Security of payment: Australia

What legislation or regulations govern security of payment in construction contracts?

Australia’s security of payment (SOP) legislative landscape is not constituted by a single, national law, nor even by a national model law, but by a network of jurisdiction-specific laws each subject to their own body of case law. These laws share common objectives and are largely similar but contain important distinctions.

Below is a table summarising the relevant legislation and regulations applicable to each state/territory:

State/Territory	Legislation	Regulations
Australian Capital Territory	Building and Construction Industry (Security of Payment) Act 2009 (ACT)	-
New South Wales	Building and Construction Industry Security of Payment Act 1999 (NSW)	Building and Construction Industry Security of Payment Regulation 2020 (NSW)
Northern Territory	Construction Contracts (Security of Payments) Act 2004 (NT)	Construction Contracts (Security of Payments) Regulations 2005 (NT)
Queensland	Building Industry Fairness (Security of Payment) Act 2017 (QLD)	Building Industry Fairness (Security of Payment) Regulation 2018 (QLD)
South Australia	Building and Construction Industry Security of Payment Act 2009 (SA)	Building and Construction Industry Security of Payment Regulations 2011 (SA)
Tasmania	Building and Construction Industry Security of Payment Act 2009 (TAS)	-
Victoria	Building and Construction Industry Security of Payment Act 2002 (VIC)	Building and Construction Industry Security of Payment Regulations 2023 (VIC)
Western Australia	Building and Construction Industry (Security of Payment) Act 2021 (WA)	Building and Construction Industry (Security of Payment) Regulations 2022 (WA)

 

What framework is put in place to protect monies intended for progress payments?

The table below addresses the following questions:

1. Are project bank accounts required?

2. Are retention monies quarantined?

3. Are retention monies regimes prohibited?

Each state/territory has different requirements as to project bank accounts and retention monies. No Australian state or territory prohibits the use of a retention monies regime as part of a construction contract.

The table below summarises the framework currently put in place in each state/territory:

State/Territory	Are project bank accounts required?	Are retention monies quarantined?	Are retention monies regimes prohibited?
Australian Capital Territory	No	No	No
New South Wales	Yes  See section 12A of the Building and Construction Industry Security of Payment Act 1999 (NSW)	Yes  See section 12A of the Building and Construction Industry Security of Payment Act 1999 (NSW)	No
Northern Territory	Yes See section 10 of the Construction Contracts (Security of Payments) Act 2004 (NT)	Yes See section 10 of the Construction Contracts (Security of Payments) Act 2004 (NT)	No
Queensland	Yes See section 34 of the Building Industry Fairness (Security of Payment) Act 2017 (QLD)	Yes See sections 34 – 36 of the Building Industry Fairness (Security of Payment) Act 2017 (QLD)	No
South Australia	No	No	No
Tasmania	No	No	No
Victoria	No	No	No
Western Australia	Yes See section 74 of the Building and Construction Industry (Security of Payment) Act 2021 (WA))	Yes See section 71 of the Building and Construction Industry (Security of Payment) Act 2021 (WA)	No

 

Can a contractor or subcontractor impose a lien or other form of security over the works or other assets of the developer?

A contractor or subcontractor cannot unilaterally impose a lien or other form of security over the works or other assets of the developer. However, in some states and territories, a contractor or subcontractor can exercise a lien in relation to an unpaid amount, over any unfixed plant or materials supplied by the contractor or subcontractor.

The table below summarises the position in each state and territory:

