We recently outlined the significant proposed reforms to security of payment legislation in NSW. Amendments to the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act) were introduced by the Building and Construction Industry Security of Payment Amendment Bill 2013 (SOP Amendment Bill) in October. A copy of our bulletin can be accessed here.

The SOP Amendment Bill has now received royal assent (becoming the Building and Construction Industry Security of Payment Amendment Act 2013 (SOP Amendment Act)), but with one significant change relating to retention money.

This latest change provides for the introduction of regulations that require:

  • retention money to be held in trust for a subcontractor entitled to the money, and
  • a head contractor to pay retention money into a trust account established and operated in line with regulations under the SOP Act.

The added provisions also provide that the regulations may address the following:

  • that the trust account into which retention money is to be paid is to be established by the head contractor or by the Small Business Commissioner
  • procedures to be followed in connection with the authorisation of payments out of the trust account
  • the keeping of records in connection with the operation of trust accounts, and the inspection of those records by the Small Business Commissioner, and
  • resolution of disputes in connection with the operation of a trust account.

A fine of up to up to 200 penalty units1 may be imposed for a failure to comply with the requirements of the regulations.

When will the SOP Amendment Act come into effect?

The SOP Amendment Act will commence on a day to be appointed by proclamation. The Department of Finance & Services (DFS) has announced that the regulations will be drafted and published before the commencement of the SOP Amendment Act. The DFS has also indicated that the commencement date of the retention trust model would consider the need for businesses to be informed of the changes, and to make any necessary arrangements to meet the new obligations.

Department of Finance & Services consultation paper

The DFS has released a consultation paper on the statutory retention trust model to be operated by the Office of the Small Business Commissioner (OSBC). The Consultation Paper: A Statutory Retention Trust Fund for the Building and Construction Industry (November 2013) can be viewed here. The consultation paper sets out the following key elements of the proposed retention trust model:

  • the model will only apply where cash retention is provided for in a contract
  • the trust fund will be administered by the OSBC and will comprise subcontractors cash retentions withheld by head contractors
  • moneys will be paid into the trust fund by the head contractor
  • subject to joint authorisation by the head contractor and the subcontractor, moneys will be paid out of the trust fund by the OSBC to the head contractor or subcontractor, and
  • an early dispute resolution role for the OSBC, which will work alongside existing adjudication procedures set out in the SOP Act.

While the SOP Amendment Act states that the regulations may provide for trust accounts to be established by head contractors, the consultation paper states that the government's preferred option is to establish a statutory requirement that cash retentions be paid into a central fund administered by the OSBC.

The government has invited comments on the consultation paper from industry participants by 22 January 2014.

We will keep you updated on the commencement of the SOP Amendment Act, the progress of the proposed statutory retention trust model and any further amendments to the SOP Act.

  1. A penalty unit is currently $110.

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.