Significant proposed changes to the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act) were brought before the NSW Parliament in the second half of October by the Building and Construction Industry Security of Payment Amendment Bill 2013 (SOP Amendment Bill).

The amendments make substantial changes to the payment claim process under the SOP Act. In light of the serious consequences of the SOP Amendment Bill for non-compliance with the SOP Act's requirements, it is vital that construction industry participants are familiar with the proposed changes.

Background

The Collins' Independent Inquiry into Construction Industry Insolvency in NSW report (published on 28 January 2013) considered a range of protections to safeguard the interests of subcontractors in light of the high level of insolvencies in the construction sector. The full report can be accessed here. 

The SOP Amendment Bill adopts some of the key recommendations of the Collins report, which were proposed in April by the NSW Government response to the Independent Collins Inquiry into the Insolvency in the NSW Construction Industry (a copy the NSW Government's response can be accessed here.

Proposed changes to SOP Act

All payment claims are claims under the SOP Act

The SOP Amendment Bill provides that a payment claim does not need to identify that it is a payment claim under the SOP Act, unless it is a claim related to a contract connected with an exempt residential construction contract.1

As such, a contractor will no longer need to state on its payment claim words to the effect that "this is a claim made under the Building and Construction Industry Security of Payment Act 1999". All payment claims that fall within the scope of the SOP Act will be claims under the SOP Act.

Due dates for payment of progress payments

The SOP Amendment Bill effectively establishes fixed due dates for payment of progress payments in place of the current SOP Act position, which allows the relevant contract to specify the due date for payment.

Currently, the SOP Act provides that a progress payment becomes payable on the date on which the payment becomes payable under the contract or, if the contract makes no express provision, on the date occurring 10 business days after a payment claim is made.
The SOP Amendment Bill provides that a progress payment to be made by a principal to a head contractor is payable on:

  • the date occurring 15 business days after a payment claim is made, or
  • an earlier date provided for in accordance with the terms of the contract.

The SOP Amendment Bill also provides that a progress payment to be made to a subcontractor, whether by a head contractor or at a lower level in the contracting chain, becomes payable:

  • on the date occurring 30 business days after a payment claim is made, or
  • an earlier date provided for in accordance with the terms of the contract.

Accordingly, if the SOP Amendment Bill is enacted, parties to a construction contract (as defined in the SOP Act) in NSW will effectively no longer be free to agree to the timing for payment of progress payments.

There is a limited exception to the proposed changes, being that the current SOP Act position will continue to apply to progress payments made under a construction contract that is connected with an exempt residential construction contract.

Payment claims must be accompanied by a supporting statement

The SOP Amendment Bill provides that a head contractor must provide a supporting statement (in a form to be prescribed by regulation) with each payment claim. The supporting statement must include a declaration that all subcontractors have been paid all amounts that have become payable for the construction work the claim relates to. A fine of up to 200 penalty units2 may be imposed if a head contractor does not provide a supporting statement.

Serious penalties imposed for false or misleading supporting statements

If a head contractor serves a supporting statement "knowing that the statement is false or misleading in a material particular in the particular circumstances", a fine and up to three months' imprisonment may be imposed.

Authorised officers may be appointed by the Department of Finance and Services to investigate head contractors' compliance with the supporting statement requirements. Head contractors may be required by an authorised officer to provide all information and documents relating to compliance with those requirements. A person who refuses or fails to provide this or provides false or misleading information may be subject to a fine and up to three months' imprisonment.

Implications and looking ahead

If enacted, the SOP Amendment Bill changes will not apply to construction contracts entered into before the amendments take effect. The timing for the amendments to take effect has not yet been set.

As payment claims under the SOP Act will no longer be clearly distinguishable from other claims for payment, industry participants will need to strengthen administrative mechanisms to ensure all payment claims are addressed in a manner that meets the SOP Act's requirements. Head contractors should also be acutely aware of the penalties that may be imposed for false or misleading statements that relate to the payment of subcontractors.

Further information

We will keep you updated on the progress of the SOP Amendment Bill and any further proposed amendments to the SOP Act.

Footnotes

1. An "exempt residential construction contract" is a construction contract for the carrying out of residential building work on premises the party for whom the work is carried out resides in or proposes to reside in.

2. A penalty unit is currently $110.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.