On 28 February 2011 the Building & Construction Industry Security of Payment Act (the Act) changed in a significant way that affects all those undertaking work to which the Act applies. This article does not propose to cover off the more general aspects of the Act but to focus specifically on the most recent amendments.
The purpose of the amendment is to quarantine money to be paid by a principal to a contractor in circumstances where a subcontractor has made a claim for that particular money and has made an adjudication application. Set out below is a diagram which identifies how the amendments work.
Click here to view diagram.
The Act introduces the term "principal contractor" (clause 26A(4)) as being a person (or corporation) who owes money to the respondent for work carried out or material supplied by the respondent.
A principal contractor who is served with a payment withholding request (by a subcontractor) must retain out of money owed to the respondent (the head contractor) the amount of money to which the payment claim relates.
Significantly if a principal contractor contravenes the payment withholding request by paying the money to the respondent, the principal contractor becomes jointly and severally liable with the respondent in respect of the debt due to the claimant to the extent of the contravention.
The principal contractor must retain the money until one of the following four events occurs:
- the adjudication application is withdrawn;
- the respondent pays the claimant the amount claimed;
- the claimant serves the principal contractor a notice of claim under the contractors Debts Act;
- 20 business days pass after a copy of the adjudicator's determination is served on the principal contractor.
As with all remedies under the Act it is more than likely that this will prove to be a very handy tool for subcontractors seeking payment. It once again increases the level of administration for a principal in a project as they will now need to make decisions about whether or not such payments have been made or are required to be quarantined for payment to the subcontractor at a later time.