Building and Construction Industry Security of Payment amendments now in force
Amendments to the Building and Construction Industry Security of Payment Act 1999 (NSW) (‘the Act’) have commenced. Set out below is a summary of the impact on all construction contracts entered into on or after 21 April 2014 to which the Act applies.
The amendments will not apply to contracts entered before that date. Those contracts remain subject to the previous requirements of the Act, including the requirement to endorse payment claims with the ‘magic words’.
Endorsement of payment claims
It is no longer necessary for payment claims under the Act to include words to the effect of ‘This is a payment claim under the Building and Construction Industry Security of Payment Act 1999’.
For contracts entered into on or after 21 April 2014, every piece of correspondence sent by a claimant to a respondent that meets the following statutory requirements will be a payment claim under the Act:
1. Indication of an amount claimed to be due as a progress payment (‘the Claimed Amount’); and
2. Identification of the construction work or related goods and services, to which the claimed progress payment relates.
For claimants: Please ensure that only one record meeting those requirements is sent to a respondent within each reference date period. Claimants still only have the entitlement to serve one payment claim within each reference date period (usually monthly). Sending multiple ‘payment claims’ in the same month that meet the statutory requirements may mean that the document you intend to be a statutory payment claim is not valid.
In those circumstances you will have no entitlement to rely upon the associated processes under the Act i.e. adjudication, enforcing a statutory debt and suspending work.
For head contractor claimants: Please note the new requirements for supporting statements which must accompany every payment claim (further details below).
For respondents: Unless you intend to pay the full amount claimed in a payment claim by the due date, you must issue a payment schedule in response to every record received from the claimant that meets the statutory requirements noted above and could be a ‘payment claim’. Failure to do so will mean that the full amount claimed is due under the Act and may be enforced.
Residential building contracts
The Act still does not apply to contractors undertaking residential building work under a contract directly with the person who resides or intends to reside at the site of the works. These contracts are now known as ‘exempt residential construction contracts’.
The Act will apply to contractors undertaking residential building work under all other contracting arrangements e.g. commercial owners, subcontractors and suppliers to ‘exempt residential construction contracts’. The latter are now known as contracts that are connected with ‘exempt residential construction contracts’.
Maximum due dates for payment
The new maximum due dates for payment are as follows:
1. For payment from principals to head contractors – 15 business days (3 calendar weeks) from the date a payment claim is made;
2. For payment to subcontractors – 30 business days (6 calendar weeks) from the date a payment claim is made;
3. For payment to contractors that are connected with ‘exempt residential construction contracts’ – 10 business days (2 calendar weeks) from the date a payment claim is made.
Contract terms providing for longer due dates for payment than the statutory maximum will have no effect. Contract terms providing for earlier due dates will still apply.
For both claimants and respondents: Consider the adjustments required for your accounts department procedures. Please also consider the impact on your own finance arrangements and any adjustments required to accommodate loan and other repayment dates.
For claimants: Where the new maximum due dates for payment apply, they will affect the mandatory time frames under the Act in the following circumstances:
1. Where a respondent fails to issue a payment schedule and you give notice of an intention to proceed to adjudication;
2. Where a respondent fails to pay by the due date and you intend to enforce payment in court as a statutory debt; and
3. Where a respondent fails to pay by the due date and you intend to suspend work under the Act.
Head Contractor Supporting Statements
Head contractors must now include with every payment claim served on a principal, a ‘supporting statement’ to the effect that all relevant subcontractors have been paid. The NSW Government template supporting statement is available at www.procurepoint.nsw.gov.au. The template requires head contractors to identify subcontract claims which are in dispute and have not been paid.
It is now an offence for a head contractor to serve a payment claim without a supporting statement, or to serve a supporting statement that is knowingly false or misleading. Each offence is punishable with a fine, currently set at $22,000. Making a false or misleading supporting statement is punishable by a fine, or 3 months imprisonment, or both.
The amendments will be policed by authorised officers appointed by the Department of Finance and Services. Those officers have been given investigative powers to compel production of records relating to compliance with the amendments and payment of subcontractors. It is an offence to refuse or fail to comply with a notice received from an authorised officer or to provide false or misleading information in response to such a notice.
For head contractors: Be mindful that an accidental failure to serve a supporting statement may occur if a document is served on a principal that is not intended to be ‘payment claim’ but meets the statutory requirements of payment claims as noted above.
For all parties: Information provided to an authorised officer in response to a notice issued under the Act, may be called upon in civil proceedings under a construction contract.
The amendments to the Act give the NSW Government the power to enact regulations providing for subcontractor retention monies to be held by head contractors in trust accounts. Those regulations have not yet been drafted. We understand that the NSW Government is trialling trust account arrangements in a number of current projects and that the regulations will be drafted following a review into those arrangements.