The Building and Construction Industry Security of Payment Amendment Act 2018 No 78 (NSW) (Amendment Act) has come into force today, 21 October 2019, bringing with it substantial changes to the Building and Construction Industry (Security of Payment) Act 1999 (NSW) (Act).

Construction contracts entered into on or after this date will be subject to the below reforms. Construction contracts entered into before this date will be subject to the old regime.

Some of the amendments which will have significant impact on the construction industry include:

Payment claims must be endorsed

The Amendment Act once again makes it necessary for claimants to state that a payment claim is made pursuant to the Building & Construction Industry (Security of Payment) Act 1999 (NSW) (new section 13(2)(c)).

For contracts entered into after 21 October 2019, an invoice which does not include the words “This is a payment claim made pursuant to the Building and Construction Industry (Security of Payment) Act 1999 (NSW)” will not be a valid payment claim.

Reference dates are abolished

Reference dates, one of the most heavily litigated aspects of the Act, have been abolished.

For contracts entered into after 21 October 2019, a payment claim may be served on and from the last day of the named month in which the construction work was first carried out and each subsequent named month (new section 13(1A)), or alternatively, if the contract makes provision for an earlier date, then it may be served on and from that date (new section 13(1B)).

Section 8, allowing a person under a construction contract the right to receive a progress payment, is also amended to remove the requirement that a reference date has arisen.

If a construction contract is terminated, a payment claim may be served on and from the date of termination (new section 13(1C)).

Section 13(5) of the Amendment Act also allows contracting parties to serve payment claims more than monthly, or specifically, as provided for in the construction contract.

Owner-occupier contracts are excluded under the Regulations

Residential works are still largely excluded, however it appears that extending the Security of Payment regime to also apply to residential works may be something Parliament will consider in the future. This is because the restriction on the Act applying to residential works has now been placed into the Regulations (which are easier to change) rather than the Act itself.

The Amendment Act deletes section 7(2)(b) of the Act which exempted construction contracts for the carrying out of residential building work within the meaning of the Home Building Act 1989 (NSW). Instead, the Regulations now deal with the definition of an “owner occupier” contract rather than an “exempt residential construction contract”.

An owner occupier construction contract has been defined as a construction contract for the carrying out of residential building work within the meaning of the Home Building Act 1989 (NSW), on such part of any premises as the party for whom the work is carried out resides or proposes to reside in.

This amendment does not change the status-quo as the Act has never applied to residential construction projects where the owner (or Principal) either resides in the property, or intends once construction is complete to reside in the property, however it leaves the door open for the Act to be expanded in the future.

Payment times under subcontracts are shortened

Section 11 (1B)(a) currently provides that a progress payment made under a subcontract become due and payable 30 business days after it is submitted; for contracts entered into after 21 October 2019, the time for payment has been reduced to 20 business days.

Withdrawal of adjudication application

A claimant’s rights surrounding adjudication applications are now part of the legislation, with a new provision section 17A allowing an application to be withdrawn at any time before an adjudicator is appointed, or before they make their determination. However, and critically, if the respondent objects to the withdrawal, and if the adjudicator determines it is in the interest of justice to uphold the objection, the adjudication will proceed. This requires adjudicators to consider the purpose of the legislation, and balance it against both the claimant’s and respondent’s rights in all of the circumstances.

Additional powers of the Court to identify and sever jurisdictional error

The new section 32A of the Amendment Act allows the Supreme Court to sever and void any part of an adjudicator’s determination found to contain jurisdictional error, but leave the balance (to the extent possible) as enforceable.

This has the potential to greatly reduce the number of adjudication determinations set aside by the Supreme Court. Previously, in accordance with the Supreme Court’s decision in Multiplex Constructions Pty Ltd v Luikens & Anor [2003] NSWSC 1140, if a party was able to convince the Supreme Court any part of an adjudication determination was affected by jurisdictional error, the entire determination was unenforceable.

Claimants in liquidation cannot seek relief under the Act

The Amendment Act introduces section 32B, which expressly provides that a corporation in liquidation cannot serve a payment claim under the Act, take action to enforce a payment claim including by way of adjudication, or enforce an adjudication determination (new section 32B(1)).

Similarly, should a corporation enter into liquidation, and an existing adjudication is not finally determined immediately before the day on which it commenced to be in liquidation, the application will be taken to have been withdrawn on that day (new section 32B(2)).

Other notable amendments regarding compliance and penalties

Part 3A of the Amendment Act introduces a raft of investigative, compliance and penalty measures under the Act. Division 3 provides for the power of authorised officers to enter and search premises with or without the authority of a search warrant (however residential premises will require the permission of the occupier), if they believe on reasonable grounds that a requirement under the Act is being contravened.

New section 32E allows for extraterritorial application of notices under the Act, so long as the construction work was carried out in New South Wales, or to related goods and services supplied within New South Wales.

Various penalties are codified for offences under the Act and for contravening compliance requirements. For a corporation, these range from 40 penalty units for failing to comply with a requirement of the Act, to 500 penalty units for providing false or misleading information. Further, directors may commit an offence if a corporation does so under the Act, and that person assisted or conspired to facilitate the offence. These are not insignificant measures.

Of note is also new section 35(4), which creates an offence for failing to provide information required by the regulations to a subcontractor when entering into a subcontract, with a penalty of up to 100 penalty units.