The NSW SOP Act has been amended again and it is important to understand the key changes that apply to all relevant contracts entered into on or after 21 October 2019.
- The changes are not retrospective and do not effect contracts that have already been entered into before 21 October.
- There are 8 key changes (see below).
- Failure to adopt the changes immediately could prove very costly.
On 17 July 2019, the NSW parliament proclaimed changes would be made to the SOP Act. As of 21 October those changes came into effect. Two previous updates on the planned introduction of those changes can be found here and here.
Who will be affected?
The new changes do not apply retrospectively, so only apply to construction contracts (as that term is defined in the SOP Act) which are entered into after 21 October 2019, and only where the subject site is located in NSW or the law of the contract is that of NSW.
- No “reference date”
Contractors will no longer need to wait for the accrual of a “reference date” prior to serving a payment claim. Instead the claimant contractor can now submit one payment claim per month, for work carried out up to the last day of that month, and thereafter on and from the last day of the month (for subsequent months).
A Principal can still stipulate in a Contract a contractually agreed date for service of a payment claim ahead of the end of the month (for instance a draft claim requirement to facilitate assessment timing requiring claims by say the 25th day of each month) but this only means the claimant can serve the claim as early as 25th or as late as it likes (i.e. it can’t be contractually barred from serving a payment claim by not serving it by the 25th).
Also now invalid are contract milestones or stages of work based payment provisions, where the periods between the entitlement to a payment claim arising (i.e. the milestones) are longer than the new monthly basis for claiming payment.
- Payment claims post termination
Post termination payment has been included in the changes contained in the SOP Act.
The pre-change position was one of uncertainty, with sometimes complex factual scenarios being judicially considered to determine whether a post-termination reference date arose.
The SOP Act now expressly provides that, post termination, there is the entitlement for the claimant to make one payment from the date of termination of the contract (limited of course by the 12 month statutory period for claims).
- Clear reference to SOP Act
A payment claim must now expressly state that it is made under the SOP Act. This requirement had existed from when the SOP Act was originally passed 20 years ago, but was removed in 2014, which created great uncertainty, particularly in circumstances where a Contractor served multiple invoices within the same month and alleged they constituted one payment claim, or only the first one was the payment claim.
Payment claims not expressly referencing the SOP Act are now invalid.
- Payment periods
The maximum time for a Head Contractor to pay a payment claim from a subcontractor has been reduced from 30 business days to 20 business days.
This reduced timeframe is intended to increase the rate of cash flow to subcontractors, as 20 business days means that a subcontractor will receive payment roughly in the same month that the payment claim is made.
There has been no change to the payment period of 15 business days for Principals.
- Withdrawal of adjudication applications
An adjudication applicant can now withdraw an application before a determination of it is made, unless the respondent objects to the withdrawal and the adjudicator determines that the application should still proceed “in the interests of justice”.
This will assist parties save on time, costs and resources if they are able to reach an early settlement.
The respondent’s right to object may have interesting implications, and may occur if a respondent believed their position may be worse later on if a withdrawal was allowed (for instance if they’ve already incurred significant costs which may need, in great part, to be incurred again if the claim is brought again sometime later).
The Act provides no guidance on what may constitute such “interests of justice”. This is likely to lead to some test cases in the limited circumstances where the requested withdrawal is refused.
- Jurisdictional errors in Adjudicator’s Determination
Critically, the SOP Act now addresses the issue of adjudication determinations being found to be invalid in part.
Previously, the finding of any part of the determination as being invalid caused the whole determination to be deemed void. That has now changed.
The SOP Act now provides for the severance of any part of an adjudication determination being found void from the balance of the determination that will remain valid and enforceable.
This change may be likely to further dilute the number of Supreme Court challenges brought against adjudication determinations.
- Supporting Statements
Penalties for false or misleading supporting statements (required under a Head Contract to accompany a payment claim) have been significantly increased.
For corporations, the penalty is now 1000 penalty units (previously 200); and for individuals, 200 penalty units.
With the current penalty unit value set at $110, an adverse finding will cost a corporation $110,000, an individual $22,000.
- Personal liability for Directors
The liability of directors has also been addressed in changes not to the SOP Act but the related Regulations.
Those Regulations now stipulate when personal liability for directors may arise. It relates to a corporation’s breach of the provisions in the Act regarding trust and retention monies. We discussed this director liability in detail in our June article that can be found here.