Home » The new Security of Payments landscape – critical changes to the NSW Legislation

The new Security of Payments landscape – critical changes to the NSW Legislation

Posted by Marcus McCarthy | 13 March 2014 | Civil Contractors and Construction

In response to the Collins Inquiry into Insolvency in the Construction Industry, the Government has passed the most significant amendments to the Building and Construction Industry Security of Payment Act 1999 (NSW) (‘the Act’ in more than a decade.

The changes reshape the construction landscape in NSW, affecting all stakeholders within it.

Key changes include, relaxing of payment claim notifications, response requirements, statutory payment terms, supporting statements and the distinct possibility of the imposition of Retention Trusts.

WHY IT MATTERS TO YOU

  • Payment Schedules have just become the most important documents in your business. There will no longer be the requirement to state an invoice is a Payment Claim under the Act. A such, every invoice received constitutes a Payment Claim and will need a proper Payment Schedule response within 10 business days if there’s any dispute about the claimed amount. If no Payment Schedule is served in time, a enforceable debt is potentially automatically created at the claimed amount.
  • Limitations on payment terms under contracts will be mandated. This means principals, head contractors and subcontractors will need to review their payment terms for compliance with the Act.
  • It will be necessary for each progress claim submitted by a head contractor to include a statement declaring all subcontractors have been paid in order for it to be valid.
  • The potential introduction of construction trusts will add further contract administration for head contractors.

SUMMARY OF CHANGES

These amendments will affect all construction work in the state, excluding some residential work and certain mining works. Accordingly, it is important that businesses in the construction industry fully understand and prepare themselves for the changes.

Payment terms

Under the reforms, maximum payment terms will be legislated. This means that head contractors are to receive payment from Principals (of the undisputed amount) within 15 business days of submission of a valid payment claim and must pay their subcontractors (the undisputed amount) within 30 business days after receipt of the payment claim from them. Payments will have to be made within those dates, even if the contract s dictates otherwise. To that extent that construction contract terms differ from this requirement, they will be invalid.

For any dispute as to the amount payable on claims, the usual processes under the Act and the contract continue to apply.
What remains to be seen is how financiers and banks deal with these significant changes, as principals on major projects often require the finance to be promptly received they are to meet the obligations. This may create difficulties for principals seeking to access monies to make payment to contractors within the 15 business day timeframe.

Changes to Payment Claims

Once the amendments come into effect, Payment Claims under the Act will no longer need words to the effect that ‘it is a payment claim under the Act’ on the claim. This means that every invoice or claim received by a contractor, subcontractor or supplier will need to be treated as a Payment Claim under the Act and a Payment Schedule will need to be issued each time the claimed amount is disputed. This means significantly more contract administration and a high degree of prudence will be required to avoid potential statutory liabilities to pay disputed amounts.

Accordingly, every time a disputed invoice is received, a properly particularised Payment Schedule outlining all the reasons for short payment should be served on (i.e. received by) the claiming party within 10 business days of receipt of the claim.

Supporting Statements

Another major change is the requirement to have Supporting statements attached to each payment claim made by a head contractor, confirming subcontractors have been paid all amounts owing that are not disputed. It will be important for contractors to review the forms and systems they use to ensure that the statements they currently use comply with the new provisions and forms provided by the Act. These statements must be served with the payment claim on the principal, further it is an offence to supply false or misleading information in the statement. This will require careful administration to ensure head contractors and their staff avoid potential civil and criminal penalties.

Retention Trusts

The legislation also paves the way for retention trusts to hold retention monies. More details on this are likely to be released with the regulations. This may involve substantial compliance and administration overlays.

Commencement

The date the amendments will come into effect has not been announced at the time of this article.

These are difficult changes to implement and administer effective and legal support from industry specialists in this area is recommended.

If you have any further questions about the changes to the Act, security of payment legislation or other issues around construction and infrastructure projects, contact our Construction Team on +612 4961 0002 | +612 9016 0141.

This publication is © Nexus Lawyers Pty Ltd and is for general guidance only.  Legal advice should be sought before taking action in relation to any specific issues.

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