Security of Payment Reforms

David Bannerman

Summary

  1. On 20 November 2013, the NSW Government passed the Building and Construction Industry Security of Payment Amendment Bill 2013 ('the Bill'Wink.  The Bill amends the Building and Construction Industry Security of Payment Act 1999 ('the Act'Wink.
  2. The amendments introduced by the Bill will apply from 21 April 2014 (i.e. to construction contracts entered into from 21 April 2014).

Key Reforms

The reforms made by the Bill are as follows:

  1. A maximum payment period of 15 business days after a progress claim is made by a head contractor.  A shorter payment period negotiated between the parties is permitted, however, any contractual provision allowing a longer payment period is void.
  2. A maximum payment period of 30 business days after a progress claim is made by a subcontractor.  A shorter payment period negotiated between the parties is permitted; however, any contractual provision for a longer payment period is void.
  3. Removal of the requirement that a payment claim state that it is made under the Act for all contracts except those that are connected with a construction contract that is exempt from the Act, viz. construction contracts for residential building work (as defined in the Home Building Act 1989) where the consumer resides in or proposes to reside in the premises where the work is undertaken.
  4. Requiring that a payment claim submitted by head contractors include a declaration (in a form prescribed by the Building and Construction Industry Security of Payment Regulation 2008 as amended by Building and Construction Industry Security of Payment Amendment (Supporting Statement) Regulation 2014) that subcontractors and suppliers have been paid all amounts that have become due and payable in relation to construction work.
  5. Introduction of a maximum penalty of $22,000 if a head contractor does not provide the required declaration in relation to the payment of all subcontractors and suppliers.
  6. Introduction of a maximum penalty of $22,000, or three months imprisonment, or both, if a head contractor knowingly makes a false or misleading declaration in relation to the payment of all subcontractors and suppliers.
  7. Procedures allowing an officer authorised by the Director-General of the Department of Finance and Services to investigate the compliance of head contractors with the provisions requiring subcontractor and supplier payment declarations.
  8. Introduction of a maximum penalty of $22,000, or three months imprisonment, or both, for a failure to comply with a request for information by an investigating authorised officer or knowingly providing false information to an investigating authorised officer.
  9. Provision for regulations to be made to require retention money to be held in trust for a subcontractor entitled to the money and requiring the head contractor to pay retention money into a trust account established and operated in accordance with the regulations.

The NSW Government is currently consulting with the industry on the appropriate model for cash retention moneys to be held in trust and has released a consultation paper which proposes that a trust fund for cash retention moneys be administered by the Office of the Small Business Commissioner ('OSBC'Wink as the statutory trustee, in a similar fashion to the current Retail Leases Bond Scheme.

Action that needs to be taken

The amendments introduced by the Bill will apply to construction contracts entered into from 21 April 2014 and builders should ensure that the following steps are taken:

  1. Ensure that systems are reviewed to maintain cashflow based upon payment terms to Head Contractors of 15 business days.
  2. Ensure that systems are reviewed to maintain cashflow based upon payment terms to Subcontractors of 30 business days (we note that for secondary subcontracts, 30 day payment terms will run for a subcontract with the head contractor and a subcontract with a secondary subcontractor – accordingly, systems to maintain cashflow should be reviewed on this basis).
  3. Systems are implemented to respond to payment claims within 10 business days after receipt, noting that a payment claim no longer need state that it is made under the Act (unless the payment claim is for a construction contract that is connected with a construction contract for the carrying out of residential building work (within the meaning of the Home Building Act 1989).

If you require further details or assistance in relation to these issues, please contact us at enquiries@bannermans.com.au or on (02) 9929 0226

 

***The information contained in this article is general information only and not legal advice. The currency, accuracy and completeness of this article (and its contents) should be checked by obtaining independent legal advice before you take any action or otherwise rely upon its contents in any way.

For more information, please visit our website.