Amendments to the Building and Construction Industry (Security of Payment) Act 1999 (NSW) (Act) were passed by both houses of parliament in November 2018.  The NSW Government has finally released its proposed amendments to the Security of Payment regulations for public consultation (Proposed Amendments).

In our May SOP update we outlined the 7 key changes to the Security of Payment landscape introduced by the amendments to the Act.

Our June SOP update looks into the Proposed Amendments and their likely impact on industry participants, particularly those in charge of companies.

The Proposed Amendments focus on three key areas:

  1. Application of the Act to Owner-Occupier construction contracts;

  2. Personal liability of directors for certain offences committed by a corporation; and

  3. A number of offences for which penalty notices may now be issued.

Owner-Occupier contracts

Currently, the Act does not apply to any construction contract prescribed as exempt by the regulations[1].

These contracts are:

  • Construction contracts that form part of a loan agreement, a contract of guarantee, or a contract of insurance under which a financial institution undertakes to lend money, guarantee payment of money or provide an indemnity;
  • Construction contracts for residential building work where the principal resides in or proposes to reside in the property where the works are done; and
  • Construction contracts where the amount payable for the work or goods supplied is not calculated by reference to the value of the work carried out.

Under the Proposed Amendments and the amendments to the Act, the above exemptions will be omitted and replaced by an exemption for an owner-occupier construction contract, which maintains the status quo under the existing legislation (where owner-occupiers cannot be subject to a claim under the Act).

Offences and penalty notices

Under the Proposed Amendments to the regulations, penalty notices could be served on parties that commit the following offences under the Act:

  • Where a head contractor serves a payment claim on a principal without a supporting statement that indicates that it relates to the payment claim[2] the corporation can be liable to pay a penalty of up to $11,000 ($2,200 for an individual).
  • The following offences carry a maximum penalty of $5,500 ($1,100 for an individual)
    • Not complying with a payment withholding request issued by a claimant in adjudication proceedings[3].
    • Where a claimant whose adjudication application is determined does not serve a copy of the determination on the principal contractor[4].
    • Where a claimant who issues a payment withholding request in connection with an adjudication application does not give written notice of their adjudication application being withdrawn within 5 business days of it being withdrawn[5].
    • Where a respondent does not comply with an adjudicator’s direction to provide information to the claimant regarding the identity of any person who is a principal contractor in relation to the claim[6].

Under the Proposed Amendments to the Regulations, penalty notices could be served on parties that commit the following offences under the Regulations (each offence carries a maximum penalty of $11,000 for a corporation or $2,200 for an individual):

  • Where a head contractor fails to hold retention money in a trust account for its subcontractors[7];
  • Where a head contractor does not comply with its retention money trust account (RMTA) obligations [8];
  • Where a head contractor withdraws from a RMTA except as allowed under regulation 8[9];
  • Where a head contractor fails to notify the Secretary (Commissioner for Fair Trading, Department of Finance, Services and Innovation) that one of its RMTAs is overdrawn within 5 days of it becoming overdrawn[10];
  • Where a head contractor fails to notify the Secretary, within 14 days, of the closure of one of its RMTA[11];
  • Where a head contractor fails to maintain appropriate retention trust money account records [12]; and
  • Where an entity fails to comply with a direction of the Secretary to provide information[13].

Personal liability of directors

Under the amendments to the Act, section 34D allows for the piercing of the corporate veil and provides the circumstances in which directors can be found personally liable for the actions of a corporation.

Directors could be found personally liable for the offences under the Regulations outlined above, and also for a breach of regulation 17 of the Regulations.

Regulation 17 relates to the provision of false or misleading information to the Secretary and carries a maximum penalty of $22,000.

If you require any assistance with security of payment matters or have any questions regarding your rights and obligations please contact Morrissey Law & Advisory.


Relevant sections of the Act & Regulations Documents:
[1] Section 7(5) of the Act; [2] Section 13(7) of the Act; [3] Section 26A(5) of the Act; [4] Section 26B(5) of the Act; [5] Section 26D(3) of the Act; [6] Section 26E(2) of the Act; [7] Reg 6(1) of the Regulations; [8] Reg 7(3) of the regulations; [9] Reg 8(1) and (2) of the Regulations; [10] Reg 11 of the Regulations; [11]Reg 12 of the Regulations; [12] Reg 14(1) and (2) of the Regulations; [13] Reg 15(3) of the Regulations.

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.