State/Territory	Ability to impose a lien or other form of security over works or assets of developer
Australian Capital Territory	No, a contractor or subcontractor cannot impose a lien or other form of security over the works or other assets of the developer. However, a contractor/subcontractor can exercise a lien in relation to an unpaid amount, over any unfixed plant or materials supplied by the contractor/subcontractor.  See section 13(3) of the Building and Construction Industry (Security of Payment) Act 2009 (ACT).
New South Wales	No, a contractor or subcontractor cannot impose a lien or other form of security over the works or other assets of the developer. However, a contractor/subcontractor can exercise a lien in relation to an unpaid amount, over any unfixed plant or materials supplied by the contractor/subcontractor.  See section 11(3) of the Building and Construction Industry Security of Payment Act 1999 (NSW).
Northern Territory	No, a contractor or subcontractor cannot impose a lien or other form of security over the works or other assets of the developer.
Queensland	No, a contractor or subcontractor cannot impose a lien or other form of security over the works or other assets of the developer.
South Australia	No, a contractor or subcontractor cannot impose a lien or other form of security over the works or other assets of the developer.  However, a contractor/subcontractor can exercise a lien in relation to an unpaid amount, over any unfixed plant or materials supplied by the contractor/subcontractor. See section 11(3) of the Building and Construction Industry Security of Payment Act 2009 (SA).
Tasmania	No, a contractor or subcontractor cannot impose a lien or other form of security over the works or other assets of the developer. However, a contractor/subcontractor can exercise a lien in relation to an unpaid amount, over any unfixed plant or materials supplied by the contractor/subcontractor. See section 14(2) of the Building and Construction Industry Security of Payment Act 2009 (TAS).
Victoria	No, a contractor or subcontractor cannot impose a lien or other form of security over the works or other assets of the developer. However, a contractor/subcontractor can exercise a lien in relation to an unpaid amount, over any unfixed plant or materials supplied by the contractor/subcontractor. See section 12A(1) of the Building and Construction Industry Security of Payment Act 2002 (VIC).
Western Australia	No, a contractor or subcontractor cannot impose a lien or other form of security over the works or other assets of the developer. However, a contractor/subcontractor can exercise a lien in relation to an unpaid amount, over any unfixed plant or materials supplied by the contractor/subcontractor. See section 64(1) of the Building and Construction Industry (Security of Payment) Act 2021 (WA).

 

What impact has the legislation or regulation had on the construction sector and insolvencies?

The SOP legislation has provided an effective mechanism in all states and territories for payment for those contractors and subcontractors who have availed themselves of the security of payment regimes. The SOP legislation has made a significant impact on keeping the money flowing in the construction industry.

However, it is underutilised by the lower levels of the contracting chain and the SOP legislation in some jurisdictions (such as Western Australia) contains a "mining exclusion" which excludes the operation of the SOP legislation for contractors and subcontractors undertaking certain construction activities connected with mineral and resource extraction activities.

It is also relevant to note that the Australian Securities and Investments Commission’s Administrator’s Reports found that the main causes of insolvency in the construction industry relate to inadequate cash flow or high cash use¹.

 

What, if any, reforms are being considered?  

In Western Australia, the new SOP legislation (Building and Construction Industry (Security of Payment) Act 2021 (WA)) was introduced in August 2022 and it applies to construction contracts entered into on or after 1 August 2022. It has reformed the previous SOP legislation to align more closely with the SOP legislation in New South Wales including by introducing a statutory right to make monthly payment claims and a requirement for respondents to issue payment schedules to avoid liability for the full amount of payment claims they receive. For construction contracts entered into before 1 August 2022, the Construction Contracts (Former Provisions) Act 2004 (WA) still applies.

In Victoria, significant reforms to the Building and Construction Industry Security of Payment Act 2002 (Vic) are anticipated following the Victorian Government’s inquiry into the SOP legislation. It is expected that these reforms will create a more predictable and straightforward approach to recovering payment. Some of the key changes anticipated are:

• reducing the maximum payment terms;
• requiring retention monies to be held on trust which will provide protection for contractors and subcontractors in the event of principal or head contractor insolvency; and
• empowering adjudicators to nullify a notice-based time bar clause if it considers that compliance would be unreasonably onerous or not reasonably possible.

We expect these recent reforms (anticipated reforms) to:

• allow contractors and subcontractors to get paid sooner for the work they have performed;
• provide greater certainty of payment as the money that contractors and subcontractors are entitled to for the work they have performed will be "quarantined";
• encourage more contractors and subcontractors to avail themselves of the SOPA legislation; and
• potentially reduce the number of insolvencies in the construction sector.

 

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¹Insolvency in the Australian construction industry, Chapter 8