Building and Construction Industry Security of Payment Act

Those changes came into force on Monday 21 April 2014 and now apply to all contracts entered into after that date.

Just to recap, the key changes are:

1. The removal of the requirement for a payment claim to state that it is made under the Act

This existing requirement was one that many contractors get wrong. Its removal will make it simpler for subcontractors to make valid payment claims under the Act.

Principals and head contractors will need to treat all payment claims as being made under the Act and comply with the strict timeframes for both putting on a payment schedule if disputing and making payment.

This requirement will however continue to apply for residential construction contracts connected with a residential construction contract between a head contractor and consumer (eg such as a contract between a builder and an electrician to do work where the builder has entered into a contract with a home owner).

2. Due date for making progress payments

Before the changes, the due date for payment was as specified in the contract, or if there was no express provision, then 10 business days after the payment claim is made. This allowed the time for payment to be greatly in excess of 10 business days if there was inequality in bargaining power

Now there are 3 different timeframes for payment established and any term of a contract that allows for payment later than these will be deemed void:

• payments to head contractors will be due 15 business days after service of a payment claim or an earlier date if specified in the contract.
• payments to subcontractors will be due 30 business days after service of a payment claim or an earlier date if specified in the contract.
• the existing timeframes for payment will be maintained for residential construction contracts connected with a residential construction contract.

If you have been negotiating a construction contract but will enter into it after 21 April, then be aware that these timeframes will apply regardless of what is stated in the contract.

3. Payment claims to be accompanied by a supporting statement that all subcontractors have been paid

There was previously no requirement under the Act for a payment claim to have a statement attached confirming that subcontractors have been paid.

It will now be offence for a head contractor to serve a payment claim on a principal unless the claim is accompanied by a supporting statement to the effect that all subcontractors have been paid all amounts that have been due and payable. It will also be an offence to serve a statement that they know is false or misleading.

The maximum penalty in both cases will be $22,000.

4. Investigation of compliance with requirement for supporting statement

There will be NSW Government officers who can require either the head contractor or associated persons to provide information or documents relating to compliance with the new provisions requiring supporting statements.

A failure to comply can result in a maximum penalty of $22,000 or 3 month’s imprisonment.

5. Retention accounts

It is contemplated that there will be Regulations established which will require retention monies held by head contractors from subcontractors to be paid into a trust account operated by the Small Business Commissioner.

At this stage it does not appear that this obligation will extend to principals holding retention monies from head contractors, only head contractors withholding from subcontractors.

It is proposed that a failure to pay these retention monies into the trust account will attract a maximum penalty of $22,000.

There is currently no indication when the trust account requirements will be introduced.

Need more information on your rights under the Building and Construction Industry Security of Payment Act (NSW) 1999 or on construction contracts and other project documentation generally? Contact Kells on (02) 4221 9311.