Security of Payment legislation (NSW) Industry Update:
March 2021 Countdown To Commencement of Residential Builders Access to Security Of Payments Adjudications.
From 1 March 2021, in what is a significant reform for the residential construction industry, residential builders will be able to utilise the Building and Construction Industry Security of Payment Act 1999 (NSW) (‘the SOP Act’) to obtain outstanding payments from owners.
This is a ‘gamechanger’ for residential builders and allows them access to a paper based adjudication system for resolution of payment disputes. The paper based adjudication system through the SOP Act is cheaper and quicker than proceeding through the tribunal and court systems. Builders will welcome this reform and owners will need to be on their toes to ensure that they don’t get caught out not complying with the strict timeframes for responses under the SOP Act.
Traditionally Residential Building Excluded From The SOP Act
From its inception the SOP Act has excluded the majority of residential builders from the payment recovery process set out in the SOP Act.
The SOP Act specifically did not apply to those construction contracts where an owner resided in or intended to reside in the residential premises being constructed.
From 1 March 2021
The Building and Construction Industry Security of Payment Regulation 2020 (‘the SOP Reg’) which was published on the NSW legislation website on 1 September 2020 will effect access for residential builders to the SOP Act from 1 March 2021, and enable residential builders to use that legislation to obtain outstanding payments from owners whether or not the owners reside in or intend to reside in the residential premises being constructed.
Resolving Payment Disputes Will Get A Lot Cheaper And Be Resolved More Expediently
Under the current regime, any disputes in relation to progress claims for residential building works are resolved in the NSW Civil and Administrative Tribunal, which has jurisdiction to determine claims up to $500,000, or the applicable court for any claims that exceed that amount.
Typically, the system involves many months of case management and culminates in a hearing to resolve the dispute. Debt recovery proceedings can also be complicated by owners seeking to cross-claim for amounts they allege may be owing to them (e.g. for alleged defective works), and the legal costs in advocating the matter, preparing evidence and running a hearing can be prohibitive to many builders.
Enter the system under the SOP Act from stage left to the rescue. Under the SOP Act there is a prescriptive system for:
- Making a payment claim;
- Responding to a payment claim;
- Resolving any payment claim disputes through a paper based adjudication system;
- Payment of money determined to be owing by the adjudicator;
- Obtaining payment where an owner is unresponsive and does not respond within the times prescribed by the SOP Act for a claimed payment.
The adjudication system through the SOP Act is often commonly referred to as a ‘pay now and argue later’ system, and is designed to deliver a quick and cost effective interim resolution of payment disputes. Following an adjudication determination any payments must be made within five business days, and if payment is not made an adjudication certificate can be obtained from an adjudicator, filed in court as a judgment debt and enforced.
Where To From Here
Builders should ensure that:
- Their contracts are drafted to permit them to make best use of the SOP Act;
- Their payment claims comply with the SOP Act provisions;
- They have systems in place to action the adjudication process set out in the SOP Act for any outstanding payment claims within the strict timeframes set out in the SOP Act.
Nexus can provide advice to you in relation to:
- The operation of the SOP Act;
- Systems that should be employed to manage the SOP Act deadlines;
- Payment claim and notices to be issued under the SOP Act;
- Adjudication applications under the SOP Act.
For more information about how Nexus Construction can help you manage your Security Of Payments,
please contact us on email@example.com
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