Security of Payment Act – Return of the Magic Words & 8 Other Key Amendments

NSW Update: Building and Construction Industry Security of Payment Act 1999

Like all good things, change has come to the Building and Construction Industry Security of Payment Act (“the Act”), with effect to building contracts entered into from 21 October 2019.  The amendment comes on the back of the Jim Murray AM report into subcontractor payment disputes.

While the words of Don Draper, the colourful fictional advertising executive with an enlarged liver who appeared in the award winning TV serial Mad Men, could be paraphrased as change to the Act is neither bad nor good, it simply is – he didn’t ever have to deal with construction payment disputes and the amendments to the Act are largely an improvement in a number of respects.

This is not a review of all amendments many of which are by way of clarification only and we discuss in this update some of the key changes, being:

  1. A return to the requirement that payment claims identify that they are made under the Act – containing the ‘magic words’ – this is a payment claim made under the Act.
  • Abolition of the term “reference date”, but do not fear the statutory right to monthly payment claims and resolution of disputes via a paper based adjudication system remains.
  • Reduction in the prescribed statutory maximum payment terms for subcontractors from 30 business days to 20 business days.
  • Increase in the maximum penalties for a number of provisions.
  • Ability to withdraw an adjudication application up until the issuance of a determination.
  • Increase in the time that adjudicators have to make determinations.
  • Statutory powers for the Supreme Court to set aside adjudication determinations in part where there is a jurisdictional error and confirm parts of an adjudication determination not affected by jurisdictional error.
  • Claimants in liquidation cannot utilise the Act or enforce adjudication determinations.
  • Enforcement powers to investigate, search and interrogate breaches of the Act have been expanded.

Amendment 1: The Magic Words

The amendment to the Act in 2014 removed the requirement that payment claims contain an endorsement that they are made under the Act.  That change was made in response to the Collins Inquiry Report to the NSW Government which found that subcontractors were unwilling to use the Act if Payment Claims needed that endorsement.

The absence of the endorsement did lead to confusion over what was intended to be a payment claim for the purposes of the Act and we have now turned full circle and payment claims now need to again contain an endorsement that they are made under the Act.

Amendment 2: Abolition of the terminology “Reference Date”

The terminology “reference date” has been removed.

Under the amended Act a payment claim can be made:

  1. Monthly;
  2. On the last day of the named month in which the construction work was carried out and the last day of each subsequent month;
  3. On an earlier date if the contract so provides.

If a contract has been terminated one more payment claim may be served on and from the date of the termination.

Amendment 3: Reduction in the prescribed statutory maximum payment terms for subcontractors

The payment terms for subcontractors has been reduced from 30 business days from 20 business days.

There is still an opportunity for parties to agree on shorter payment terms in a contract, however, payment terms for subcontractors cannot exceed 20 business days.

Amendment 4: Increase in maximum penalties

A number of penalty provisions have been increased and now include a maximum penalty for corporations, e.g.:

  1. Head Contractor not serving a supporting statement (individual $22,000, corporation $110,000);
  • Head Contractor serving a supporting statement known to be false or misleading (individual $22,000, corporation $110,000).

Executives (directors and persons holding a management position) can now also be individually liable for supporting statement offences where:

  1. The person knew that the offence would be or is being committed or is recklessly indifferent as to whether it would be committed; and
  • The person fails to take all reasonable steps to prevent or stop the commission of the offence.

(maximum penalty $22,000).

Amendment 5: Withdrawal of Adjudication Applications

A claimant may now withdraw an adjudication application at any time prior to the adjudication being determined.

Where an adjudicator has been appointed, however, the respondent may object to the withdrawal and the adjudicator has the power to uphold the objection in the interests of justice.

Amendment 6: Increase in Time for Adjudication Determinations

The time for an adjudicator to determine an application now no longer runs from acceptance of the appointment, instead the adjudicator has 10 business days to determine an adjudication from the respondent lodging a response, or if a response is not lodged from the end of the period within which the respondent was entitled to lodge a response.

Amendment 7: Supreme Court Review of Adjudications

The Supreme Court now has a statutory power in the Act to review adjudication determinations where there is a jurisdictional error and may either set aside the whole or part of an adjudication determination.

The Supreme Court may also confirm the part of an adjudication that is not affected by jurisdictional error.

Accordingly, if an adjudicator’s determination is affected by jurisdictional error it may not be fatal to the entire adjudication determination.

Amendment 8: Claimants in Liquidation can’t use the Act

A corporation in liquidation cannot serve a payment claim or take action to enforce a payment claim or an adjudication determination.

If an adjudication application hasn’t been fully determined prior to the commencement of the liquidation then the application is taken to have been withdrawn when the company goes into liquidation.

Amendment 9: Enforcement powers to investigate, search and interrogate

The amended Act provides for authorised officers to be appointed to:

  1. Investigate, monitor and enforce compliance with the requirements of the Act;
  2. Obtain information or records connected with the administration of the Act; and
  3. Administer or execute the Act.

In this brave new world the officers have powers to enter non-residential premises without a warrant and make necessary inspections, examinations and seizures of evidence.

Authorised officers can also direct provision of specified information or records by notice in writing or require a person to attend an interview.

The maximum penalties to refuse to comply with the officers’ investigation, or for provision of false or misleading information are:

  1. $44,000 for a corporation; or
  2. $22,000 for an individual.

In addition, directors and managers that aid or abet, conspire with, or knowingly are party to the commission of an offence in relation to the officers’ investigation may be liable for penalty and the maximum penalties that apply are $22,000.

If you have any queries or require any assistance in relation to payment claims for construction work under the Act please do not hesitate to contact:

Ben Robertson, Partner, National Dispute Resolution: Building and Construction

Email: ben.robertson@madisonmarcus.com

Phone: (02) 8022 1222 | Direct line: (02) 9921 0520

Nicolas Rovolas, Special Counsel, National Dispute Resolution: Building and Construction

Email: nicolas.rovolas@madisonmarcus.com.au

Phone: (02) 8022 1222 | Direct line: (02) 8022 1269

The content of this article is intended to provide a general guide to the subject material that is discussed here and does not constitute legal advice.

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