Important Legal Update for Principals, Builders and Sub Contractors

The long awaited amendments to the Building & Construction Industry Security of Payments Act 1999 NSW (SOPA) are now in effect and Principal Contractors, Builders and Subcontractors should all be aware.

Summary of Amendments

  • Prompt payments to enhance flow of cash - section 11 of SOPA;
  • Removal of requirement to endorse a payment claim as being made under SOPA;
  • Introduction of requirement to provide a supporting statement - section 13 of SOPA;
  • Creation of a statutory retention trust - section 12A of SOPA.

Prompt Payments

  • Head contractors are now entitled to receive payment from the Principal Contractor/Developer no later than 15 business days after service of a valid payment claim.
  • Head contractors are now obliged to make progress payments to subcontractors no later than 30 business days after receiving a valid payment claim. It is important that all parties now review their accounts procedures and finance agreements to ensure compliance with time limits and any obligations.
  • A term in a contract contrary to these time periods will be invalid.

Removal of Endorsement

  • The previous requirement that a payment claim be endorsed with “This is a payment claim issued pursuant to the Building and Construction Industry Security of Payments Act” has been removed.
  • This means that any claim for payment, including a tax invoice, whether or not in the form as prescribed under the contract may the subject of an adjudication application or court action.
  • Principals and head contractors will need to be on alert to ensure compliance with the SOPA as it may create confusion due to the 'warning' being removed.
  • However, only one payment claim can be made for each reference date and the supporting statement must be now be added. 

Supporting Statement

  • It is now a requirement for all head contractors to include a supporting statement to the effect that all subcontractors have been paid all amounts due and payable when serving a payment claim on a Principal.
  • It will be an offence for a head contractor to serve a payment claim unless the claim is accompanied by a supporting statement.
  • It will be an offence for a head contractor to make a false and misleading statement of a material particular in supporting statement.
  • The maximum penalty is a fine of $22,000 or a term of 3 months imprisonment for making a false supporting statement.
  • Authorised Officers will be given investigative power to ensure compliance.

Statutory Retention Trust

  • SOPA now makes provision for payment of retention money held by a head contractor to be paid into a trust account as set out in the Regulations;
  • The Trust account may either be established by the head contractor’s bank or operated by the Small Business Commissioner;
  • The section, through the Regulations, sets out procedures for authorising payments, keeping records and dispute resolution in connection with the operation of the Trust Account;
  • Offence up to a maximum of $22,000 for failure to comply with this section.

The Amendments to SOPA may have serious implications for the day to day running of your business and it is important that you are aware of the changes and adapt your business accordingly.