The Personal Property Securities Act: What every
construction contractor should know
Every contractor needs to know what steps they can take under
the Personal Property Securities Act:
to secure their right to be paid for the supply of goods and
to protect their plant, equipment and tools on site from being
seized and sold by the liquidator of an insolvent principal.
Amongst other things, the Act allows a supplier of goods and
services on credit to secure payment for the supply if the
purchaser or hirer becomes insolvent. This is relevant to building
contractors as both procurers and suppliers of goods (building
materials, plant and equipment and tools) and services
Contractors need to be mindful of the Act when ordering supplies
of building materials, purchasing or hiring plant and equipment and
entering into contracts or subcontracts to undertake building work.
Under the Act, each of these transactions creates reciprocal
obligations on one party to supply something and on the other party
to pay for it. Typically in construction projects, these reciprocal
obligations will be replicated all the way down the contractual
chain. A simple example is as follows:
Principal enters into a lump sum "construct only"
contract with head contractor for the construction of a building on
its land: contractor is bound to supply labour and materials and
principal, to pay for it.
Principal engages an architect to prepare the plans and
specifications and to act assuperintendent of works: architect is
bound to provide services as designer, draftsperson, supervisor,
valuer and certifier and principal is bound to pay for it.
Head contractor engages a professional surveyor, a geotechnical
engineer and an earthworks contractor to demarcate, classify and
prepare the ground for works to commence: professionals are bound
to provide services and head contractor, to pay for it.
Head contractor engages subcontractors to perform particular
parts of the agreed scope of works: each subcontractor is bound to
provide labour and materials and head contractor, to pay for
Subcontractors order building materials from suppliers:
suppliers are bound to supply goods and subcontractors, to pay for
Subcontractors hire cranes and bobcats: hire company is bound
to supply equipment and subcontractors, to pay for it.
Subcontractors hire other subcontractors and labourers to
perform parts of their agreed scope of works: hired parties are
bound to do work and the principal subcontractor, to pay for
Most of the participants in this hypothetical project are the
payer or principal in some transactions and the supplier or
contractor in others. For example, the head contractor is the
supplier of goods and services in transaction (a) and the principal
in transactions (c), and (d).
Typically too, most if not all of the goods and services in a
typical construction project will be supplied on credit. In other
words, the "principal" in any particular related
transaction (and there may be hundreds or even several thousand in
a complex project) will typically be supplied with goods or
services before paying for them. In fact, at the head contract
level, the principal may not even become indebted to the contractor
for services provided under the contract unless and until the works
under contract are substantially complete.
This creates an obvious risk for all contractors where any one
or more of the principals above them in the contractual chain
becomes insolvent and therefore unable to pay its debts as and when
they fall due. This risk snowballs as you go down the contractual
chain because of the higher number of potentially insolvent
principals higher up the chain and the potential flow-on effect if
any one of them becomes insolvent.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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