Amendments to security of payment legislation in New South Wales

The Building and Construction Industry Security of Payment Amendment Bill 2013 (the Bill) was introduced to Parliament and given assent on 20 November 2013.  The Bill represents the first phase of the reforms announced by the Government as a result of the Independent Inquiry into Construction Industry Insolvency.

The purpose of the bill is to 'introduce reforms that will provide greater protection for subcontractors and promote cash flow and transparency in the contracting chain'¹ and is to be effected through these proposed amendments to the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act).

Due dates for making progress payments

Contractors are presently able to negotiate and include due dates for progress payments within construction contracts that are later than the 'default' time frame provided for by the Act, namely10 business days after a payment claim is made.  The Bill proposes to remove this flexibility for construction contracts which are not connected to exempt residential construction contracts, and provides that:

• a progress payment payable by a principal to a head contractor will become due and payable on:
• the date occurring 15 business days after a payment claim is made; or
• an earlier date provided for in accordance with the terms of the contract; and
• a progress payment payable to a subcontractor will become due and payable on:
• the date occurring 30 business days after a payment claim is made; or
• an earlier date provided for in accordance with the terms of the contract.

Clauses in construction contracts which purport to allow later payment dates will be void.

Removal of requirement for statement that a payment claim is made under the Act

The Inquiry found that the requirement for subcontractors to endorse payment claims with statements that 'this is a claim made under the Building and Construction Industry Security of Payment Act 1999(NSW)' was a contributing factor to the under-utilisation of the Act.  The Bill proposes to amend the Act to remove the requirement to endorse payment claims as being made under the Act.  Construction contracts connected to exempt residential construction contracts are excepted and must continue to be endorsed as being made under the Act.

Principals and head contractors should consider implementing internal policies to ensure that payment claims under the Act are quickly and reliably identified when the amendments proposed by the Bill come into effect.

Payment claims require accompanying supporting statement

The Bill proposes to amend the Act in response to claims that statutory declarations made by head contractors are often false. 

The Bill provides that head contractors must not serve a payment claim on a principal unless it is accompanied by a supporting statement.  The supporting statement is to be in the form prescribed by the Regulations, and must include a declaration to the effect that all subcontractors have been paid all amounts which have become due and payable.

Head contractors who serve payment claims without a supporting statement, or knowingly serve a false or misleading supporting statement will be guilt of an offence under the Act punishable by a fine of up to $22,000 and/or 3 months imprisonment.

Enforcement

The Bill seeks to amend the Act to provide for the appointment of authorised officers to investigate the compliance of head contractors with supporting statement requirements.  Authorised officers will be appointed by the Director-General of the NSW Department of Finance and Services and will have broad investigative powers, including the ability to compel head contractors or associated persons to provide information or documents regarding compliance. 

It is not clear whether a head contractor committing an offence under this section will invalidate the payment claim to which the supporting statement relates.

Trust account requirements for retention money

The Bill proposes to allow the Regulations to make provision for or with respect to requiring retention money to be held in trust for the subcontractor entitled to the money and requiring a head contractor who holds retention money to pay the money into a trust account. 

The proposed amendment allows the Regulations to create an offence by a penalty not exceeding 200 penalty units for any failure to comply with any requirements stipulated by the Regulations in connection with the trust account and retention money. 

Conclusion

If enacted, the changes made by the Bill will only apply to contracts entered into after the amendments have come into effect.  A proclamation has yet to be made regarding the date that the amended Act will commence.  It is unclear whether other Australian states will follow New South Wales and pass similar amendments.

All industry participants, particularly head contractors, should be aware of and be familiar with these changes, as non-compliance with the new progress payment due dates or supporting statement requirements carries significant penalties.

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