On 22 February 2018, Minister for Commerce and Industrial Relations, the Hon. Bill Johnston MLA appointed Barrister John Fiocco to make recommendations to improve the security of payment for subcontractors in WA’s building and construction industry. The findings of the 359-page report were released today.

The Security of Payment Reform in the WA Building and Construction Industry was developed over a six-month period and involved extensive stakeholder consultation with 19 industry organisations and seven State Government agencies.

The report said the security of payment problem facing subcontractors appears to be driven by three factors.

The first factor is the hierarchical contracting arrangements or ‘contractual chain’ used to deliver construction projects. Money passes down the chain from the owner at the top, through head contractors to subcontractors, sub-subcontractors and supplier. This means that businesses at the bottom of the chain can face a significant risk of payment delay and default. Payments may be delayed due to the action of either a direct contractual counterpart or any party operating at a higher tier in the contractual chain which ripples downwards.

The second factor is that WA’s building and construction industry has experienced a significant downturn in activity in the last two to three years, mainly due to reduced mining-related construction. The report found that the reduction in work increased competition, which led to some businesses tendering at reduced, sometimes unsustainable, profit margins to ‘win work’. These businesses face an increased risk of cash-flow shortages and insolvency.

The third factor is likely to attributed to the power imbalance in the commercial relationship between head contractors and subcontractors, which often leave subcontractors at a disadvantage when negotiating contractual terms or are unable/unwilling to enforce their rights for fear of losing future work.

The report provides 44 recommendations as to how the Government can work with the industry and other bodies to address these challenges.

Several recommendations were either based on or fully agreed with the recommendations provided to the Government earlier in the year by Mr John Murray AM in the ‘Review of Security of Payment Laws’ report.

Mr Fiocco’s recommendations range from suggesting that the security of payment legislation should adopt an east coast model to promote prompt payment to maintain a contractor’s cash flow to recommending that payment claims are to be made within six months after construction work was last carried out under the contract.

The Government of Western Australia will consider all recommendations provided by Mr Fiocco and will examine the best way to implement them.

Mr Johnston said the State Government is committed to providing a fairer system and more certainty for subcontractors and their families.

“I look forward to carefully considering each recommendation in the report and expect the first legislative reforms to be introduced in the first half of 2019,” he said.

The full report is available to download here.