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Australia – Significant Changes To NSW Security Of Payment Legislation: Effective 21 April 2014.

22 April, 2014

 

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

 

Building and Construction Industry Security of Payment Amendment Act 2013 (NSW)


What You Need To Know

 

  • The NSW government has begun a four phase reform in response to the Final Report of the Independent Inquiry into Construction Industry Insolvency in NSW. The Building and Construction Industry Security of Payment Amendment Act 2013 (NSW) (the Amending Act) commenced yesterday (21 April 2014).
  • The Amending Act imposes a short maximum payment period of 15 days for head contractors and 30 days for subcontractors after a payment claim has been made. A contractual provision which provides a greater payment period will be of no effect.
  • The Amending Act also dispenses with the requirement that payment claims must be stated to be made under the Building and Construction Industry Security of Payment Act 1999 (NSW).
  • In accordance with the Amending Act, head contractors are now responsible for statements made regarding payments to subcontractors, with significant penalties for breaching these requirements.

 

The Building and Construction Industry Security of Payment Amendment Act 2013 (NSW) commenced on 21 April 2014. The Amending Act makes substantial amendments to the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act). The amendments only apply to contracts entered into after 21 April 2014.

 
The Amending Act was introduced as the first phase of reform in response to the Final Report of the Independent Inquiry into Construction Industry Insolvency in NSW (the Independent Inquiry).

 
According to the second reading speech, the purpose of the Amending Act is to provide “greater protection for subcontractors and promote cash flow and transparency in the contracting chain” in an attempt to decrease the number of building company insolvencies each year.

 

Changes To The Building And Construction Industry Security Of Payment Act

 
Mandatory Supporting Statements For Head Contractors

 
Under new sections 13(7) and 13(9), the Amending Act introduces a new requirement for payment claims from a “head contractor” to be accompanied by a “supporting statement”, which includes a declaration that all subcontractors and suppliers have been paid.

 
The amending Act also creates the following offences:

 
a) not providing a supporting statement, with a maximum penalty of AUD 22,000;

 
b) knowingly providing a supporting statement which is false, with a maximum penalty of AUD 22,000 and/or three months imprisonment; and

 

c) failing or refusing to comply with a request for information from an authorised officer, or providing knowingly false information, with a maximum penalty of AUD 22,000 and/or three months imprisonment.

 
Maximum Payment Period Regimes


Under the new sections 11(1A) and 11(1B), a progress payment made to:

 
a) a head contractor, by a principal, becomes due and payable 15 business days after a payment claim is made; and

 
b) a subcontractor, becomes due and payable 30 business days after a payment claim is made.

 
Under the new section 11(8), any provision of a contract which provides for payment of a progress payment later than these maximum periods is of no effect.

 
The mandatory payment terms may have significant cost implications to principals that previously relied on longer payment terms.

 
Removal Of Requirement To State A Payment Claim Is Made Under The Act

 
Significantly, the Amending Act changes section 13(2)(c) of the Act to remove the requirement for a claimant to state that a payment claim is “made under this Act”.

 
As respondents are no longer able to reliably determine whether or not a payment claim was made under the Act and given the severe consequences imposed by the Act if a payment schedule is not issued or is invalid, a respondent may need to issue a valid payment schedule under the Act in response to each and every payment claim issued by its contractors.

 
Previously, claimants were required to expressly endorse a payment claim under the Act to trigger an entitlement to pursue recovery under the Act. When dealing with a payment claim under the Act, a respondent will often undertake a more detailed assessment before responding to ensure that all reasons for rejecting the claim are included in its payment schedule. Where the claim is significant, this may include engaging lawyers and technical experts and undertaking interviews.

 
Retention Trusts

 
The amending Act inserts a new section 12A relating to retention money being held in trust for the subcontractor. The regulations currently do not make provision for the establishment of retention trusts, and therefore these provisions do not yet apply.

 

Other Considerations

 
Principal Contractor Obligations

 
A ‘principal contractor’ (as defined in workers compensation, payroll tax and industrial relations legislation) may become liable for workers compensation premiums, payroll tax and remuneration payable by its ‘subcontractor’ (as defined under that legislation) if it does not obtain a statement that the subcontractor has paid the relevant premiums, tax and remuneration (known as a ‘subcontractor’s statement’).

 
The form of the supporting statement prescribed for the purposes of the new sections 13(7) and 13(9) does not contain all of the information that must be included in a ‘subcontractors statement’. Accordingly, principal contractors should continue to require their contractors to provide subcontractor’s statements notwithstanding the new obligations for “head contractors” to provide supporting statements under the Act.

 
Standing Offer Agreements

 
As the new provisions apply to all contracts entered into after 21 April 2014, it is possible that a purchase order issued under an existing standing offer agreement after this date may be construed as a new contract and therefore the provisions of the Amending Act apply. Whether a purchase order creates a new contract depends upon the terms of the standing offer agreement.

 

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For further information, please contact:

 

Georgia Quick, Partner, Ashurst
[email protected]


Adam Firth, Ashurst
[email protected]


Rachel Macdonald, Ashurst
[email protected]


Ashleigh Vumbaca, Ashurst
[email protected]

 

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