The Building and Construction Industry Security of Payment Amendment Bill 2013 (the Bill), which will amend the Building and Construction Industry Security of Payment Act 1999 (the Act) has now been passed and will come into effect on a day to be appointed by proclamation.
Regulation of Retention
Since our last Free Issue, there has been one amendment to the bill. A new Section 12A allows for the regulations to provide for retention moneys held by a head contractor to be held in a trust account. The regulations may include procedures for payments out of any trust account and the resolution of disputes regarding the operation of trust accounts. They may also specify bodies which may offer trust accounts. Any breach of any such regulation may be punishable by a penalty up to $22,000. No regulations have been put forward yet but the earlier NSW Government response to the Collins Report gives some inkling of what may be in store.
To which contracts will the new law apply?
The changes introduced by the Bill will only apply to construction contracts signed after the Bill is proclaimed. This means that where there is a head contract signed before the Bill has come into effect, and subcontracts are signed after the Bill has come into effect, the contracts will be subject to different legislative requirements. Specifically, the head contract will be covered by the existing Act, while the subcontracts will be covered by the amended Act, despite all contracts relating to the same project.
This means that all payment claims made by the subcontractors under the subcontracts will automatically be Security of Payment claims, and the head contractor, in paying these claims, will need to satisfy the new legislative requirements including paying the claims within 30 business days, even if the subcontract provides for a longer payment period. The head contract, however, will still be covered by the previous legislation which means that the principal will only need to make payments according to the payment period stipulated in the head contract. Head contractors will need to take this into account in payment terms they accept now and may need to make their future payment claims under the old Security of Payment Act provisions in order to protect themselves on a back to back basis.