Despite its ubiquity over the past 15 years the Building and Construction Industry Security of Payments Act 1999 (NSW) (“the Act”) has recently been amended by the New South Wales government in response to the Collins Inquiry. The amendments came into force on 21 April 2014 and are aimed at:
1. Streamlining cash flow in the building industry and relieving financial pressure on subcontractors where some subcontractors had to wait 90 + days for payments.
2. Ensuring head contractors pay their subcontractors before claiming money from principals themselves.
Despite these somewhat simple objectives the Amendments have resulted in many changes to the operation of the Act and it is important for all stakeholders in the construction industry to obtain proper legal advice about their project management and payment functions in light of such changes.
Major changes to the Act include but aren’t limited to:
1. The Act now differentiates between head contractors and sub-contractors (and imposes slight varied obligations on them) and construction contracts in connection to exempt residential construction contracts.
2. The Act does not apply to construction contracts directly with owners who will live in or intend to live in the dwelling being constructed.
3. The Amendments to the Act have removed the requirement to state: “This payment claim is made under the…. Act” in certain circumstances, effectively broadening what could be deemed a payment claim under the Act.
4. Due dates for payment of payment claims have been amended:
• For principals to pay head contractors: 15 business days (maximum, can be contracted to lesser period).
• For head contractors to pay sub-contractors: 30 business days (maximum, can be contracted to lesser period).
• For construction contracts in connection to exempt residential construction contracts: date specified in the contract or if no express provision, 10 business days.
5. Head contractors must also now provide a “Supporting Statement” to the principal when providing a payment claim that requires them to declare they have paid their sub-contractors the amounts that are due. If such a Supporting Statement is not provided to or is false, a fine of up to $22,000 may apply.
The Amendments have also affected the way documentation should be prepared and examined by industry participants:
1. Payment claims: all invoices are now potentially payment claims given that it does not need to state “it is made under the … Act”.’
– Payment claims must still however specify the work they relate to, and the claimed amount.
– Head contractors must now provide a “Supporting Statement” with their payment claims.
2. Payment Schedule: Must respond to all invoices within 10 business days, otherwise the claimed amount will be due on the due date. Also, limited defences are available at adjudication.
Though the Amendments have only resulted in minor changes to documentation requirements and procedure it is important for all industry participants to ‘get across’ the changes quickly and to have their documentation reviewed properly by a qualified solicitor.
This is admittedly a complex Act which despite its 15 year history is often poorly understood and implemented by many industry participants. It has serious implications for cash flow and solvency of any business in the construction industry and proper advice should be sought in order to ensure industry participants are properly protected and more importantly properly taking advantage of their rights under the Act.
For more information or assistance contact the Dispute Resolution, Insolvency & Reconstruction Team
Stipe Vuleta – Practice Leader
M 0499 977 433