‘Security of payment’ is a generic term used to describe “the entitlement of contractors, subcontractors, consultants or suppliers in the contractual chain to receive payment due under the terms of their contract from the party higher in the chain” (source: NSW Government 1999). Thus, the security of payment problem is the “consistent failure in the building and construction industry to ensure that participants are paid in full and on time for the work they have done, even though they have a contractual right to be paid” (source: Commonwealth Government 2002). In general, the security of payment problem relates to the arbitrary devaluation, late payment and/or non-payment of progress claims. It is a persistent problem for those who perform construction work, or supply goods and services, in the construction industry. 
In the second reading speech for the NSW Act, the Minister for Public Works and Services, Hon. Morris Iemma (1999), stated:
"It is all too frequently the case that small subcontractors, such as bricklayers, carpenters, electricians and plumbers, do not get paid for their work. Many of them cannot survive financially when that occurs, with severe consequences to themselves and their families…The [New South Wales] Government is determined to rid the construction industry of such totally unacceptable practices."
All States and Territories in Australia have now introduced security of payment legislation in an attempt to counter the tactic of some principals and contractors in delaying payments, or unduly reducing the value of payments, so as to enhance their positive cash flow at the expense of subcontractors and suppliers.
Generally the object of the Acts “is to ensure that any person who undertakes to carry out construction work (or who undertakes to supply related goods and services) under a construction contract is entitled to receive, and is able to recover, progress payments in relation to the carrying out of that work and the supplying of those goods and services”. To achieve this objective, the Acts have introduced new statutory rights for claimants, such as: a right to progress payments; a right to interest on late payments; a right to suspend work; and a right of lien. The Acts also renders void ‘pay-when-paid’ clauses in construction contracts, and the parties cannot contract out of the Acts.
In addition, the Acts introduced a unique form of ‘rapid adjudication’ of disputes over progress payment amounts whereby an independent adjudicator makes an interim determination as to the amount of progress payment to be paid to a claimant by a respondent. Only a claimant can initiate the adjudication process, however, both parties are entitled to make submissions to the adjudicator, subject to the respondent having provided a written response to the payment claim.
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An adjudicator can only be appointed by an Authorised Nominating Authority (ANA) chosen by the claimant. The procedures and timeframes in relation to the adjudication process are strict and governed solely by the Acts. An adjudicator’s determination, while not final, is binding on the parties until the dispute is resolved by private agreement, a court, or some other process. If the respondent does not pay the adjudicated amount by the relevant date, the adjudicator’s determination is then capable of being registered as a judgement in a court of competent jurisdiction via a relatively straightforward administrative process prescribed under the Acts, and is enforceable accordingly. If, subsequently, a respondent applies to the court to have the judgment set aside, the respondent will not be entitled to bring a cross-claim against the claimant, or to raise any defence in relation to matters arising under the construction contract or to challenge the determination by the adjudicator, (other than on grounds of an adjudicator’s jurisdiction). In addition, the respondent must pay into court as security the unpaid portion of the adjudicated amount pending the outcome of that proceeding |
New South Wales was the first Australian jurisdiction to introduce this form of legislation. Shortly afterwards Victoria introduced legislation closely modelled on the NSW Act in its original form. However, since that time the NSW Act and the corresponding Victorian legislation have undergone significant amendments. This has resulted in a significant divergence in the comparative operation and effect of these Acts, notwithstanding that both maintain virtually identical objectives. Since then all other states and territories have enacted construction industry specific security of payment legislation. The Queensland, South Australian, Tasmanian and Australian Capital Territory legislation is closely modelled on the NSW Act (as amended). The Northern Territory legislation, on the other hand, is largely modelled on the Western Australia legislation, which, in turn, is largely modelled on the UK and New Zealand ‘construction contracts’ legislation.
Effectively there are now two models of security of payment legislation in operation in Australia – the Western Australian/Northern Territory model (based closely on the UK legislation), and the uniquely ‘Australian Model’ employed by the remaining States and Territories.
In addition to the United Kingdom and New Zealand legislation previously mentioned, Singapore has in operation security of payment legislation, which is largely modelled on the NSW Act (as amended).