In 2013, an Amendment Bill was passed through Parliament that included a number of recommendations to the Building and Construction Industry Security of Payment Act 1999 (NSW) (“the Amendment Act”).
The Bill focused on promoting prompt payment of Subcontractors, whilst also promoting the use of more stringent procedures by Principals and Head Contractors.
The Amendment Act has introduced mandatory payment deadlines for progress payments. Unless an earlier date is specified in accordance with the terms of the contract, a progress payment from Principals to Head Contractors is due and payable within 15 business days of the submission of a valid payment claim. Likewise, progress payments from Head Contractors to Subcontractors are due and payable within 30 business days of receiving a valid payment claim.
In order to provide guidance for parties to comply with the appropriate timeframe, Section 4 of the Amendment Act defines Principals, Head Contractors and Subcontractors.
The “Magic Words” no longer need to be included
The statement “This is a payment claim made under the Building and Construction Industry Security of Payment Act 1999 (NSW)” currently needs to be included for there to be a valid payment claim, and for a claimant to adequately seek the rights and remedies available under the legislation. The Amendment Act outlines, however, that this statement no longer needs to be present in order for a claimant to be protected under the Act. This now means, that any invoice served on a party, or that a party may serve, is a payment claim, provided that it complies with the reference period stated in the legislation.
These changes to the Act however retain the provision that a claimant cannot serve more than one payment claim in respect of each reference date, and that the payment claim must be served on the last day of the month that the works were carried out, on and from the reference date stipulated in the contract. Note that payment claims can only be served within 12 months of the last works being carried out in respect to the construction contract.
Supporting statements when serving a payment claim
The Amendment Act will require Head Contractors to submit a supporting statement when submitting a payment claim. This supporting statement must include a declaration that all Subcontractors and suppliers have been paid what is due and payable. If a Head Contractor serves a payment claim accompanied by a supporting statement that is false and misleading, this does not just act as a breach of contract, but rather an offence, and they may encounter a penalty up to $22,000 and/or three months imprisonment.
Powers will be granted to Authorised officers from the Department of Finance and Services who may require a Head Contractor or associated persons to provide information or documents relating to compliance with the new provision regarding supporting statements. This will mean that Head Contractors must have these documents readily available if the validity of the supporting statement is doubted. If a person refuses or fails to provide information regarding supporting statements, this will be considered as an offence, and likewise, the Head Contractor may encounter a penalty of up to $22,000 and/or three months imprisonment.
New Trust Account Requirements for Retention Money
The Amendment Act has made provision for the promulgation of regulations which may regulate that retention money must be held in a trust account for Subcontractors entitled to that money. The retention money is to be held in a retention money trust account that is established and operated in accordance with the regulations. This will protect the retention money in the event of the Principal or Head Contractor going into liquidation.
It has further made provision for the creation of an offence punishable by a penalty up to $22, 000 if a Head Contractor fails to comply with the requirements under this provision.
Do the new amendments apply to the residential sector?
If you are a residential builder and contract directly with a consumer that lives or intends to live in the premises where work is carried out, then the Act does not currently apply to you.
These changes to the Act do not apply to these contracts, nor any subcontracting arrangements that the builder may enter into for work on those premises.
When will these reforms take affect?
At this current stage, these changes to the legislation are not in effect, however the Bill has been passed by both houses in parliament and will commence on a date to be proclaimed.
Effect on Current Contracts
This Amendment to the Act does not apply in relation to a construction contract entered into before the commencement of the amendment.