The Building and Construction IndustrySecurity of
Payment Amendment Act 2010 NSW, introduced on 28 February 2011
('Act') enables subcontractors to freeze
money in the hands of a principal that is due to be payable to the
The old regime
The Building and Construction IndustrySecurity of
Payment Act 1999 NSW ('SOP Act') was
designed to facilitate a process for which subcontractors could
receive timely payment for their work.
The SOP Act introduced quick adjudication of disputes
over progress payments, however actual payment to subcontractors
was not guaranteed as a subcontractors' entitlement to payment
could be defeated by the insolvency of the head contractor.
In the traditional relationship between a principal and
subcontractor, a subcontractor does not have a contractual
relationship with the principal. The courts gave little assistance
in this situation due to the fact that subcontractors have freely
entered into contractual relationships with head contractors alone
and therefore should not be allowed to claim payment directly from
A principal (usually a proprietor) is defined in 26A and refers
to a person who owes money to a respondent of a payment claim
(generally a head contractor) for work done or materials supplied
that the respondent engaged the claimant (usually the
subcontractor) to carry out or supply. A subcontractor who has
carried out work for a head contractor, submitted a payment claim
under the SOP Act for that work and has not been paid the
claimed amount, is entitled to lodge an adjudication application
under the SOP Act.
If a subcontractor has made an adjudication application for a
payment claim, it can serve a payment withholding request on the
principal, which requires the principal to retain a sufficient
amount of money to satisfy the claim that the principal would
otherwise generally have to pay the head contractor.
Upon receipt of a payment withholding request, the principal
must retain the smallest of the following amounts:
The amount claimed in the payment is the subject of the
adjudication application, less any part payment made
The amount owed, or which subsequently becomes payable, by the
principal to the respondent when or after the payment withholding
request is served on the principal
The amount that is or becomes payable by the principal to the
respondent for the work or incidental to the work or materials that
the respondent engaged the claimant to carry out or supply.
The requirement to retain the money remains in force until one
of the following requirements is fulfilled:
The adjudication application for the payment claim is
The respondent pays to the claimant the amount claimed to be
due under the payment claim
The claimant serves a notice of a claim on the principal for
the purposes of s6 of the Contractors Debts Act 1997, in
respect of the payment claim
A period of 20 business days elapses after a copy of the
adjudicator's determination of the adjudication application is
served on the principal.
A debt certificate will be required before money must be paid to
the claimant. This will be served on the principal and the
principal must then pay the sub-contractor directly.
Obligations on the parties
Parties that are subject to the amendments should be aware of
their obligations under the amendments as these can result in
liability for debt or monetary penalties under the Act. For
If the principal fails to keep this money aside they can be
held jointly and severally liable with the respondent in respect of
the debt owed by the respondent to the subcontractor
The respondent may be required to provide information about the
principal to the claimant such as its identity and contact details.
There are monetary penalties should the respondent fail to
A claimant must make sure that they serve a copy of an
adjudication application determination on the principal within five
business days or face monetary penalties under the Act.
It is important for subcontractor's to be aware of these
additional rights, and to exercise them where appropriate as
quickly as possible to ensure that money that it considers is due
and payable to it is not lost due to a head contractor becoming
A principal who has been served a payment withholding request
should make sure all payments to the respondent are stopped until
they are able to ascertain how much of those payments are for work
done by the claimant. Both principals and subcontractors must
ensure that they comply with their obligations under the Act to
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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