Improving Security of Payment Building and Construction Industry

7. Priority Payments Page 88National Public Works Council IncImproving Security of Payment in the Building and Construction Industry7.1 Recommendations• This Consultancy recommends that a priority claim be granted to Subcontractors inthe event of the insolvency of a Head Contractor and we propose that Section 556(1)of the Corporations Law be amended by the introduction of a new sub-clause (i):"556(1)(i)next, amounts due toSubcontractors pursuant to abuilding and constructioncontract".• A "building and construction contract" should be defined to cover "any writtencontract" as prescribed by the Regulations from time to time.• The Regulations should then prescribe "any written contract" as standard formbuilding contracts such as AS2124-1992, but with the objective of avoiding theprescription of unrealistic, impractical, complex and lengthy subcontracts torecognise the commerciality of the industry and the range of sizes of projects.• "Subcontractors" should be defined as "any persons or corporations who haveentered into a standard form building contract as prescribed by the Regulations fromtime to time for the provision of personal exertion, labour and building materialsused in the construction of a building", or such other appropriate description.• This Consultancy recommends also that a priority cap at a monetary level of$10,000 inclusive of personal exertion, labour and materials in total be given to eachrespective Subcontractor pursuant to Section 556, with the balance ranking as anordinary unsecured claim.• Similar amendments should be made to Section 433 of the Corporations Law andSection 109 of the Bankruptcy Act.• As with all suggested solutions to the security of payment problem, any one solutionby itself is not satisfactory to alleviate payment problems to Subcontractors.Amending Sections 556 and 433 of the Corporations Law or Section 109 of theBankruptcy Act is no different to any other solution. A Section 556 priority toSubcontractors will only go some way to providing security of payment toSubcontractors and only then in an insolvency context. Genuine disputes as topayments to Subcontractors arising out of matters other than a failure to pay due toinsolvency, will not be covered by amending the above provisions of the law.