Where’s My Money? Proposed Changes to Security of Payment Laws in NSW

Date: September 21, 2018
Author: Harriet Warlow-Shill
Posted in: Insights

On 20 August, 2018, New South Wales Fair Trading released a public consultation draft of the Building and Construction Industry Security of Payment Amendment Bill 2018 (NSW) (Bill). The Bill seeks to introduce a number of amendments to the Building and Construction Industry Security of Payment Act 1999 (NSW) (Act) to offer greater protections for subcontractors involved in building and construction projects. The Bill was introduced in response to the Murray Review of Security Payment Laws (the Murray Review) released in December 2017. The Murray Review made a number of recommendations protect subcontractors from contractor insolvency and enhance the consistency of security of payment laws across Australia. The proposed Bill seeks to implement a number of these recommendations through the following amendments.

Progress Payments
The amendments will impose stricter timelines for progress payments to ensure payments to subcontractors and suppliers are made promptly. The Act currently provides that progress payments become payable on the reference date. Under the amendments, the reference date will depend on the circumstances:

  • Circumstance:  Contract contains no express provision on when progress payments become payable. Reference Date: Last day of the month in which work was carried out.
  • Circumstance: Single or one-off payments.  Reference Date: The day immediately after work is carried out or goods or services are supplied.
  • Circumstance: Milestone payments. Reference Date: The day immediately after the milestone.
  • Circumstance: Termination of contract. Reference Date: The day immediately after the termination date.

Importantly, building and construction contracts may specify a reference date earlier than the last day of the month, but not later. In essence, this will require progress payments to be made to subcontractors and suppliers at least monthly.
Under the amendments, the due date for progress payments from a principal to a head contractor will be reduced from 15 business days to 10 business days (where no date is specified in the contract). Progress payments to a subcontractor will become due and payable 20 business days after a payment claim is made rather than 30. A payment claim will need to contain an endorsement that it is being made under the Act. This is intended to alert the recipient of the severe consequences of failing to respond within the statutory timeframes.

Code of Practice
The Bill includes provisions to allow the Minister to introduce a Code of Practice which must be followed by the authorised nominating authorities (ANAs) who receive adjudication applications and appoint adjudicators for payment claim disputes. This is intended to clarify the expectations, obligations and responsibilities of ANAs. Failure to comply with the Code will attract a penalty of up to 50 penalty units. The Code is yet to be drafted and will be released for public consultation at a later date.

Investigation and Enforcement Powers
Authorised officers appointed to enforce the Act will be granted greater powers under the proposed amendments. These include information gathering powers and the power to enter premises in order to investigate and enforce compliance with the Act and obtain information connected with the administration of the Act.

Accessorial and Executive Liability for Directors
The Bill will impose penalties on the directors of companies who contravene the Act. Directors will be liable where they aid, abet, counsel or procure the commission of a corporate offence or where they induce a corporation to commit such an offence. Executive liability will automatically be imposed on certain corporate offences such as providing a false or misleading supporting statement. These amendments are aimed at deterring corporate misconduct by directors who then seek the protection of the corporate veil against the claims of subcontractors.

Other Amendments
Other miscellaneous amendments proposed by the Bill include:
• Increased penalties for a number of offences, including the introduction of higher penalties for corporate offences;
• Prohibiting corporations in liquidation from making payment claims;
• Introduction of a requirement for adjudicators to make determinations within 10 days;
• Express provision for the withdrawal of adjudication applications at any time before determination;
• Increasing the statutory limitation period to two years; and
• Allowing inspection of trust records by subcontractors.

What Next?
New South Wales Fair Trading is currently considering public and stakeholder feedback on the Bill and may make further amendments as necessary. In addition to the Bill, the New South Wales Government has released a consultation paper on the Murray Review’s recommendation to introduce deemed statutory trusts to protect stakeholders involved in building and construction projects. Submissions are currently being considered. If such trusts were introduced, head contractors and subcontractors would be deemed to hold all relevant payments received on trust for the benefit of their subcontractors, workers and suppliers.

If you would like further information on how you may be impacted by these proposed changes, please do not hesitate to contact our office.

Tweet Share Email