The Issue

What is this about?

In October 2018, the Government passed the Building and Security Construction Security of Payment Amendment Bill 2018 through Parliament that will provide subcontractors with better financial security including:

• changes to payment timeframes;
• clarification of the process to make claims under the Act; and
• increased enforcement and compliance powers.

Further to these reforms, the Government is considering the feasibility of statutory trusts to better protect subcontractors from the consequences of contractor insolvency.

To inform Government’s consideration, the Department commissioned consultants HoustonKemp to complete a financial impact analysis, which was based on a model that was refined following stakeholder feedback in 2018. The report will help the Government understand how aspects of statutory trusts may work within the industry and economy.

What has happened so far?

The Government issued a consultation paper in August 2018 seeking feedback on a proposal to introduce ‘deemed’ statutory trusts into the Building and Construction Industry Security of Payment Act 1999. Stakeholder views were sought to assess whether that proposal strikes an appropriate balance between providing greater protection for subcontractor payments, ensuring that additional regulatory and administrative costs to business are minimised, while provide the necessary regulatory framework to support sustained growth into the future.

The main features of the NSW cascading statutory trust model assessed by HoustonKemp were as follows:

• A contractor who subcontracts will establish one separate bank account to hold all trust money.
• Ledgers are kept on all trust fund transactions.
• All payments are placed in the trust account and a contractor can only withdraw accrued money once obligations to subcontractors are discharged.
• Accounts are reconciled monthly.

HoustonKemp assessed the net impact of implementing the proposed model by estimating relevant costs and benefits upon participants in the building and construction sector and the wider NSW economy. The draft report also considered the impact of a range of specific issues by conducting a sensitivity analysis.

The key questions that the analysis investigated were as follows:

• What are the likely costs that would be incurred in establishing and operating trusts accounts for contractors (e.g. bank fees, administration)?
• What are the benefits of the proposed model for contractors and the NSW economy, including any avoided costs (e.g. reduced insolvency)?
• Would there be any significant increased costs for participants in the industry, and could they be absorbed or transferred?
• What would be the impact on a contractor’s working capital and any subsequent impact on their financial viability?

Have your say

Stakeholders and interested parties are invited to review the draft financial impact analysis and provide data and information in response to the targeted questions.

Complete our consultation survey.

Alternatively, please use the attached survey in the list of documents and email the responses back to [email protected]

All submissions will be publicly available. If you do not want your personal details or any part of your submission published, please let us know in your submission together with reasons.

Next steps

Fair Trading is seeking information and data from industry to inform a final report that will be provided to the Government. Stakeholders are invited to respond to the questions in the survey or provide data where appropriate.

Responses will be used to ensure that the analysis and data within the report reflects the realities of the building and construction industry. Once the consultation period has closed, all data will be provided to HoustonKemp who will then complete a final report for Government to consider.