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Client Update: Amending security of payment legislation in NSW

14 November 2013

In brief: In response to the Collins Report into insolvency in the NSW building industry, the State Government is amending its security of payment legislation. Partner Leighton O'Brien (view CV) and Law Graduate William Coote look at the changes and what they mean for certain aspects of future contracts in this industry.

Background

On 24 October, the Building and Construction Industry Security of Payment Amendment Bill 2013 (NSW) (the Amendment Bill) was introduced into the NSW Parliament. It was passed by the Lower House on 30 October with bipartisan support and is expected to quickly pass the Upper House.

The Amendment Bill was drafted in the wake of the Independent Inquiry into Construction Industry Insolvency1 and the NSW Government's responses to the Inquiry's recommendations. The Amendment Bill is designed to 'provide greater protection for subcontractors and promote cash flow and transparency in the contracting chain.'2 It does so by implementing three key amendments to the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act):

  • introducing statutory time periods in which payment claims become due and payable;
  • introducing an enforcement mechanism to ensure compliance with those time periods; and
  • removing the necessity for payment claims to be specifically endorsed as claims made under the Act.

Amendments to the current security of payment regime

Due date for payment

The Amendment Bill introduces a strict timetable for the payment of head contractors and subcontractors. It stipulates that a payment a principal owes to a head contractor is due 15 business days after a payment claim is made in relation to the payment. A payment a head contractor owes to a subcontractor is due 30 business days after a payment claim is made in relation to the payment.3

These changes cover all construction contracts except for exempt residential construction contracts, which deal with the carrying out of residential building work within the meaning of the Home Building Act 1989 (NSW).

Information to be provided by head contractor to principal

The Amendment Bill obliges a head contractor to serve the payment claim on a principal alongside a supporting statement that relates to the particular claim. The requirements of the supporting statement will be outlined in regulations that are subject to further industry consultation. It has, however, been foreshadowed that the regulations may consider the need to consolidate supporting statement requirements with existing legal obligations relating to payroll tax, workers' compensation and employee remuneration.4

Enforcement

The Amendment Bill also introduces a new regime designed to enforce compliance with the above new requirements. Authorised officers will be appointed by the Director General of the NSW Department of Finance and Services, who will be empowered to compel, by written notice, head contractors to produce relevant evidence of their compliance with the Act.

If a head contractor fails to comply with a notice issued by an authorised officer, or provides false documents in relation to a notice, they will be liable for a maximum penalty of $22,000 and/or three months' imprisonment.

Endorsement of claim under the Act

The Amendment Bill has removed the requirement that a payment claim be specifically endorsed as a claim being made under the Act.

Implications

Transition

The Amendment Bill will not affect contracts that are already on foot but only those contracts entered into after the Amendment Bill is enacted.

Timing

Where previously there were no strict timeframes for compliance with a payment claim, principals and head contractors must now be aware of the 15 and 30 day periods within which payment claims must be addressed (these changes are similar to the provisions that currently exist in the Queensland security of payment regime5). As a result, contractual payment mechanisms will have to be accelerated in order to meet the requirements of the Amendment Bill. This is particularly the case where project finance is involved. Provisions in contracts that create conditions precedent to the payment are potentially less effective as a result of the amendments.

Submission of payment claims

Because payment claims no longer have to be endorsed as being made under the Act, parties must now assume that any claim for payment is one that can be pursued under the Act and must respond with payment schedules accordingly.

Footnotes
  1. Bruce Collins QC, Final Report – Independent Inquiry into Construction Industry Insolvency, November 2012.
  2. Second reading speech, 24 October 2013.
  3. Or an earlier date as stated in the contract.
  4. Second reading speech, 24 October 2013.
  5. Building and Construction Industry Payments Act 2004 (Qld) s15.

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