Improving Security of Payment Building and Construction Industry

6. Prompt Payment Legislation Page 80National Public Works Council IncImproving Security of Payment in the Building and Construction Industry6.1 Recommendations• The United States of America ("US") has enacted various Acts, both State andFederal, to ensure prompt payment for Subcontractors in the contractual chain.Implementation of the various Acts led the Construction Industry through a periodwhere a new industry culture developed, ie a Contractor has the right to be paid in atimely manner for work completed.• The use of unethical or illegal behaviour, including both "stand-over" and duresstactics, has been minimised by the enactment of the various Acts. Further, thevarious Acts seem to be supported by both industry participants and their advisers.• The success of the prompt payment provisions in the US seems to be driven by boththe draconian penalties that exist for a breach of the provisions and the laws whichgovern the behaviour of lawyers, embodied in the applicable rules, which prohibitlawyers from assisting their client's fraudulent or criminal activities or filingmeritless lawsuits.• It appears that the Australian Construction Industry is currently practising where theUS was in the early 1980's. This Consultancy understands that the US Industry atthat time was faced with the same problems that the Australian Industry currentlyfaces, ie unethical or illegal behaviour; inadequate financial structuring andtechnical ability of industry participants; inadequate business acumen, industrystructure and practice issues; failure to pay on time and insolvency of the Principalor Head Contractor. Although it is impossible to legislate against the insolvency ofthe Principal or Head Contractor, it is possible to legislate and impose draconianpenalties against the other problems that exist within the Australian Industry.• The issue in Australia is that the US type of legislation, which relies on peoplewithin the Industry acting as "watchdogs", may not be as effective in Australia asthere exists an Australian cultural characteristic that seems to premise all activities,namely "you do not dob on your mates!". It is primarily for this reason that thesuccess of such legislation would probably not succeed to the same degree inAustralia. However, the legislation seems to be effective in the US.• This Consultancy believes that some form of US legislation with the draconianpenalties could improve the ethical behaviour and practices of participants withinthe Australian Building and Construction Industry. However, given the extent of thecultural change that would need to happen and the limited empirical data on the sizeof the problem with security of payment in the Australian industry, we believe thatthis form of legislation with its draconian penalties should be used as a "last resort".