on in the industry. He and others like him have been prepared to drive the legislation because it is about fairness, justice and equity for everyone in the industry.

I note that both Malcolm Pettinger, General Manager of the Master Plumbers Association, and Bryan are in the gallery. Bryan has been driving this issue for almost a decade and I suppose he has a lot of grey hairs or has even lost a lot of hair as a result of it. It is a wonderful day for him and those in the industry who have taken a responsible attitude and who are interested in making the industry equitable and fair for those little blokes who have been ignored by successive governments in this State and nation. It has been the practice that the industry has been financed through subcontractors. Industry has used the capital of subcontractors to finance projects. Two phrases are written in contracts: "paid if paid", which means that the subcontractor is paid if the contractor is paid, and "pay when you are paid", which means that the subcontractor is paid when the contractor is paid.

I have worked in the building industry as a contractor and I have worked under conditions in which I have had to wait 18 months to be paid because the contractor had not been paid. The only option for a small contractor is to take civil proceedings in the court. A friend of mine in the building industry was owed $180,000. He had to go to court but the owner of the company had no assets. He turned up at the court and the contractor arrived in a late model Mercedes Benz convertible, said that he did not have any money and could not pay. He then drove away in the car and was able to do that because the car was in his wife’s name. The contractor was back in business the next week. He came back like a phoenix, finding new subcontractors and going through the same process again. That happened all the time in the building industry.

That practice has been rampant throughout the history of the construction industry in New South
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Wales. It is normal behaviour in the industry and obviously those who abuse the rights of others do not want changes to the process. However, a rearguard action is being led by New South Wales builders, despite this matter having been through a committee phase, the bill having been in draft form since last year and it then being introduced in the first session of the Parliament. Why has that occurred? It has happened because the builders are protecting their interests, and it is in their interests to keep the culture the way it is at the moment because it costs them less. They are using other people’s assets and resources as finance for their projects.

This legislation is long overdue. It is all about protecting ordinary small contractors, but it goes beyond that. It is not just a matter of protecting the subbie. It certainly protects the subbie against the builder but the equitable part of this legislation also protects the builder against the principal. The bill operates at three levels: it protects the subbies, the builders, and the principal. All three parties are protected by this legislation and that is why this legislation is unique in Australia and in the world. It adds protection for the builder and principal relationship. All the dodgy practices that applied between the builder and the subbie are repeated at the next level, that is, between the principal and the builder. The same games are being played.

This bill represents unique landmark legislation because it is the first legislation in Australia and in the world that actually protects all echelons within the building industry. Honourable members should bear in mind that the report of the joint standing committee was unanimously endorsed by all committee members. The report was based on widespread consultation with the industry. Prior to the 1999 state election in March this year, the Labor Party and the Coalition reaffirmed on many occasions, including in writing, their commitment to passing this legislation without amendment. Members of the Government and members of the Coalition agreed that the legislation should be passed without amendment. That was a done deal and both sides signed off an agreement. The industry was widely consulted but the industry is not happy at the moment.

The Opposition’s attitude represents the industry’s last-ditch attempt to nobble this legislation. The industry wants to somehow hit the heel, cut the tendon and hobble this bill. That is what is happening at the moment. I urge Opposition members to think very clearly about the attitude they have adopted. This bill is not about a particular group being protected or gaining some advantage. This bill is all about equity and justice for the whole industry. It is about changing the culture of an industry and it is about eliminating unsavoury and criminal practices that exist in the industry as it is practised in this nation. I urge Opposition members to be careful about their attitude to the bill.

During the past week there has been a concerted effort by builders in New South Wales to change a very significant aspect of legislation which will have the effect of defeating the very intention and purpose of the reforms. The changes double - that is, increase from 10 days to 20 days - the period in which builders can approve or reject a subcontractor’s claim for payment. The irony is that the builders do not want to change the period during which the principal considers the builder’s claim for payment; in other words, they do not want to change the relationship between the builder and the principal, but they want to change the relationship between the builder and the subbie. That approach does away with the equity that exists in the system.

Clearly the purpose of the builders’ proposition is to afford them the opportunity of finding out how much a principal intends to pay them and use the payment that they receive as a basis to calculate payment of the subbie. It will mean a reversion to the present situation that this legislation is designed to change, namely, paid-when-paid, and paid-if-paid. Their objectives are to subvert the most important purpose of the legislation, which is to bring equity into the system. They want the dice loaded in their favour. That is not unusual because every interest group wants the same thing; but the legislation as proposed is equitable and balanced, and provides each echelon in the industry with protection throughout the contracting process.

One of the most important aspects of this legislation which was addressed by the committee was the unjust clauses that have crept into the building industry over the last 30 or 40 years. The most recent attempt by builders to change the legislation is nothing more than a disguised paid-if-paid clause. In other words, the builders want things to go back to the way they were before. As I said earlier, this is unique legislation. It is important because it will change the culture of an industry. It will eliminate some unsavoury aspects of the industry.

The bill will place the industry on a footing that legislators demand of every area in society, that is, that the principles of justice and equity must be observed. Legislators say that. The role of Parliament is to protect society and make sure that everyone has a fair opportunity to participate in the processes of society. That is what this legislation is
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about. That is why this legislation is important. Having said that, I also point out that other matters must be addressed in the future. At the moment this legislation resembles a three-legged chair.

Mr Fraser: It’s a bit like Meredith’s chair.

Mr McBRIDE: I rephrase that. This legislation resembles a three-legged stool. Other important elements that need to be considered are registration and mandatory insurance. Registration is needed to stop phoenix companies going out of business and then re-forming. Insurance is also needed to protect the income of all people in the industry. I congratulate everyone who has been associated with the preparation of this legislation. I implore the Opposition to recognise the latest attempt by the builders of New South Wales as a scam and an attempt to subvert the intention of the legislation.

I suggest that members of the Opposition should follow the practice of every other legislator in New South Wales and Australia and look after the interests of the entire community. In particular, I urge the Opposition to look after subbies, who for decades have been ruthlessly exploited. I will not go into the details of that exploitation because I am sure that other honourable members who participate in the debate will be able to provide examples. I simply reiterate that as legislators we have an opportunity to do something that all parliamentarians believe in, that is, to pass just and fair legislation for the benefit of the whole community. I support the bill.

Debate adjourned on motion by Mr R. H. L. Smith.

[Mr Speaker left the chair at 12.56 p.m. The House resumed at 2.15 p.m.]