Law Needed To Protect Construction Contractors
New laws should be passed to protect construction contractors by making sure they are paid promptly for their work, says the Law Commission in a report to the Ministry of Commerce.
The Ministry asked for the report as part of its review of the insolvency laws. The Commission goes on to suggest that recent laws passed in New South Wales could provide a useful model for New Zealand.
The Law Commission's recommendation has been welcomed by the NZ Building Subcontractors' Federation. "Legislation based on the NSW model may provide the key to the changes that we have been seeking for some time to address security of payment issues here in New Zealand," says Federation executive officer, Peter Degerholm.
"An early priority for this legislation would help meet the new government's economic and employment objectives, by giving greater financial security to existing small businesses in the building trades," he said.
The new legislation, says the Commission, would help to ensure that progress claims are fair, including fast access to adjudication when disputes about the amount or date for payment arise. When a subcontractor is owed money they must be paid, otherwise the subcontractor can down tools and stop work. And a "pay when/if paid" clause, one which says a subcontractor will only be paid when the contractor gets paid, will have no legal affect.
"We believe the Commission's report shows a clear understanding of the payment issues in the building and construction industry, and offers constructive solutions," Peter Degerholm said. He added that, "Insolvent operators would be exposed at an early stage allowing effective action to be taken to minimise the creditors' exposure. Another positive outcome would be the encouragement of fair practices within the industry, and less need for the courts to intervene in payment disputes."
The stand taken by the Building Subcontractors is being supported by a number of organisations including those whose members are master plumbers, painters, electricians, roofers, and heating and air conditioning contractors.