On 21 April 2014, the Building and Construction Industry
Security of Payment Act 2013 (NSW) (Amendment
Act) commenced. Late last year NSW parliament assented to
the Amendment Act as a result of an inquiry into insolvency in the
construction industry. The reforms were designed to enhance the
existing Building and Construction Industry Security of Payment
Act 1999 (NSW) (SOPA). We have highlighted
some practical concerns for affected parties (such as principals,
head contractors and subcontractors) and how they can best ensure
compliance with the new regime.
The key features of the reform are:
Contractors are no longer required to endorse the SOPA on a
Head contractors are required to include a supporting statement
declaring that all subcontractors have been paid all amounts due
and payable in relation to the construction work concerned;
Mandatory payment deadlines for making progress payments have
been introduced; and
The Amendment Act provides for the making of regulations which
could require head contractors to create a trust account to hold
retention money for subcontractors.
MANDATORY PAYMENT DEADLINES
Mandatory payment deadlines have been introduced for making
progress payments. Where a head contractor makes a payment claim to
a principal, a progress payment must be made within 15 business
days. Where a payment claim is made by a subcontractor to a head
contractor, a progress payment must be made within 30 days.
These deadlines apply so long as a contract has not made
provision for earlier payment or the progress claim is not in
dispute. Principals need to consider the impact the new timing may
have on their accounts departments and financing arrangements. As a
result of these new timeframes, head contractors have the option to
achieve, in effect, a "pay when paid" arrangement in
order to streamline payment cycles.
REMOVING THE SOPA ENDORSEMENT
The Amendment Act removes the requirement to make a statement on
a payment claim that the claim is made under the SOPA.
Last year's inquiry found that the requirement to endorse
the SOPA on payment claims was breeding a widespread practice of
commercial pressure to dissuade those down the subcontracting chain
from issuing payment claims endorsed by the SOPA.
Any payment claim from a head contractor to a principal is now
required to include a 'supporting statement' which states
that all subcontractors have been paid all amounts due and payable
in relation to the construction work concerned.
Any head contractor who fails to provide a complying supporting
statement of this nature, or who provides a supporting statement
that they know to be false or misleading may face serious penalties
(maximum $22,000 or 3 months imprisonment).
This reform may significantly impact a head contractor's
cash flow. A practical concern is that the inflexible operation of
this reform may place unnecessary financial burden on head
contractors. At this stage, the level of concern will depend on how
the words 'due and payable in relation to the construction
work concerned' are interpreted.
TRUST ACCOUNT REQUIREMENTS
The Amendment Act does not address trust accounting
requirements, however the regulations may make provision for the
requirement that all retention money be held in trust accounts for
subcontractors. This is a response to reports demonstrating that
retention money is often dealt with improperly by head
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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