The Fiocco Report: Is the Reform Sub-Contractors have been Waiting for Around the Corner?

In December 2018, the Western Australian state government released the Fiocco Report, a review into the payment delays being experience across all levels of the Western Australian construction industry. The Fiocco Report comes just months after the Commonwealth government released the Murray Report, which analysed security for payment legislation around Australia.

One of the key recommendations contained within the Murray Report, that no doubt caught the attention of the Western Australian state government, was the recommendation that a national security for payment model be adopted which moved away from “West Coast” model (currently in force in Western Australia and the Northern Territory) and towards a system based on the “East Coast” model.

The Fiocco Report made 44 recommendations in total and whilst it didn’t adopt all of the recommendations contained in the Murray Report, it did adopt a large portion of them. Some of the more pertinent Murray Report recommendations that were accepted by the Fiocco Report were as follows:

  • The introduction of a “payment schedule” which would obligate a contractor to respond to a payment claim within a fixed period of time by outlining the amount the contractor proposes to pay and if less than the claim, identify why the amount contained within the payment schedule is less than the claim;
  • A new Security for Payment Act should be introduced in Western Australia (replacing the Construction Contracts Act) which would include various aspects of the New South Wales legislation including the right to apply for adjudication in the event that a payment is missed or a payment schedule is not provided; and
  • There be deemed trust accounts enshrined in legislation which would create a trust relationship between contractor and sub-contractor in the case of insolvency whereby the law would state that the head contractor holds any unpaid monies on trust for the sub-contractor. Put simply, the monies would therefore belong to the sub-contractor and would not form part of any pool of funds accessible by a liquidator or other secured party.

Significantly though, not all of the recommendations were accepted by the Fiocco Report. This included the following:

  • The exclusion of “Home Building Work Contract, as defined within the Home Building Contracts Act, should not be the subject of the proposed security for payment legislation;
  • The State Administrative Tribunal’s limited right of review should remain in lieu of that recommended by the Murray Report; and
  • Parties retaining the right to appoint their own adjudicator as opposed to having one appointed for them.

In addition to considering the recommendations contained in the Murray Report, the Fiocco Report also made a number of recommendations aimed at speeding up the payment chain and reducing payment disputes. This included:

  • increasing the amount of training that builders and contractors are required to undertake with respect to “improving participants understanding of relevant laws and contractual obligations, business financial planning, contract management and trust accounting and record keeping”;
  • introducing a demerit point system which would see building service providers suspended, fined or deregistered by the SAT should they continually engage in poor payment practices; and
  • requiring most building services contracts worth over $20,000 to be in writing.

Whilst the contents of the Fiocco Report and the Murray Report remain up for debate, there does appear to be some appetite across all jurisdictions to adopt their findings. Ultimately, if adopted, this could result in some significant changes to the building and construction industry as early as this year, particularly in Western Australia.

We recommend that all those engaged in the building and construction industry subscribe to our legal update service so that we can keep you updated of the changes, as they occur.

The information published in this paper is of a general nature and should not be construed as legal advice. Whilst we aim to provide timely, relevant and accurate information, the law may change and circumstances may differ. You should not therefore act in reliance on it without first obtaining specific legal advice.