Improving Security of Payment Building and Construction Industry

5. Proof of Payment Page 55National Public Works Council IncImproving Security of Payment in the Building and Construction Industry5.1 Recommendations• This Consultancy has been asked to research and advise on two approaches whichdeal with payment of amounts owing to Subcontractors. The first approach is the"Queensland Build Approach" which has a requirement in the building contract thatthe Head Contractor must obtain from a Subcontractor a signed acknowledgment thatpayment has been received. The Head Contractor then submits a statement to thePrincipal that the Subcontractor has acknowledged payment. Further, the HeadContractor's statement will identify those Subcontractors who have not acknowledgedreceiving payment to the Principal. The Principal will then make a payment to theHead Contractor for work undertaken by the Head Contractor, together with thoseamounts paid to Subcontractors.• The second approach is the "Victorian Catholic Building Office Approach" which hasa requirement in its building contract that progress claims from the Head Contractorhave separate identifiable amounts claimed for each trade item. The total amount duefor each trade item is then paid by the Principal to the Head Contractor who must thenpay Subcontractors within six (6) days. Following proof that Subcontractors havebeen paid, the Principal then pays the balance of the claim to the Head Contractorwithin five (5) days.• Both approaches also require a Subcontractor to acknowledge payment by the HeadContractor.• Both approaches appear to be an acceptable position in order to ensure paymentreaches the Subcontractor at the earliest opportunity. However, both approaches willnot ensure prompt payment is made to a Subcontractor where there are disputes ofone nature or another, unless some mechanism is in place to settle those disputesefficiently and expeditiously.• Difficulties arise when there is pressure brought to bear by the Head Contractor upona Subcontractor such that the Head Contractor, by duress or other means, has theSubcontractor falsify acknowledgment of payment statements. Alternatively,Subcontractors may mis-use the acknowledgment of payment mechanism to pressurethe Head Contractor for payment of monies in disputes between those parties. It maybe that the Subcontractor will want to continue and extend the dispute so as topressure the Head Contractor into negotiating a better outcome for the Subcontractor.• Issues of duress, fraud, perjury, "bully boy" tactics and deceit are issues that requirebetter policing, greater penalties and a change of mind set in the Building andConstruction Industry. This can only be achieved through enhanced educationprograms being implemented for industry personnel. This is, by its nature, a longterm preventative position. Education cannot "stamp out" duress and fraud in theshort term.• Genuine disputes arise in the Building and Construction Industry for a whole raft ofreasons, some of which include variations to the building contract, disputes as to