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Australia – Pay Up Or Pay Out: A Warning To Head Contractors.

27 November, 2013

 

Legal News & Analysis – Asia Pacific – Australia – Construction & Real Estate

 

In the last two years more than 1,000 construction companies have entered into external administration in New South Wales. The effects and impact of insolvency in the construction industry are not just restricted to the failed company. The effects are felt by many parties, especially those further down the contract chain, who may be ill-equipped to deal with persistent delays in cash flow.


The findings of the Inquiry into Construction Insolvency noted an industry-wide concern with a number of key problems:


  • Subcontractor payment cycles are unacceptably long;
  • Delayed/reduced payments to sub-contractors increase financial pressure down the contracting chain; and
  • The resulting financial stress on subcontractors leaves them in significant risk of insolvency.

Against that backdrop, the NSW Government proposes to change the law and has drafted a bill to make changes to the Security of Payment Act 1999 (NSW).  Key changes will include provision that:


  • Principals will be required to pay Head Contractors no later than 15 days after a payment claim is submitted to a Principal;
  • Head Contractors will be required to pay Subcontractors (and likewise Subcontractors to pay Suppliers) no later than 30 days after a payment claim is submitted to a Head Contractor (or to a Subcontractor in the case of a payment claim from a Supplier); and
  • Where the works are in respect of a residential property where the principal resides at the property, payment to Subcontractors or Suppliers must be by the contractually agreed date, or if none is specified, by no later than 10 days after the payment claim is submitted.

The Bill provides that parties to any applicable contract will be free to agree shorter timeframes, but not longer timeframes.


The payment requirements will not apply to principals where the principal resides at the property where the works are taking place.


In addition, Head Contractors should be aware that penalties will be introduced in order to ensure transparency in the payment practices operating in the industry and to incentivise Head Contractors to pay.


If a Head Contractor


  • fails to supply a supporting statement with their payment claim to a principal that includes a declaration that all subcontractors and suppliers (if any) have been paid in full; or
  • supplies a statement that is false or misleading; then they will face a maximum fine of AUD22,000 or three months imprisonment or both. 

In order to preserve compliance with these amendments, the Bill will also give power to authorised public service employees to make written requests that a Head Contractor provide information and all documents related to the payment of subcontractors.


Failure of a Head Contractor to comply with these requests will also incur a maximum fine of AUD 22,000 or three months imprisonment or both.

 

Clyde & Co

 

For further information, please contact:

 

Beth Cubitt, Partner, Clyde & Co
[email protected]

 

Paul Morgan, Clyde & Co
[email protected]

 

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