Introduction

On 21 April 2014, significant amendments to the Building and Construction Industry Security of Payment Act 1999 (NSW) (Act) came into force. In summary, the Act has been amended to:

  1. introduce mandatory maximum payment periods;
  2. remove the need to refer to the Act in payment claims; and
  3. require a supporting statement (regarding payment of subcontractors) with a payment claim.

The Act also includes provision for subcontractors' retention moneys to be held in trust accounts, although these provisions are not yet in force.

The three numbered amendments listed above are now in force. One aspect of the changes that appears to be insufficiently publicised is that the amendment removing the requirement to refer to the Act in payment claims applies only to construction contracts entered on or after 21 April 2014 (i.e. it has prospective effect only). Consequently, the previous regime (including the mandatory "health warning" that the payment claim is made under the Act) continues to operate in respect of construction contracts entered into before 21 April 2014. This co-existence of the old and new regimes compels contract administrators and claimants to tread carefully to ensure compliance with the applicable requirements regarding payment periods, supporting statements and inclusion of "health warnings" on payment claims.

These amendments will have a significant effect on the administration of construction contracts for both head contractors and owners/principals. A summary of these amendments is set out below. For a more detailed discussion of the amendments, please refer to our previous legal alert released in November.

Mandatory maximum payment times

The Act aims to keep cash flowing down through the contractual chain from principals through to subcontractors and suppliers by introducing mandatory maximum payment periods.

For construction contracts entered into on or after 21 April 2014:

  1. progress payments by principals to a head contractors must now be paid no later than 15 business days after the payment claim is received; and
  2. progress payments be made by head contractors or between subcontractors must now be paid no later than 30 business days after the payment claim is received.

Principals and head contractors must ensure that their accounting practices and payment authorisation procedures allow for payment of any amount due and payable within the relevant 15 or 30 business day period mandated by the Act.

Abolition of need to refer to the Act in payment claims

Section 13 has been amended so that the claimant no longer needs to identify the claim as being made under the Act.

This amendment means that the recipient of any progress claim made under a construction contract entered into on or after 21 April 2014 must prepare its response on the assumption that the claimant could proceed to adjudication under the Act in respect of each and every payment claim.

Claimants should be careful to ensure that any claim relating to a construction contract entered into prior to 21 April 2014 still includes the mandatory notice that the claim is made under the Act. If a payment claim fails to include the notice (as required), it will be invalid under the Act. As such, principals and head contractors should check whether the claims made under a pre 21 April 2014 construction contract include the mandatory notice.

This amendment increases the administrative burden on recipients of progress claims, as recipients must ensure they include in every Payment Schedule/Certificate all reasons for non-payment, so as not to be precluded from raising those reasons in any subsequent adjudication response.

Note that different provisions apply to subcontracts under an 'exempt residential construction contract', where the claimant must ensure that all claims (even in respect of post 21 April 2014 contracts) include specific wording stating that the claim is made under the Act. For further detail see our November 2013 legal alert.

Supporting statements regarding payment of subcontractors

In order to make a claim against a principal under the Act, a head contractor must now submit a "supporting statement". The supporting statement contains a declaration that all amounts due and payable to any subcontractors have been paid (except for any amounts which are in dispute which must be listed in the statement). Under the Act, a failure to provide a supporting statement or knowingly making a false or misleading statement is an offence (refer to our previous legal alert for further details).

The full form of the supporting statement is set out in Schedule 1 of the Building and Construction Industry Security of Payment Amendment (Supporting Statement) Regulation 2014 (NSW).

It is important to note that the "supporting statement" is separate from the NSW Office of State Revenue's (OSR) "Subcontractor's Statement". A principal or head contractor must still require provision of an OSR "Subcontractor's Statement" in addition to the "supporting statement" under the Act. 

Subcontractor's retention money to be held in trust accounts

Finally, the Act has been amended to allow for the introduction of a requirement that subcontractor's retention money be held in trust accounts. The aim of the proposed requirement is to protect subcontractors from the effects of head contractor insolvency and potential misuse of retention money. As mentioned above, this requirement is not yet in force. The Government is currently considering feedback on the model proposed in its Consultation Paper for a statutory trust fund. As such, we expect that it may be some time before the Government implements this requirement.

What you need to do

For all new construction contracts made on or after 21 April 2014, recipients of payment claims must:

  •  prepare every payment schedule/certificate on the assumption that the claim is one to which the Act applies, compelling exhaustive inclusion of all reasons for withholding payment; and
  • ensure accounting and payment authorisation procedures enable payment of any amount due and payable to contractors within the 15 business day time frame mandated by the Act.

Similarly, for all new contracts made on or after 21 April 2014, head contractors must:

  • ensure their accounting and payment authorisation procedures enable payment to subcontractors within the 30 business day time frame mandated by the Act;
  • be diligent in providing accurate supporting statements and to ensure that they can proceed to adjudication of disputed payment claims and to avoid potential criminal sanctions; and
  • be prepared to respond to investigations checking compliance with the supporting statement provisions.

Similarly, for all new contracts made on or after 21 April 2014, subcontractors must:

  • ensure their accounting and payment authorisation procedures enable payment to sub-subcontractors and suppliers within the 30 business day time frame mandated by the Act.