The Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act) is about to undergo some changes. Those changes will apply to construction contracts in New South Wales entered from 21 October 2019.

What are the changes?

Reference dates are gone

There are no more reference dates. The concept of a 'reference date' will be removed from the Act, so that a person a person who has undertaken to carry out construction work, or to supply related goods or services, under a construction contract is generally entitled to a progress payment on a monthly basis.

Subcontractors get paid sooner

A progress payment to be paid to a subcontractor under a construction contract is due and payable no later than 20 (instead of the current 30) business days after the subcontractor makes a payment claim for the payment. There is no change to the requirement for a progress payment to be made by a principal to a head contractor no later than 15 days after the head contractor makes a progress claim. This leaves a buffer of only 5 days if the head contractor is waiting for payments from the principal to pay subcontractors.

Records of retention money trust accounts potentially available to subcontractors

The Act will provide that regulations can be made dealing with the inspection, by subcontractors entitled to retention money, of records kept in connection with the operation of a retention money trust account.

Payment claims can be served after termination

Several cases have considered whether payment claims can be served after termination of a construction contract. Most recently, the position has been that they cannot. The Act will now expressly provide clarification that in the case of a construction contract that has been terminated, a payment claim may be served on and from the date of termination.

SOPA statements to go back on payment claims

Payment used to have to include a statement that they were made under the Act. That requirement was removed from 21 April 2014. Now it's back. From 21 October 2019, there will be a requirement that a payment claim must state that it is made under the Act.

Increases in penalties for corporations

The amended Act will include an increase of the penalty for a corporation, that is a head contractor, who breaches the prohibition in section 13(7) of the Act not to serve a payment claim on the principal unless the claim is accompanied by a supporting statement that indicates that it relates to that payment claim. Penalties go up from 200 penalty units (currently $22,000) to 1,000 penalty units (currently $110,000).

There will also be an increase to the penalty for a corporation that is a head contractor who breaches the prohibition in section 13(8) of the Act not to serve a payment claim on the principal accompanied by a supporting statement knowing that the statement is false or misleading in a material particular in the particular circumstances, from 200 penalty units to 1,000 penalty units.

Personal liability for directors and managers

Executive liability

Directors and managers will face personal liability. An offence against either of section 13(7) or 13(8) of the Act committed by a corporation is an 'executive liability offence' attracting executive liability for a director or other person involved in the management of the corporation who knows the offence would be or is being committed or is recklessly indifferent to it and fails to take all reasonable steps to prevent it. Those steps should include (but are not limited to) action towards ensuring the corporation arranged regular professional assessments of its compliance with the relevant provision. The maximum penalty is 200 penalty units (currently $22,000).

Accessorial liability

A director or an individual involved in the management of a corporation can also be held liable for offences committed by the corporation if they are an accessory to the commission of a 'corporate offence' by, among other things, being knowingly concerned in, or a party to, the commission of the corporate offence. The penalty for an offence of this nature can, in the case of an offence against section 13(8) of the Act, include up to 3 months imprisonment.

2-year limitation period

There will be the introduction of a 2-year limitation period for offences against the Act or regulation i.e. proceedings for an offence against the Act or the regulations may be commenced within, but not later than, 2 years after the date on which the offence is alleged to have been committed.

Supreme Court powers

The Act will include provisions enabling the Supreme Court to set aside (in whole or in part) an adjudicator's determination if it finds that a jurisdictional error has occurred. The Supreme Court can identify the part of the adjudicator's determination affected by jurisdictional error and set aside that part only, while confirming the part of the determination that is not affected by jurisdictional error.

Corporations in liquidation can no longer serve payment claims

The Act will make it clear that corporations in liquidation will no longer be able to serve payment claims or take action to enforce a payment claim (including by making an application for adjudication of the claim). Adjudication applications by corporations not finally determined before they are placed into liquidation will be taken to have been withdrawn immediately before the day on which it commenced to be in liquidation.

There are new Regulations too

The Building and Construction Industry Security of Payment Amendment Regulation 2019 (NSW) also commences on 21 October 2019. The objects of the regulation are as follows:

(a) to exempt owner occupier construction contracts from the operation of the Building and Construction Industry Security of Payment Act 1999 (the Act);

(b) to specify the offences with respect to retention money trust accounts that are executive liability offences; and

to specify the offences under the Act and the Building and Construction Industry Security of Payment Regulation 2008 (NSW) for which penalty notices may be issued and the amount of the penalty payable.

What next?

The changes to the Act and Regulations will need to be understood by all those who will enter into construction contracts from 21 October 2019 in NSW. Some of the changes have clarified areas that have to date been the subject of quite a bit of case law and in some instances have changed the existing position taken by the courts. In the current environment of significant amounts of building and construction work, and the ever-present financial pressures on industry participants, the Act can be expected to continue to attract a fairly high level of judicial consideration and more changes may come from that.

For further information please contact:

Marc Baddams, Partner
Phone: +61 2 9233 5544

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.