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Major upheavals proposed for NSW security of payment laws

The NSW Government has proposed a number of significant changes to the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act) through a bill[1] publicly released on 22 August 2018. There are proposed reforms to the SOP Act and also the associated regulations[2].

In this article we have identified 10 key proposed changes to NSW SOP laws as outlined below.  In Part 2, we will provide our view on the changes.

  1. Reference dates – establishing a monthly minimum entitlement to a progress payment

The reform seeks to overhaul the definition of ‘reference date’ to provide a minimum entitlement to a progress payment at least once per month.

Parties will have the freedom to agree that progress payment claims can be made more frequently (eg. every 1 to 2 weeks).

It also will include reference to ‘milestone payments’ (with a definition inserted into the SOP Act) by creating an entitlement that a reference date is the day immediately following the event or date on which the milestone is reached.

  1. Final progress payment – establishing an entitlement to a final progress payment after termination

The reform also includes a ‘final reference date’, where if the contract is terminated, this will be the day immediately after the day on which the contract is terminated.

This will establish a statutory entitlement for a party to make a final progress payment for work carried out (or related goods and services supplied) up to the date of termination.

Note: Where an entitlement to make a payment claim arises on the occurrence of a reference date, which may be determined by the contract, or if the contract is silent, is determined to be the last day of the month.

  1. Payment due dates – shortening the time for payment

The reform proposes changes to when progress payments become due and payable to head contractors and also subcontractors.

A table comparing the payment due dates under the SOP Act and the proposed changes is below.

  1. Payment Claims – compulsory requirement to include the wording that it is a claim made under the SOP Act

The reforms propose to re-introduce the requirement that all payment claims must include wording that it is a claim made under the SOP Act.

This compulsory requirement was removed in 2014, however the NSW Government considers reinstating the obligation to include this endorsement will add clarity to the practice of making progress payments under the SOP Act and remove any ambiguity.

  1. Supreme Court – power to sever and remit adjudication determinations

The reform proposes to allow the Court to sever part of an adjudication determination that is affected by jurisdictional error and remit the remainder of the decision to be redetermined by the adjudicator.

Currently in NSW, a findings of a jurisdictional error in the Supreme Court invalidate the whole of the adjudication determination.

  1. Corporations in liquidation – prevented from making any payment claims

The proposed changes will ensure that the SOP Act does not apply to a corporation in liquidation.

This means that a corporation in liquidation cannot serve a payment claim on any person or take any action (including commencing an adjudication application) to enforce a payment claim, this will include any application currently on foot.

  1. Trust Account records – subcontractors allowed to inspect records kept by the head contractor

The reform to the SOP Act and the Regulations makes allowance for a subcontractor entitled to retention monies to inspect the records held by the Head Contract (in addition to the powers given to the Small Business Commissioner already granted).

Inspection of the trust account records are on the following conditions:

  • The subcontractor can only inspect records that relate to retention money specifically held in trust on their behalf;
  • The head contractor is required to ensure the privacy and confidentiality of any retention money held for other parties in providing the subcontractor the ability to inspect the records; and
  • There is allowance for a fee to be imposed for the costs involved in providing access to records.

The aim of this proposed change is to be an additional safeguard to ensure head contractors are appropriately managing trust money. If a subcontractor is concerned about the management of trust funds after any inspection, they can raise this with Fair Trading for further investigation.

  1. Director’s liability – introducing accessorial and executive liability for breaches of the SOP Act

The reforms propose to introduce accessory and executive liability offences for breaching the SOP Act specifically in the following circumstances:

  • Not attaching a supporting statement to a payment claim;
  • Providing a false or misleading supporting statement;

Where a head contractor:

  • does not hold retention money on trust;
  • withdraws money from trust for a non-legitimate purposes;
  • fails to notify of overdrawn trust account;
  • fails to notify of closure of trust account;
  • fails to retain trust account records;
  • fails to provide information in response to a request;
  • provides false or misleading information.

The proposed penalty for any of the above is 1000 penalty units for a corporation, and 200 penalty units in any other case (a unit currently being $110.00)

  1. Code of practice – for authorised nominating authorities (ANAs)

The Minister will have the ability to make an enforceable code of practice (Code) for ANAs who are responsible for receiving adjudication applications and appointing adjudicators.

Failure to comply with the Code will attract a maximum penalty of 50 penalty units.

The Code will be drafted and released for public consultation in the near future.

  1. Authorised Officers – new investigation and enforcement powers

Currently an authorised officer can only be appointed for a specific purpose in investigating compliance with payment claims[7], the new reforms provide that authorised officer’s powers may be exercised to:

  • Investigate, monitor and enforce compliance with the SOP Act;
  • Obtain records or information connected with administering the SOP Act; and
  • Enforcing or executing the Act.

The above changes are consistent with the recommendations in the Murray Review[8] though not primarily created specifically to give effect to that review.

The NSW Government through the Building Ministers Forum are continuing to respond to the findings and recommendations of the Murray Review.

NSW Fair Trading is accepting public feedback on the proposed changes until 18 September 2018 for more information please click here: https://www.fairtrading.nsw.gov.au/about-fair-trading/have-your-say/security-of-payment-reforms

This is part 1 of our introduction to the proposed SOP Act Changes. We will share on our views on the changes in Part 2.

[1] Building and Construction Industry Security of Payment Amendment Bill 2018 (NSW) (Bill).

[2] Building and Construction Industry Security of Payment Regulation 2008 (NSW).

[3] Section 11(1A)(a) of SOP Act.

[4] See Schedule 1 [4] of the Bill at page 3.

[5] Section 11(1B)(a) of Ibid.

[6] See Schedule 1 [5] of the Bill at page 3.

[7] Section 13(7) and (8) of the SOP Act.

[8] Murray, J. (2017) Review of Security of Payment Laws: Building Trust and Harmony, Department of Jobs and Small Business, Canberra, Australia, December 2017 released on 21 May 2018.

Disclaimer: This publication by Morrissey Law & Advisory is for general information and commentary only and should not be considered or relied upon as legal advice. Formal legal advice should be sought in relation to any matters or transactions that may arise in relation with communication.