Australian government responds to Murray security of payment reform recommendations

The Murray Review (382-page / 5.18mb PDF) made 86 detailed recommendations, including the need to achieve national harmonisation of security of payment legislation.

Unsurprisingly, given the passage of time and the fact that each state and territory is responsible for its own security of payment legislation, the federal government’s response (24-page / 623kb PDF) does not address each recommendation from the Murray Review individually.  

Rather, the federal government indicated a general support for the policy objectives of the Murray Review and focused its response on actions being taken by the government including its collaborative role in policy discussion, encouragement of prompt payment in Commonwealth construction projects, and practical policy interventions to tackle vulnerabilities in the construction industry, particularly in adjacent areas such as reforms in respect of unfair contract terms, combating illegal phoenix activity, consideration of insolvency law reform and supporting the adoption of eInvoicing. 

National security of payment legislation

Despite the wait, the need for nationally consistent security of payment legislation remains.

The federal government has left legislating in the hands of the state and territory governments, acknowledging the need for flexibility to reform the security of payment legislation within their own jurisdiction, with priorities and economic conditions unique to each state or territory. 

The federal government’s approach appears to be focused on promoting consistency of outcomes, rather than consistency of legislation.

Proposed statutory trust model

The Murray Review also recommended the establishment of a statutory trust for construction projects over A$1 million (approx. US$630,800) to establish trust obligations throughout the contractual chain by holding money on behalf of subcontractors or suppliers.  

The federal government acknowledged the significant complexities of the proposed statutory trust model and project bank accounts, an interim step to the trust model, and that there were diverse views on its implementation across jurisdictions.

Although the federal government says that it will explore the possibility of project bank accounts for new Commonwealth construction projects, it seems that it has placed the statutory trust model on the back burner for now.

Building and construction industry blueprint

The National Construction Industry Forum, a collaboration between government, construction employers and unions representing construction employees, will continue to develop a building and construction industry blueprint which is expected to consider security of payment.  The Blueprint is expected in April 2025.

The Commonwealth Supplier Code of Conduct requires certain suppliers contracted to non corporate Commonwealth entities to reflect the Commonwealth’s 20-day maximum payment terms in their subcontracts.

Security of payment in Commonwealth construction projects

The federal government stated that it will also promote prompt payment by writing to commonwealth government business enterprises and updating statements of expectations to reflect the federal government’s expectation that payment times for construction work is consistent with the 20-day payment terms under the Commonwealth supplier code of conduct.

It is also considering requirements in Commonwealth construction projects, for example, requiring head contractors to provide evidence of payments made to subcontractors.  The federal government however acknowledged that this would result in an administrative burden on all parties.

Unfair contract terms

The federal government is also proposing the implementation of wider policy levers, such as reforms as part of:

• the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (Cth) which broadened the unfair contract terms regime and introduced penalties to protect small businesses facing an imbalance of bargaining power in respect of standard form contracts; and
• the Fair Work Legislation Amendment (Closing Loopholes No. 2) Act 2024 (Cth) giving independent contractors the right to challenge unfair contract terms, within the context of an employment relationship, in their services contract with the Fair Work Commission.

Adoption of eInvoicing

The 2024–25 budget provided funding to support the adoption of eInvoicing with the intention that it would improve cash flow for small businesses, by removing manual data entry, promoting transparency through trackable records, and helping to reduce payment redirection scams.

Combatting illegal phoenix activity

Illegal phoenix activity is a significant issue in the construction industry which particularly impacts subcontractors, creditors and employees.  The federal government in the 2024–25 MYEFO provided funding to the Australia Taxation Office and Australian Securities and Investment Commission to continue their work to identify and combat illegal phoenix activity.

Payment times reporting scheme

Reforms to the payment times reporting scheme, under the Payment Times Reporting Act 2020 (Cth), which created incentives for large businesses to improve their payment practices in respect of small business suppliers.

What’s next?

The federal government’s response is a reminder that the onus is on the state and territory governments to introduce any reform to the security of payment legislation.  

There has been a push towards harmonisation, particularly with:

• the introduction of the Building and Construction Industry (Security of Payment) Act 2021 (WA) in Western Australia which that aligned the state’s framework with the eastern states; and
• the Victorian state government of recently endorsing key recommendations to reform its own security of payment legislation so that it aligns more closely with the other states.

Despite this, key differences remain between the jurisdictions, at least in the short to medium term.

In the meantime, the federal government has stated that it will continue its role in policy discussion, use broader policy levers to improve the building and construction industry and promote fair payment practices in Commonwealth projects.

Co-written by Rohini Singh of Pinsent Masons.