Amendments to the Building and Construction Industry Security of Payment Act 1999 (NSW)
13 May 2020
In brief
The Building and Construction Industry Security of Payment Amendment Act 2018 (NSW) (Amending Act) came into force on 21 October 2019 and makes several changes to the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act). Key changes to the SOP Act relate to:
the timing in relation to payments for contractors and subcontractors; and
the introduction of personal liability for directors and senior managers.
The amendments apply to all contracts that are entered into on or from 21 October 2019.
In detail
1. Amendments to progress payments and payment claims
The Amending Act has removed the concept of a ‘reference date’. This effectively removes the entitlement to progress payments on and from a ‘reference date’, being the date(s) determined under the contract, or if the contract is silent, the last day of the month. This has been replaced with:
an entitlement to progress payments if the claimant undertakes to carry out construction work to supply related goods and services (SOP Act s 8); and
a system where payment claims may be served on and from:
either:
the last day of the named month (or any other date in the month that is specified in the contract) in which construction work was first carried out or the related goods and services were first supplied, and thereafter on and from the last day of each subsequent named month (SOP Act s 13(1A)); or
if the contract provides for an earlier date in the month for serving a payment claim, from that date specified in the contract (SOP Act s 13(1B)); and
date the contract is terminated (SOP Act s 13(1C)).
Contractors will now be entitled to make monthly payment claims unless the contract provides for more frequent claims.
It follows that contracted milestone payments for stages of work or completion of project milestones will be invalid, unless the contracted milestone payment meets the requirements of s 13(1A) or (1B) of the SOP Act. This may not have a significant impact on traditional construction contracts that rely on a monthly payment regime. However, it may impact supply and install contracts which meet the broad definition of ‘construction work’ and use a milestone payment regime.
Payment claims must now state that they are made under the SOP Act (SOP Act s 13(2)(c)), for example, wording to the effect that:
“This payment claim is made under the Building and Construction Industry Security of Payment Act 1999 (NSW).”
This is a return to the original 1999 position and means that the claimant is required to use express words if they wish the SOP Act to apply.
2. Reduced timeframe for head contractors to pay subcontractors
Head contractors must now pay subcontractors within 20 business days after the payment claim is made or an earlier date if the contract specifies an earlier date (SOP Act s 11(1B)).
3. Amendments to the adjudication process
Once a claimant submitted its adjudication application (Application), the respondent may be entitled to lodge a response (Response). The Response is due the later of:
5 business days after the respondent received a copy of the Application; and
2 business days after the respondent received notice of the adjudicator’s acceptance of the Application (SOP Act s 21(3)(i)).
The Amending Act increases the timeframe for an adjudicator’s determination (Determination), as follows:
if the respondent lodges a Response, the Determination is due 10 business days from the date the Response is lodged (SOP Act s 21(3)(a)(i));
if the respondent is entitled to lodge a Response but chooses not to, the Determination is due 10 business days from the date that the Response was due to be lodged (SOP Act s 21(3)(a)(i)); and
if the respondent is not entitled to lodge a Response, the Determination is due 10 business days from the date that the adjudicator’s acceptance of the Application is served on the claimant (SOP Act s 21(3)(ii)).
In any event, the claimant and respondent may agree an alternate timeframe for the Determination (SOP Act s 21(3)(b)).
The Amending Act introduces an express unqualified right for the claimant to withdraw an Application at any time before an adjudicator is appointed (SOP Act s 17A(1)). Where an adjudicator has been appointed, the claimant may withdraw the Application, except:
where another party objects to the withdrawal; and
in the opinion of the adjudicator, it is in the interests of justice to uphold the objection (SOP Act s 17A(2)).
Where the Supreme Court finds a jurisdictional error in relation to a Determination, it may now set aside that part of the Determination affected by the jurisdictional error, rather than the whole Determination (SOP Act s 32A).
4. Amendments affecting corporations in liquidation
The new amendments prevent a corporation in liquidation from:
serving a payment claim; and
taking action to enforce a payment claim or a Determination under the SOP Act.
These amendments do not appear to extend to insolvency arrangements other than liquidation.
Where a corporation goes into liquidation whilst an adjudication process is on foot, the adjudication application will be taken to be withdrawn from the day on which the corporation went into liquidation (SOP Act s 32B(2)).
5. Increased penalties
The maximum penalties have increased under the SOP Act for a corporation or individual failing to provide necessary supporting statements (SOP Act s 13(7)) or providing a supporting statement to a payment claim which is false or misleading in a material particular (SOP Act s 13(8)). A supporting statement includes a declaration to the effect that subcontractors have been paid all amounts that have become due and payable. The new maximum penalties for these offences are:
for corporations – 1,000 penalty units (as of 1 July 2019, equal to $110,000); and
for individuals – 200 penalty units (as of 1 July 2019, equal to $22,000).
6. Introduction of personal liability for directors and senior managers
The Amending Act introduces executive liability offences (SOP Act s 34D) and corporate offences (SOP Act s 34C), whereby directors and individuals involved in the management a corporation, who are able to influence the conduct of that corporation in relation to the offence, are exposed to personal liability where the corporation commits a specified offence against the SOP Act.
Executive liability offences
‘Executive liability offences’ include:
a head contractor serving a payment claim on the principal:
without a supporting statement (SOP Act s 13(7)); and
knowingly containing a false or misleading supporting statement (maximum penalty includes 3 months imprisonment) (SOP Act s 13(8));
a head contractor breaching certain retention money trust account offences created under the Building and Construction Industry Security of Payment Regulations 2008 (NSW) (Regulations), including breaching the obligations to:
hold retention money in a trust account with an approved authorised deposit-taking institute for the subcontractor (Regulations cl 6(1));
withdraw retention money from a retention money trust account in a manner that is consistent with agreed terms (Regulations cl 8);
notify the Secretary on becoming aware that a retention money trust account has been overdrawn (Regulations cl 11);
notify the Secretary that a retention money trust account has been closed within 14 days of the closure (Regulations cl 12); and
keep and retain relevant records relating to the retention money trust accounts (Regulations cl 14).
Personal liability will attach to a director or senior manager with respect to these offences if they:
know that an executive liability offence would be or was being committed, or were recklessly indifferent as to whether it would be or was being committed; or
failed to take all reasonable steps to prevent or stop the commission of that offence.
Corporate offences
A ‘corporate offence’ is any offence against the SOP Act or the Regulations that is capable of being committed by a corporation.
A person is an accessory to a corporate offence if they:
aid, abet, counsel or procure the commission of the offence;
induce (whether by threats or promises or otherwise) the commission of the offence;
conspire with others to effect the commission of the offence; or
is in any other way, whether by act or omission, knowingly concerned in, or party to, the commission of the offence.
The takeaway
Be aware that the SOP Act has changed for contracts that are entered into on or after 21 October 2019.
Check whether the SOP Act applies to your contract – remember that it applies to contracts for the installation of fittings to form part of land, into a building or structure.
Make sure that the payment regime is monthly.
For principals, make sure that your directors and executives know about and are managing the risk of executive liability.
For head contractors as principals, make sure that your internal processes for supporting statements, and the administration of subcontractor retention monies are rigorous.