Insights

In brief - Proposed reforms designed to promote cash flow for subcontractors and transparency in contracting chain

A bill proposing significant changes to the Building and Construction Industry Security of Payment Act 1999 (NSW) has been introduced to NSW parliament.

Government striving to provide greater protection for subcontractors

On 24 October 2013 the Building and Construction Industry Security of Payment Amendment Bill 2013 was introduced into the NSW parliament, proposing amendments to the Building and Construction Industry Security of Payment Act 1999 (Act).

The Bill, if passed by both houses of parliament, will effect significant changes to security of payment legislation in NSW in a bid by the government to provide greater protection for subcontractors and promote cash flow and transparency in the contracting chain.

Major change to formal requirements for payment claims

Currently, the Act requires that a payment claim must state that it is made under the Act. The Bill proposes to remove this requirement so that claimants no longer need to include these words (with one limited exception).

One purpose for this change is to make the Act simpler and easier for subcontractors to use and to encourage them to use the Act. In effect, any progress claim which simply identifies construction work to which the claim relates and the amount that is due will be treated as a valid payment claim for the purposes of the Act.

Head contractor's payment claim must include declaration that all subcontractors have been paid

Currently there is no requirement for a payment claim made under the Act to be accompanied by a statutory declaration or other statement as to payment of workers and subcontractors.

The proposed amendments to the Act will prevent a head contractor from serving a payment claim on the principal unless the claim is accompanied by a "supporting statement" (in a prescribed form), which includes a declaration to the effect that all subcontractors, if any, have been paid all amounts that have become due and payable in relation to the construction work concerned.

Further, a head contractor cannot serve a payment claim on the principal with a supporting statement that is known by the head contractor to be false or misleading.

Penalties proposed for non-compliance or for false or misleading statements

The Act introduces penalties for not providing a supporting statement or for making false or misleading statements as to the payment of subcontractors. The reforms which have been introduced include the following:

• "Authorised officers" will be appointed to investigate a head contractor's compliance with the requirements regarding supporting statements.

• Authorised officers will have the power to require a head contractor or associated person to provide information or documents relating to the payment of any subcontractors and any supporting statements made. Authorised officers will also have the power to inspect, make copies of, take extracts from and/or take possession of any documents produced by a head contractor in response to an investigation.

• The deeming of a refusal or failure by the head contractor to comply with an investigation will be a punishable offence (a maximum penalty of 200 penalty units or three months' imprisonment, or both).

Changes in due dates for progress payments

The due date for payment of progress payments (which is currently defined as the date on which the payment becomes due and payable in accordance with the terms of the contract or, if no there is no express provision about the matter, 10 business days after a payment claim is made in relation to the payment) will be changed as follows:

• For progress payments claimed by a head contractor from a principal, the due date for payment will be 15 business days after a payment claim is made, or an earlier date provided in accordance with the terms of the contract.

• For progress payments claimed by a subcontractor from a head contractor, the due date for payment will be 30 business days after a payment claim is made, or an earlier date provided in accordance with the terms of the contract.

• For progress payments claimed under a construction contract that is "connected with" an "exempt residential building contract" (a contract for residential building work on such part of premises as the party for whom the work is carried out resides in or proposes to reside in), the due date for payment will be the date on which the payment becomes due and payable in accordance with the terms of the contract, or if there is no express provision about the matter, 10 business days after a payment claim is made in relation to the payment.

Introduction of Bill signifies that NSW government is aware of need for change

The above amendments will be applicable to contracts entered into after the commencement of any amendments to the Act (on a date to be proclaimed).

The introduction of the Bill reflects the impact of the Independent Collins Inquiry into Insolvency in the NSW Construction Industry and the government's recognition of the need to provide fairer payment terms for subcontractors.

We will provide updates on the proposed amendments as they emerge.

This article has been published by Colin Biggers & Paisley for information and education purposes only and is a general summary of the topic(s) presented. This article is not specific legal advice. Please seek your own legal advice for any questions you may have. All information contained in this article is subject to change. Colin Biggers & Paisley cannot be held responsible for any liability whatsoever, or for any loss howsoever arising from any reliance upon the contents of this article.​