If you are a subcontractor working in New South Wales, you may have heard about the changes to the Security of Payment regime which are on their way. The reforms are generally favourable to subcontractors and clarify key areas of confusion. It is important to ensure that you understand the changes and are aware of your rights and obligations when entering into contracts with head contractors. This article sets out the key changes and how they will affect your contracts.

Security of Payment Reforms

The Building and Construction Industry Security of Payment Amendment Act 2018 (NSW) (the Act) has passed both houses of Parliament but is yet to come into effect. It is expected to be effective sometime in 2019, but the exact date has not been confirmed yet.

Payment Claims

Payment claims will now need to expressly state that they have been made under the Act. This requirement for an express statement brings NSW into line with Victoria. However, Queensland has recently done the opposite!

Payments by head contractors will be due 20 business days after the date of the payment claim. This is unless the contract provides for an earlier date for payment to be made or the contract is an exempt residential building contract.

No More ‘Reference Date’

There will no longer be a term ‘reference date’. Unless the contract says otherwise, you can submit one payment claim each month. This means that you have a statutory right to serve a payment claim each month (unless you agree to waive this right under your contract). You can serve a payment claim either on or from the:

  • date provided in the contract (previously referred to as a reference date); or
  • last day of each month.

If the contract is terminated, you can serve a payment claim on and from the date of termination.

In the case of a dispute, adjudicators will have 10 business days to serve their adjudication determination from the last date that your head contractor can submit their adjudication response.

Penalties

There are now harsher penalties under the new changes.

Firstly, if a payment dispute arises and there is an adjudication, an adjudicator will be required to hand down his or her adjudication determination. An adjudication determination is like a court judgment. You will need to serve any adjudication determinations you receive on your head contractor within five business days of receiving it. If you do not, you may be liable to pay a penalty. The penalty is increasing from 5 penalty units ($550) to 50 penalty units ($5,500) (for a corporation) or 10 penalty units ($1100) (for an individual).

Secondly, your head contractor faces a penalty if they do not provide a supporting statement along with the payment claim they issue to the principal. A supporting statement is a prescribed form that you must provide with a payment claim. The supporting statement is a statement that you have paid your employees and subcontractors correctly. The statement also notifies your head contractor if you have any payment disputes with your subcontractors.

Trust Monies

If you are entitled to retention monies held on trust, the new regulations will allow you to inspect the trust account records.

Withdrawing Adjudication Applications

You will be entitled to withdraw an adjudication application either:

  • before an adjudicator is appointed; or
  • after the appointment but before the adjudicator makes a determination.

However, you should note that the withdrawal may not be effective if:

  • your head contractor objects; and
  • the adjudicator believes, in the interests of justice, that the objection should be upheld.

Fair Trading’s Powers

There is also the potential for Fair Trading to have increased powers of investigation and enforcement under the changed Act.

The Consequences for Your Contracts

Once these changes come into effect, you will need to ensure that you update your contracts to reflect the changes in legislation.

For example, remember to ensure your payment claims have a statement that the payment claim is issued under the Act.

Also, check the dates for payment in your contracts. Remember that your head contractor cannot ask for payment period longer than 20 business days after you serve a payment claim.

Key Takeaways

Incoming changes to Security of Payment legislation means that you will need to ensure your contracts are updated to reflect the changes. In particular, payment claims now need to contain a reference to the Act. There is no longer the term ‘reference date’. You and your head contractor should also be aware of the harsher penalties as a result of the changes. Also note the implications for trust money, adjudication applications and Fair Trading’s powers. If you have questions about the amendments or your construction contracts, get in touch with LegalVision’s construction contracts on 1300 544 755 or fill out the form on this page.

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.
Robert Nay

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