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
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
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
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
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
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
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
moneys will be paid into the trust fund by the head
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
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.
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.
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