Significant amendments to the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act) were passed on 21 November 2018 and it is important that all builders and contractors understand the effect of these new amendments.
Although many of the changes are positive procedural improvements, in our view several new provisions suggest a move away from the simple object of ensuring cashflow toward the spectre of deeper industry regulation.
New Industry Regulation
The Amending Act grants ‘authorised officers’ from NSW Fair Trading or Department of Finance, Services and Innovation broad new powers of investigation, monitoring and enforcement on construction projects, including powers such as:
- Entering work sites where there is a reasonable suspicion of a breach of the Act e.g. head contractor failing paying sub-contractors;
- Obtaining search warrants;
- Requiring owners to provide reasonable assistance with the investigations;
- Information gathering powers during investigations, including from ‘persons of interest’;
- Seizure of goods in connection with any offence under the Act;
- Prescribe information that is required to be provided to a subcontractor when entering into a subcontract;
- Granting the Minister the power to establish, amend and repeal a code of practice for Authorised Nominating Authorities to regulate the Adjudication process across the differing nominating authorities.
The Act envisages the possibility of ever-expanding regulations to broaden the powers of regulatory authorities.
Presumably, this is to create a more transparent contracting process and mitigate the risk of insolvency of a head contractor affecting subcontractors.
Offences and Liability
The Amending Act provides additional offences and heavy penalties to ensure that builders and contractors comply with the Act and its regulations.
Additional offences include:
- Failing to comply with requirement to provide information;
- Giving false or misleading information;
- Obstruction of an Authorised Officer.
The regulations may also create offences for contractors that fail to provide certain information to a subcontractor, with a maximum penalty of 100 penalty units.
Personal liability for directors and other persons
Directors and officers of offending companies are now exposed to personal liability for any activity that causes or contributes to a contravention.
This personal liability of a director of an offending corporation potentially arises when a Head Contractor fails to submit a supporting statement with their payment claim, submits a false statement or an offence is committed in relation to retention money trust accounting.
Potential for Construction Trusts?
The Amended Act opens the possibility for regulations to allow subcontractors to establish and operate a construction trust account in which retention funds are held.
This amendment allows for the possibility for the NSW Act to emulate the Project Bank Account provisions in the QLD Building Industry Fairness (Security of Payment) Act 2017. The NSW Act refers to is as a Retention Trust Account but the Amending Act shifts the focus more towards benefiting the subcontractor in allowing them more control of their retention money, should the regulations provide for it.
What does this mean?
By establishing a more comprehensively regulated legislative framework for the building and construction industry, the Amending Act expands the SOP Act well beyond its original goal simply dealing with payment disputes.
The Amending Act appears to mirror and support the recent amendments to the Strata Schemes Management Act 2015, which provides similar investigative powers to authorised officers in relation to strata building matters.
At this stage, the full effect the Amending Act remains unclear. Nevertheless, it would be prudent for all contractors to have a rigid compliance system in place in the submission of payment claims and management of disputes.
Updates to existing provisions:
Other highlights of the amending Act include:
- Providing that a Payment Claim may be served on and from the last day of a month in which the contractor did work, clarifying confusion in relation to reference dates arising from the Southern Han Breakfast Point case;
- allowing service of a final payment claim where a contract has been terminated.
- Providing that progress payments may be made under the Act, despite any set contract milestone payments;
- Shortening of due dates for payment to 20 business days in the case of a payment to a subcontractor;
- Reintroduction of the mandatory requirement for the payment claims having to specifically state that they are being made under the Act (a good step);
- The ability to withdraw Adjudication Applications by notice any time before a determination is made;
- Claimants in liquidation are no longer able to issue or enforce a payment claim.
The full Amending Act is available here: https://legislation.nsw.gov.au/acts/2018-78.pdf
For further information about the Amending Act or making and/or responding to a Security of Payment claim please contact:
Lawyer, Nexus Law Group
+612 9016 0141
Principal, Nexus Law Group
+612 4961 0002
This publication is © Nexus Law Group and is for general guidance only. Legal advice should be sought before taking action in relation to any specific issues.