Participants in the NSW construction industry need to understand and be prepared for major changes to the security for payments regime as it applies in that state.

On October 21, 2019, significant changes to New South Wales ("NSW") security of payment laws come into effect with the commencement of the Building and Construction Industry Security of Payment Amendment Act 2018 and corresponding Regulations.

The changes seek to simplify the processes for progress payments and adjudication, and follow some of the recommendations in the December 2017 Review of Security of Payment Law by Mr. John Murray AM (commissioned by the Australian Government).

The major changes include:

  • Removal of the concept of "reference dates"—which Mr. Murray AM observed has been the subject of confusion in industry and inconsistency in different courts—in an effort to provide a simpler entitlement to make monthly payment claims (or more regularly where the contract allows).
  • A right to make a final payment claim after termination of a construction contract, which the government described as intended to "close a loophole" highlighted by the High Court in Southern Han Breakfast Point (in liq) v Lewence Construction Pty Ltd [2016] HCA 52.
  • Enabling a court to set aside part of an adjudication determination for jurisdictional error, rather than the whole determination where the error is confined to only part of the decision (altering the position confirmed in Multiplex Constructions Pty Ltd v Luikens & Anor [2003] NSWSC 1140).
  • Reduction of the time allowed for payment following submission of a payment claim (now 20 business days).
  • Restoration of the requirement that a payment claim include a notice that it is made pursuant to the legislation in order to trigger the time limits and adjudication process.
  • Increased and expanded penalties, including personal liability for directors and management for certain offences. This includes the submission of false or misleading supporting statements with payment claims, where there is knowledge or reckless indifference and a failure by the director or manager to take reasonable steps to prevent the offence. It also includes failure by a principal contractor to comply with a statutory request to withhold amounts due to a contractor that relate to amounts the subject of adjudication between that contractor and one of its subcontractors further down the chain, where the director or manager is knowingly involved in the failure.

Only time will tell whether the changes will have the desired effect of reducing confusion and improving cash flow for contractors. In any event, it is important for both principals and contractors to be aware of the changes and their impacts on project management and potential payment disputes.