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Amendments to the Building and Construction Industry Security of Payment Act 1999 (NSW) to improve cash flow

Construction Law News | February 2014

The Collins Inquiry into Insolvency in the NSW Construction Industry (2012) has prompted the NSW Government to amend the Building and Construction Industry Security of Payment Act 1999 (NSW) [“the Act”] due to commence from April 2014, and will not apply to contracts entered into prior to this date.

The proposed amendments include: removal of the mandatory endorsement referring to the Act on payment claims; a new requirement to provide a statement concerning payment of subcontractors; and mandatory time frames for payment to override contractual provisions which allow for time extensions.

The Act regulates payment practices in the building and construction industry. promoting the flow of progress payments by providing a statutory right by the Payee [the builder, architect, supplier or trades person] to the timely payment of their Progress Claims and a mechanism to quickly and fairly resolve disputes about Progress Claims.

The amendments are aimed at the timely payment of subcontractors, but the flip side of this aim is that principals and head contractors made need to be more vigilant about preparing Payment Schedules in response to the Payment Claims.

Summary of amendments to the Act

The key changes to the Act are:

1. Removal of the requirement to endorse a Payment Claim with the current mandatory wording “This Payment Claim is submitted under the Building and Construction Industry Security of Payments Act”. This means that almost any claim for payment could potentially be the subject of an adjudication application under section 17 of the Act.

The current endorsement on a Payment Claim is used in the industry to alert principals and head contractors that they need to comply with the strict timelines prescribed by the Act for serving Payment Schedules and making payment. Principals and head contractors will now need to pay closer attention to payment claims and ensure that they respond to all claims carefully and promptly.

2. Introduction of a requirement that a Payment Claim be accompanied by a supporting statement to the effect that all subcontractors have already been paid amounts due to them

Amendments to section 13 of the Act will require that a Payment Claim must be accompanied by a supporting statement and a declaration to the effect that all subcontractors have been paid all amounts that have become due and payable.

Many construction contracts already impose a similar obligation. However, head contractors should consider the following 2 aspects of the amendments to determine whether a review of their present administrative processes is necessary:

These amendments will make it an offence for a head contractor to serve a payment claim on the principal:

  • unless accompanied by a supporting statement; or
  • that is accompanied by a false or misleading supporting statement.

The maximum penalty for these offences is a fine of $22,000. A penalty of 3 months' imprisonment may be imposed for knowingly serving a false or misleading supporting statement.

3. Mandatory deadlines for Progress Payments. This change to section 11 of the Act is designed to enhance the flow of cash from Principals and Head Contractors to Subcontractors and Suppliers.

Under the mandatory payment deadlines, Progress Payments must be made:

  • 15 business days after a Payment Claim is submitted by a Head Contractor to a Principal; and
  • 30 business days after a Payment Claim is submitted by a Subcontractor to a Head Contractor.

The current legislation allows the parties to agree to alternative timeframes for payment. However, parties cannot contract out of the new mandatory deadlines. This means that a provision in a construction contract allowing payment to occur after the mandatory deadline will have no effect.

Conclusion

It is important to consider the impact that the new timing requirements will have on your accounts departments and financing arrangements. The procedures and time frames for making a Payment Claim and responding to a claim with a Payment Schedule under Part 3 of the Act will not change with the new amendments.

Payment Claims under the Act will no longer be clearly distinguishable from other claims for payment. This will require industry those working in the industry to take necessary measures to update their operations so that Payment Claims are addressed promptly under the Act. It is important to be aware of the penalties that may be imposed for providing false or misleading statements relating to payment claims.

For further advice on the operation of the Act and building and construction matters please contact Forum Law. We can also attend to your legal concerns regarding your business, conveyancing issues, wills and estates. We are one of the most prominent business lawyers in the Leichhardt and the inner west area of Sydney. We are happy to provide services to clients wherever you are located.

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