Simon Ralton and Will Meehan

Building and Construction Industry Security of Payment Amendment Bill 2018 Passes Both Houses

Simon Ralton and Will Meehan

23 November, 2018

Building and construction contracts Security of payment

On 21 November 2018 the Building and Construction Industry Security of Payment Amendment Bill 2018 (NSW) (Bill) passed through both Houses of Parliament.

The amendments provided for in the Bill are not proposed to apply to existing construction contracts, but once enacted, the key reforms to the Building and Construction Industry Security of Payment Act 1999 (NSW) (Act) are:

1. Rights to progress payments

Section 8 of the Act will be amended so that the entitlement to receive a progress payment is no longer triggered by a reference date.  Instead, the entitlement to receive progress payments will arise simply by virtue of construction work being performed or related goods and services being supplied under a construction contract.

This will have implications for construction contracts under which payment claims are to be made other than on a monthly basis for example, by reference to milestone dates or on completion of the construction work.

2. Due date for payment

The time for payment from a head contractor to a subcontractor is reduced from 30 business days to 20 business (section 11(1B)(a)).  There is no proposed reduction to the time for payment from a principal to a head contractor, which will remain as 15 business days.

3. Payment claims

A person who is entitled to a progress payment will be able to serve a payment claim on and from the last day of the named month in which the construction work was first carried out (or the related goods and services were first supplied) under the construction contract and on and from the last day of each subsequent named month (section 13(1A)).  However, a construction contract can also make provision for an earlier date than the last day of the month for making a payment claim (section 13(1B)).

The Bill adds a new section 13(1C) which provides that, in the case of a construction contract that has been terminated, a payment claim may be served on and from the date of termination.  The second reading speech explains that this reform is intended to ensure that a payment claim can be made after termination and to close the loophole recognised by the High Court in Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd [2016] HCA 52.

A payment claim must state that it is made under the Act (section 13(2)(c)) returning to claimants the election to opt in to, or out of, the process under the Act.

New provisions are proposed to limit a person from making more than one payment claim each month for construction work carried out in that month except as otherwise provided in the construction contract (section 13(5)) but under section 13(6), the claimant is not prevented from:

  • serving a single payment claim in respect of more than one progress payment;
  • including in a payment claim an amount that has been the subject of a previous claim; or
  • serving a payment claim in a particular month for construction work carried out or undertaken to be carried out in a previous named month.

4. Reforms to the adjudication process

A new section 17A will enable a claimant to withdraw an adjudication application at any time before the appointment of an adjudicator or, where an adjudicator is appointed, before the application is determined.  The option to withdraw an adjudication application will assist parties to facilitate settlement of payment claims at an early stage in the adjudication process.

If the adjudicator has been appointed, the withdrawal by the claimant will not have effect if the respondent objects and the adjudicator finds it is in the interests of justice to uphold the objection.

The Bill also includes a provision that enables the Supreme Court to set aside the whole or any part of an adjudicator’s determination affected by jurisdictional error and uphold any remaining part of the determination (section 32A).

An adjudicator will be required to determine an adjudication application within 10 business days after either the response is lodged or, if the response is not lodged, the end of the period within which the respondent is entitled to lodge a response (section 21(3)(a)).  Previously the adjudicator was to determine the adjudication application within 10 business days after the date on which the adjudicator notified the claimant and the respondent as to his or her acceptance of the application.  The claimant and the respondent may still agree to further time for making the determination under section 21(3)(b).

A code of practice to be observed by authorised nominating authorities in relation to their activities under the Act may be ordered by the Minister and will take effect on the date the order is published on the NSW legislation website or such later date specifying commencement (section 28A).

5. Other reforms

Other noteworthy reforms include:

  • provision for regulation to be made dealing with inspection of records in connection with a trust account by a subcontractor entitled to retention money (section 12A(3)(b));
  • increased penalties for offences, including offences in regards to the provision of supporting statements with payment claims;
  • making directors and other officers of a corporation personally liable for the commission of corporate offences under the Act;
  • corporations in liquidation will not be able to serve payment claims or take action to enforce a payment claim (section 32B);
  • the introduction of new part 3A which confers investigation and enforcement powers to authorised officers; and
  • a provision stating that the regulations may prescribe information that is required to be provided to a subcontractor when entering into a construction contract.

The Bill is currently awaiting assent and will likely become legislation and commence on a day or days to be appointed by proclamation.