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Hot off the press: Draft Security of Payment Amendment Bill 2018 released for public comment

On 21 August 2018, the New South Wales Government released the Building and Construction Industry Security of Payment Amendment Bill 2018 (the Amendment Bill) which is open for public comment until 18 September 2018 and which proposes a number of amendments to the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act).

The proposed reforms in the Amendment Bill “are designed to provide greater protection for subcontractors and promote cash flow and transparency in the contracting chain”.

A number of the proposed reforms are consistent with the Commonwealth Government’s recent review of the Security of Payment legislation throughout Australia and recommendations subsequently made by Mr John Murray AM in his final report which was released on 21 May 2018.

KEY AMENDMENTS TO THE ACT

Some of the key proposed amendments are as follows:

  1. Minimum monthly entitlement to a progress payment – that there will be a statutory minimum entitlement under the Act for at least one progress claim to be issued per month, with additional provisions covering the entitlement to issue a progress claim on a single/one-off payment basis, on a milestone basis and also after a contract has been terminated (the current position is that no reference date arises after termination of a contract given the High Court’s recent decision in Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd [2016] HCA 52);
  2. Shortening payment due dates – payments to head contractors will be required to be made within 10 business days, and in the case of a subcontractor, payment will be required within 20 business days after the date on which a progress claim has been served (the current position is 15 business days for head contractors and 30 business days for subcontractors);
  3. Allowing inspection of trust account records – a subcontractor will be able to inspect records in relation to retention money held by a head contractor in trust on the subcontractor’s behalf;
  4. Endorsement of payment claim – the “magic words” will be required to be reinstated into payment claims, where an endorsement will be required if a claim is intended to be made under the Act (this requirement was removed in 2014 following the Collins Inquiry);
  5. Adjudicator to determine applications within 10 business days – the trigger for the timeframe for an adjudicator to provide their determination will be after the adjudicator has received an adjudication response, as opposed to after the adjudicator has notified the parties of their acceptance of the application which is the current position;
  6. Prohibiting a corporation in liquidation from making payment claims – a corporation in liquidation will not be able to serve a payment claim or take any action to enforce a payment claim, or an adjudication determination; and
  7. Reducing the threshold for retention money trust requirement – head contractors will be required to pay retention moneys into a trust account for projects with a value of $10million or more, as opposed to $20million (this is a proposed amendment to the Building and Construction Industry Security of Payment Regulation 2008 (NSW)).

IMPACT OF THE AMENDMENTS

If the proposed amendments are introduced, a number of changes will be required in the administration of construction contracts and also for adjudication procedures. For example:

  1. If a head contractor proposes in its subcontract agreement to pay a subcontractor within 30 business days after the subcontractor issues a progress claim, that provision would likely be construed as contracting out of the Act, given the operation of section 34 of the Act and would therefore be void; and
  2. If a head contractor or a subcontractor intends to utilise the Act for the purposes of adjudication and does not endorse its claim as being made under the Act, the effect of this may be fatal in that the adjudicator would not have jurisdiction to determine an application.

WHATS NEXT

Submissions are able to be made on the proposed reforms by 18 September 2018 and further details on the reforms themselves and the submission process can be obtained from the following link:

https://www.fairtrading.nsw.gov.au/about-fair-trading/have-your-say/security-of-payment-reforms

Kreisson will be writing further in relation to the proposed reforms and will also be making submissions to the State Government. A survey will be circulated shortly seeking client feedback on the proposed reforms, which will assist in that submission.

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