Amendments to the Building and Construction Industry
Security of Payment Act 1999 [NSW] (Act) came
into effect yesterday – are you prepared?
Amendments to the Act which give subcontractors greater
protection in relation to money claimed in an adjudication under
the Act have come into effect.
As of yesterday, a subcontractor who has made an adjudication
application in relation to a payment claim under the Act can serve
a payment withholding request on a principal contractor.
The "contractor" is the entity who engaged the
subcontractor to perform work and is responsible for paying the
subcontractor under a payment claim. The "principal
contractor" is the entity which engaged and is obliged to pay
the contractor. A principal contractor could be the entity commonly
known as the "principal" on a construction project.
On receiving a payment withholding request, the principal
contractor must retain out of money owed to the contractor the
amount of money claimed in the payment claim.
A principal contractor who does not comply with the payment
withholding request will be jointly and severally liable with the
contractor for the amount owed to the subcontractor (up to the
amount paid by the principal contractor in contravention of the
payment withholding request).
The ability of a subcontractor to recover an amount directly
from a principal contractor is not new – there is a
procedure under the Contractors Debts Act 1997 (NSW) where
a subcontractor, owed money by a contractor, can obtain a debt
certificate from a court and enforce it against a principal
contractor. However, the new right kicks in earlier – at
any time after an adjudication application has been made under the
If you are a contractor:
You should be prepared for cash flow risk. Once a payment
withholding request is served on a principal contractor, unless
certain other events occur (for example the adjudication
application is withdrawn) the principal contractor is not required
to release to you the funds retained until 20 days after a copy of
the adjudicator's determination is served on the principal
contractor. This rule applies even if the adjudicator makes a
determination in your favour.
You do not have a right to contest the subcontractors'
payment withholding request under the Act. The subcontractor is
only required to provide a statutory declaration with a payment
withholding request which states it genuinely believes the amount
of money claimed is owed to it. There is a possibility that
subcontractors could inflate the amount of money claimed as
If you are a principal contractor:
Does your organisation have effective processes in place so
that when a payment withholding request is received, it is acted
upon before a payment is made to a contractor in default of the
payment withholding request? The requirement for service on the
"ordinary place of business" has been construed widely
under the Act. A payment withholding request could be served at a
regional office of a principal contractor while the head office
(which processes payments to contractors) may not be aware of
receiving the request and so makes payment to the contractor in
contravention of it.
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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