In response to the Collins Inquiry into Insolvency in the NSW Construction Industry, the NSW Government is in the process of implementing legislative reforms set to have significant implications for anyone operating in the construction industry in NSW.
The first tranche of amendments to the Building and Construction Industry Security of Payment Act 1999 (NSW) (the “NSW Act”) received Royal Assent in November 2013 and the new laws will commence at a date set by proclamation, which is anticipated to be within the first quarter of 2014. The Government is engaging in further industry consultation prior to the commencement date – but the commencement of the legislation is imminent.
The new laws will only apply to construction contracts entered into after the commencement of the amending legislation, and will only apply where the construction work is to be carried out in NSW.
The amendment increases the scope of protection for subcontractors, and it is important that those using the Act are aware of the changes. If you are a principal or a head contractor and you are not ready, you risk exposure to significant new financial penalties and, in the case of a head contractor, potential exposure to criminal sanctions including imprisonment.
Payment claims will not need to state that they are made under the NSW Act.
This is the most controversial change to the NSW Act, and poses significant risks for the unwary.
Once the amendments take effect any progress claim for payment in relation to a construction site in NSW could potentially be a payment claim under the NSW Act, with significant rights attaching to it, including the right to adjudication and the risk of summary judgment for failure to serve a payment schedule on time.
The requirement for endorsement with words stating that the payment claim is a payment claim under the Act has been removed for all payment claims except for a claim under a contract connected with an exempt residential construction contract.
The requirement for endorsement has previously put respondents to the claims on notice of their obligations. The Collins Inquiry found that this requirement has led to an under-utilisation of the scheme, as the statement is seen by some as a signal of a possible dispute. The removal of the requirement means that any invoice is a potential payment claim. However, as always you will only need to respond if you do not intend to pay the claim.
Failure to respond to a payment claim in strict accordance with the legislation will preclude you from responding to the claim based on its merits, and, if you do not pay the claim, failure to respond will entitle the claimant to stop work and may result in a summary judgment being entered against you (see our previous eBrief). It is anticipated that the number of adjudications will increase significantly as a result of this change.
The supporting statement
It will soon be an offence for a head contractor to fail to supply a supporting statement (to serve a false or misleading statement) when serving a payment claim on a principal.
A supporting statement will include a declaration from a head contractor to a principal that subcontractors have been paid what is due and payable in relation to the construction work concerned. It is too early to tell exactly what will be required in the supporting statement or what form it will take. This will be prescribed by the Regulations, which will not come into effect until after further industry consultation. It is anticipated, however, that the Regulations will consolidate supporting statement requirements with existing legal obligations relating to payroll tax, workers compensation and employee remuneration. If this consolidation of requirements eventuates, additional administrative pressures will be placed on head contractors to comply with the new requirements.
If a head contractor fails to supply a supporting statement, the maximum penalty will be $22,000. If a head contractor knowingly serves a supporting statement that is false or misleading, the maximum penalty will be $22,000 or imprisonment for 3 months – or both.
Authorised officers are given sweeping new powers under the legislation to investigate compliance with the provisions regarding the supporting statements. The authorised officers will be able to compel a head contractor, or an associated person, to provide information or documents relating to the compliance issues by notice in writing. Significantly, a person is not excused from providing the information or document on the ground that it may tend to incriminate the head contractor. Refusal or failure to comply, where the person is capable of compliance, will carry a maximum penalty of $22,000 or imprisonment for 3 months — or both.
Mandatory time periods for when progress payments become due and payable
The amended legislation introduces strict time frames for when progress payments become due and payable. In the current (pre-amendment) legislation payment is due on the date specified in the contract between the parties or, if not specified, within 10 business days of the date the claim was made.
The amended legislation prescribes that payment will be due:
- 15 business days after a payment claim is made by a head contractor to a principal;
- 30 business days after a payment claim is made by a subcontractor to a head contractor; or
- at an earlier date as provided for under the contract between the parties.
You will need to ensure that your contracts do not prescribe a later date than the timeframes listed above, as any clauses prescribing a later date will be of no effect.
Go? Not quite yet…
There are still a number of issues to be addressed before the commencement of the legislation, which is anticipated to be by April 2014. Industry consultation continues as to the scope of the new Regulations. The amendments explored in this eBrief are just the first tranche in what is set to become the most significant change to the legislation since its introduction over 14 years ago. The building and construction dispute team at Meyer Vandenberg Lawyers can assist you by reviewing your contracts and payment processes to ensure they comply with the new Act.