Bigger bite for the NSW Security of Payment Act

The NSW Parliament will soon pass into law important amendments to the Building and Construction Industry Security of Payment Act (1999) (Act).

The Building and Construction Industry Security of Payment Amendment Bill 2018 (Bill) has been tabled in the NSW Parliament. In the usual course of things, we can expect this to be law during 2019.

Formulated as a result of the Collins Inquiry,[1] the publication of the Murray Report,[2] the draft bill and the consultation period, the Bill includes a number of changes to the legislation that will impact all parties in the construction industry.

What are the key issues for industry participants?

Contractors, owners and other industry participants should:

• note the reduction to maximum payment periods and adjust their accounting systems accordingly;
• note that payment claims under the Act now need to be labelled as such (this is a return to the old requirement); and
• be aware of the wider powers that ‘authorised officers’ will have under the Act, e.g. to enter into premises for the purpose of ensuring compliance with the Act.

Time for payment reduced

The Bill proposes that a progress payment to be paid to a subcontractor is due and payable no later than 20 business days (currently 30 business days) after the subcontractor makes a payment claim for the payment. This is a statutory maximum, and the parties can only agree a shorter time.

Payment claim must be labelled

In line with recommendations in the Murray Report, the Bill reinserts the requirement that a payment claim must be endorsed with words that say it is being made under the Act in order to enliven the statutory payment regime. This requirement was reinserted despite the Collins Inquiry concluding that it led to under-utilisation of the Act by subcontractors.

Entitlement to progress payments expanded

The term ‘reference date’ has been removed and instead a payment claim may be served on and from the last day of the ‘named month’. This seems to be directed at avoiding technical disputes around the old ‘reference date’ concept.

An entitlement to a final progress payment after termination of the contract is also introduced. The purpose of this is to discourage the practice of terminating contracts before a reference date to prevent a final payment claim being made under the Act.

Increase in penalties

The Bill increases the penalties for a range of offences (such as serving a payment claim without a supporting statement), particularly for corporate offenders. The maximum penalty is now $110,000.

Directors and people involved in the management of companies will now be held responsible for the commission of corporate offences under the Act.

Courts empowered to partially sever adjudication determinations

The Bill enables the Supreme Court to sever the part of the adjudicator’s determination affected by a jurisdictional error but enforce the balance of the determination.

Change in timing for determination

An adjudicator will have 10 business days to make a determination after receiving the adjudication response. Currently, an adjudicator must make a determination within 10 business days after they notify the parties of their acceptance.

A claimant will now also be able to withdraw an adjudication application at any time before the determination is delivered.

New Part 3A providing investigation and enforcement framework

A significant change to the Act made by the Bill is the introduction of a framework for investigation and enforcement. In Parliament it was said that it would implement the ‘standard suite of investigation and enforcement powers used in other laws administered by Fair Trading’.[3]

This change expands upon the current powers which Fair Trading has under the Act but which relate only to supporting statements (s 36). That provision will be repealed by the bill and replaced with far–reaching investigatory powers.

These changes do not appear to be something recommended by either the Collins Inquiry or the Murray Report, but it was included in the draft bill which was released for comment on 20 August 2018 (albeit with marginally different drafting but similar substance).

We are not aware of any exercise of the existing powers under the Act which have led to enforcement or prosecution in relation to supporting statements. It is conceivable that the broader powers may encourage persons who feel aggrieved to attempt to co-opt assistance from NSW Fair Trading.

That said, it is difficult to see the way in which these powers would be usefully deployed by NSW Fair Trading.

In any case, contractors and owners will need to be aware that these powers exist when the Bill becomes law and of the possibility that they will be exercised.

For more information, access a copy of the Building and Construction Industry Security of Payment Amendment Bill 2018.