Security of payment regime changes start on 21 October 2019. Are you ready?
The Building and Construction Industry Security of Payment Amendment Act 2018 (Amendment Act) will commence on 21 October 2019.
The Amendment Act introduced significant changes to the Building and Construction Industry Security of Payment Act 1999 (NSW) (NSW SOP Act).
The changes will apply to construction contracts in New South Wales entered into from 21 October 2019.
On 21 December 2016 the Commonwealth Government appointed Mr John Murray AM to conduct a review to identify legislative best practice, with a view to improve consistency in security of payment legislation and the level of protection afforded to construction industry subcontractors to ensure they obtain payment for work they have completed or for goods and services they have supplied.
Mr Murray reported back to the Government on 31 December 2017 and made 86 recommendations.
Several of the changes to the NSW SOP Act which come into effect on 21 October 2019 are derived from the recommendations made by Mr Murray and represent the first step by a State or Territory towards implementing any of Mr Murray's recommendations.
Security of payment notation
The identification of a payment claim as being made under the NSW SOP Act is back!
The requirement for a notation was previously removed in NSW on 21 April 2014.
A payment claim must state that it is made under the NSW SOP Act.
'This is a payment claim made under the Building and Construction Industry Security of Payment Act 1999 NSW'
The notation clearly communicates that the contractor's claim is being made under the NSW SOP Act. It should serve as a warning to a principal or head contractor that a payment schedule must be served within 10 business days of receipt of the payment claim if it is not accepted that the contractor is entitled to the amount claimed (or any part of it).
Failure to serve a payment schedule can result in the principal or head contractor becoming liable to the contractor for the full amount of the payment claim, which can be recovered by the contractor as a debt in the courts. There is no right to lodge a defence or counterclaim based on the construction contract.
Reference dates are abolished
The concept of a 'reference date' has been removed from the NSW SOP Act and replaced by monthly payment claims.
There was much confusion and misunderstanding of the concept of a 'reference date'.
Bartier Perry's building and construction lawyers regularly see errors when payment claims are made before the reference date, or they include a claim for work carried out after the relevant reference date.
The effect of these errors is to invalidate the payment claim as a claim under the NSW SOP Act.
This change means that a party which has carried out construction work or supplied related goods or services will be able to serve a payment claim monthly on the last day of the month in which construction work was first carried out, and thereafter on and from the last day of each subsequent month.
The parties can still, if they wish, agree that a right to serve a payment claim will accrue on some other date in a given month or more frequently than once a month.
Payment claim can be made after termination of the construction contract
Irrespective of the terms of a construction contract, a contractor will be entitled to serve a payment claim on or after the date of termination of the contract.
Subcontractors get paid sooner
The due date for payment of a payment claim to a subcontractor (not a head contractor) will be reduced from 30 business days to 20 business days after a payment claim is served.
The maximum payment period for payments from a principal to a head contractor remains unchanged at 15 business days after a payment claim is made.
This provides only a 5-day buffer between when the head contractor is entitled to payment by the principal and when the head contractor must pay its subcontractors.
Withdrawal of an adjudication application
A head contractor or subcontractor which has lodged an adjudication application with a nominating authority, can withdraw the application at any time before the appointment of an adjudicator.
A head contractor or subcontractor will also be able to withdraw an adjudication application after an adjudicator has been appointed (but before the application has been determined) unless the respondent objects to the withdrawal and the adjudicator considers that it is in the interests of justice to uphold the objection.
Severance of partially void adjudication determination
In addition to being able to set aside an adjudicator's determination completely, the Supreme Court will be able to set aside an adjudicator's determination in part if it finds that a jurisdictional error has occurred in less than all issues covered by the determination, and confirm that part which is not affected by jurisdictional error.
This amendment will mean that a jurisdictional error affecting only part of a determination does not invalidate the whole of the adjudicator's decision.
Increased penalties for head contractors that fail to issue a supporting statement with a payment claim
Penalties for a head contractor that is a corporation that fails to serve a supporting statement with a payment claim, have been increased from 200 penalty units (currently $22,000) to 1,000 penalty units (currently $110,000).
New enforcement powers
A new part 3A gives broad powers to officers from the Department of Finance, Services and Innovation and Fair Trading investigators to investigate, monitor and enforce compliance with the NSW SOP Act.
A person may be required by an authorised officer to furnish information, records or answer questions. The authorised officer may enter premises and make such examinations and inquiries that the authorised officer considers necessary. The authorised officer may direct a person to produce records for inspection, examine and inspect records, copy records and seize anything that the authorised officer has reasonable grounds for believing is connected with an offence against the NSW SOP Act.
Parties to construction contracts covered by the NSW SOP Act should take note of these changes to ensure that they are not caught out after 21 October 2019.
Bartier Perry's building and construction team can assist by providing more detail of the amendments and advising on their application to particular construction projects.
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.