Timely and secure payment is crucial for businesses, especially in industries like construction, where late or disputed payments can cause financial strain.  While each State and Territory in Australia has introduced security of payment (SOP) laws, there is no national framework.

This article explores whether Australia should consider introducing nation-wide SOP laws.

The Current State of SOP Laws

Each State and Territory has its own SOP framework in place, and while there are similarities between them, there are also many differences.

For example, the date on which a payment is deemed due and payable varies between the States and Territories.  In New South Wales, a progress payment to a subcontractor will become due and payable 20 business days following the date of the relevant payment claim, or an earlier date if provided for in the contract.

However, in Victoria, a progress payment under a construction contract becomes due and payable on the date stated in the contract or, if there is no date expressed in the contract, 10 business days following the date of a payment claim.

For now, inconsistencies that do exist may lead to confusion, especially for construction companies working on projects in multiple States and Territories. This potentially increases administrative burdens and the risk of non-compliance.

The Need for a National Framework

A national SOP framework could simplify compliance, reduce the risk of payment disputes, and provide clarity for businesses, no matter where their project is located.  A unified approach would be particularly beneficial to smaller businesses and subcontractors who can be the most vulnerable to late or disputed payments.

A national framework could also help standardise dispute resolution processes, ensuring faster and more efficient resolutions across Australia, without the need to navigate different procedures in each jurisdiction.

Additionally, from a contractual perspective, a national framework could also assist in the drafting of standard clauses which relate to SOP law as opposed to being required to tailor clauses adhering to the requirements of the relevant State or Territory in which the project is located.

Challenges to Implementation

Adopting a nationwide SOP framework comes with its challenges.  The diverse but largely entrenched construction practices across States and Territories make it difficult to create a single system that suits all needs.  The process of transitioning to a national system would require extensive consultation with industry stakeholders and careful consideration of how it would affect existing contracts.

In the “Government Response to the Review of Security of Payment Laws“, a nationally consistent SOP framework is generally supported, but it also acknowledged that it is for the States and Territories to legislate for security of payment matters.  This aligns with the idea that some SOP laws in jurisdictions have been adapted over the years to suit local needs and therefore it may be difficult to have a “one size fits all” approach.

Conclusion

While a national SOP framework could enhance efficiency, fairness, and clarity, it must strike the right balance between simplicity and flexibility.  Careful consideration must also be given to the unique circumstances of each State and Territory so that any national framework can be effective. While the effort required to implement such a system is significant, the long-term benefits for construction companies (especially those working across multiple jurisdictions) could be substantial.

Although the introduction of a national SOP framework may seem challenging, it is not an impossible task.

Mikaela Davis is a Senior Associate at Paradise Charnock Hing. The firm specialises in resolving Security of Payment Act claims promptly and valuably, having been successful in over 100 applications Australia-wide.