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Potential upheaval of security of payment laws in NSW: 6 key changes proposed

Is it back to the future or a brave new world with the latest changes to the security of payment regime in NSW?

What’s happened?

Earlier this year, NSW Fair Trading released a consultation paper on proposed draft changes to the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act) open for comment until 18 September 2018 (Consultation Paper).

In response to this Consultation Paper process, the NSW Government released the Building and Construction Industry Security of Payment Amendment Bill 2018 (Bill) on 24 October 2018.

This Bill passed the NSW Legislative Council on the same day.

Interestingly, many of the proposals that were contained in the draft Consultation Paper have been changed or removed completely from the latest Bill.

With all these changes up for discussion in the past few months, we have picked out 6 key changes in the latest Bill that you need to know with the upcoming changes to SOP Laws.

  1. ‘Reference dates’ will be removed for entitlement to claim

Under the Bill a new section 8 will be inserted stating:

a person…under a construction contract, (who) has carried out construction work or to supply related goods and services is entitled to receive a progress payment”.

This removes the requirement for a reference date to be entitled to a progress payment.

  1. Progress payments due date

Section 11(1B)(a) will be replaced with payment claims due and payable to Subcontractors payable within 20 instead of 30 Business Days after the claim is made (or earlier if provided in the contract).  This will have significant impacts around financing for construction projects, including on financiers when assessing the value of works completed.

  1. Service of payment claims

New proposed sections 13(1)(1A) to (1C) will be inserted which will allow for payment claims to be served on and from the last day of the month where construction works have occurred or when materials are supplied under the contract. Additionally, on and from the last day of each subsequent month (unless the contract provides for an earlier date).

Where a contract is terminated, a payment claim may also be served on and from the date of termination.

  1. “Made under this Act”

In a case of history repeating, Section 13(2)(c) will be replaced for the requirement that all payment claims must state that it is made under the Building and Construction Industry Security of Payment Act 1999 (NSW) bringing back a requirement which was previously removed in 2014.

  1. Removal of ‘exempt residential construction contract’ definition

The Act currently in its current form at section 7(2)(b) expressly states that it does not apply to ‘residential building works within the meaning of the Home Building Act 1989’, defined as “exempt residential construction contracts”.

Under the latest Bill, this definition “exempt residential construction contracts” will be replaced and the word “residential” wherever occurring will be removed from the Act.

The new definition of “exempt construction contract” will mean a construction contract prescribed by the regulations under section 7(5) as a construction contract to which the Act will not apply.

We anticipate the proposed changes to the regulations will be released shortly to clarify the application of the Act.

  1. Adjudication process updates

Section 17(2) is proposed to be amended so that a claimant must “serve written notice” rather than “notify” the respondent within 20 Business Days immediately following the due date for payment of the claimant’s intention to apply for adjudication.

A new section 17A will also be inserted where a claimant may also withdraw an adjudication application at any time before an adjudication determination by serving notices on the respondent, adjudicator and authorised nominating authority.

However, if there is an objection to this withdrawal, the adjudication can uphold the objection if it is the best interests of justice.

An adjudicator is also to determine an adjudication application, within 10 Business Days after the date on which the respondent lodges a response (if it is entitled to under section 20) or in any other case, the date on which the adjudicator’s acceptance of the application is served on the claimant and the respondent.

As unchanged in the Consultation Paper, the Bill also proposes a new section 32A and 32B that any proceedings where the Supreme Court finds that a jurisdictional error has occurred in relation to an adjudicator’s determination, the Court may make an order to set aside the whole or part of any determination.

A corporation in liquidation also cannot serve a payment claim or seek an adjudication determination.

A number of proposals mentioned previously, including the increased penalties for non-compliance with the Act, Director’s executive and accessorial liability for breaches of the Act, NSW Fair Trading powers and an authorised nominating authorities code of practice all remain the same. A link to these changes is in our previous article here.

If you have any questions regarding your obligations under the new reform, please do not hesitate to contact Morrissey Law + Advisory.

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.