'Security of payment' is about assisting "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). The problem addressed by security of payment legislation 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).
Arbitrary devaluation, late payment and/or non-payment of progress claims have been dramatically reduced by the existence of this legislation.
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."
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 a party claiming a payment (the claimant), 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, if any, to be paid by the respondent to the claimant.
An adjudicator can only be appointed by an Authorised Nominating Authority (ANA) chosen by the claimant. The procedures and time-frames 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 party who it is claimed owes the money (the respondent) does not pay the adjudicated amount by the relevant date, the adjudicator’s determination can be registered as a judgement in a court of competent jurisdiction via a relatively straightforward administrative process and enforced as a Judgement of the Court. 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 those proceedings.
New South Wales was the first Australian jurisdiction to introduce this massive reform to payment arrangements in the building and construction industry. Shortly afterwards, Victoria introduced legislation closely modeled on the NSW Act in its original form. Since that time both the NSW and Victorian Acts have undergone significant amendments, simplifying the capacity of claimants to make applications. Now all States and Territories have enacted security of payment legislation. The South Australian, Tasmanian and Australian Capital Territory legislation is closely modeled on the NSW Act (as amended). The Northern Territory and Western Australian legislation is loosely modeled on the UK ‘construction contracts’ Act. The former LNP government in Queensland amended the "Payments" act (it is not a "Security of Payments" act) which removed the claimants right of choice of ANA, prevented industry parties receiving free advice from ANAs and introduced mandatory adjudication application fees. The current ALP government is reviewing the impact of these amendments which are strongly opposed by subcontractor organisations.