It’s almost time: Amend­ments to the Build­ing and Con­struc­tion Indus­try Secu­ri­ty of Pay­ment Act 1999 (NSW) to com­mence on 21 Octo­ber 2019

The Build­ing and Con­struc­tion Indus­try Secu­ri­ty of Pay­ment Act 1999 (NSW) (the Act) is about to under­go some changes. Those changes will apply to con­struc­tion con­tracts in New South Wales entered from 21 Octo­ber 2019

What are the changes?

Ref­er­ence dates are gone

There are no more ref­er­ence dates. The con­cept of a ref­er­ence date’ will be removed from the Act, so that a per­son a per­son who has under­tak­en to car­ry out con­struc­tion work, or to sup­ply relat­ed goods or ser­vices, under a con­struc­tion con­tract is gen­er­al­ly enti­tled to a progress pay­ment on a month­ly basis. 

Sub­con­trac­tors get paid sooner

A progress pay­ment to be paid to a sub­con­trac­tor under a con­struc­tion con­tract is due and payable no lat­er than 20 (instead of the cur­rent 30) busi­ness days after the sub­con­trac­tor makes a pay­ment claim for the pay­ment. There is no change to the require­ment for a progress pay­ment to be made by a prin­ci­pal to a head con­trac­tor no lat­er than 15 days after the head con­trac­tor makes a progress claim. This leaves a buffer of only 5 days if the head con­trac­tor is wait­ing for pay­ments from the prin­ci­pal to pay subcontractors. 

Records of reten­tion mon­ey trust accounts poten­tial­ly avail­able to subcontractors

The Act will pro­vide that reg­u­la­tions can be made deal­ing with the inspec­tion, by sub­con­trac­tors enti­tled to reten­tion mon­ey, of records kept in con­nec­tion with the oper­a­tion of a reten­tion mon­ey trust account. 

Pay­ment claims can be served after termination 

Sev­er­al cas­es have con­sid­ered whether pay­ment claims can be served after ter­mi­na­tion of a con­struc­tion con­tract. Most recent­ly, the posi­tion has been that they can­not. The Act will now express­ly pro­vide clar­i­fi­ca­tion that in the case of a con­struc­tion con­tract that has been ter­mi­nat­ed, a pay­ment claim may be served on and from the date of termination. 

SOPA state­ments to go back on pay­ment claims

Pay­ment used to have to include a state­ment that they were made under the Act. That require­ment was removed from 21 April 2014. Now it’s back. From 21 Octo­ber 2019, there will be a require­ment that a pay­ment claim must state that it is made under the Act. 

Increas­es in penal­ties for corporations 

The amend­ed Act will include an increase of the penal­ty for a cor­po­ra­tion, that is a head con­trac­tor, who breach­es the pro­hi­bi­tion in sec­tion 13(7) of the Act not to serve a pay­ment claim on the prin­ci­pal unless the claim is accom­pa­nied by a sup­port­ing state­ment that indi­cates that it relates to that pay­ment claim. Penal­ties go up from 200 penal­ty units (cur­rent­ly $22,000) to 1,000 penal­ty units (cur­rent­ly $110,000).

There will also be an increase to the penal­ty for a cor­po­ra­tion that is a head con­trac­tor who breach­es the pro­hi­bi­tion in sec­tion 13(8) of the Act not to serve a pay­ment claim on the prin­ci­pal accom­pa­nied by a sup­port­ing state­ment know­ing that the state­ment is false or mis­lead­ing in a mate­r­i­al par­tic­u­lar in the par­tic­u­lar cir­cum­stances, from 200 penal­ty units to 1,000 penal­ty units. 

Per­son­al lia­bil­i­ty for direc­tors and managers

Exec­u­tive liability

Direc­tors and man­agers will face per­son­al lia­bil­i­ty. An offence against either of sec­tion 13(7) or 13(8) of the Act com­mit­ted by a cor­po­ra­tion is an exec­u­tive lia­bil­i­ty offence’ attract­ing exec­u­tive lia­bil­i­ty for a direc­tor or oth­er per­son involved in the man­age­ment of the cor­po­ra­tion who knows the offence would be or is being com­mit­ted or is reck­less­ly indif­fer­ent to it and fails to take all rea­son­able steps to pre­vent it. Those steps should include (but are not lim­it­ed to) action towards ensur­ing the cor­po­ra­tion arranged reg­u­lar pro­fes­sion­al assess­ments of its com­pli­ance with the rel­e­vant pro­vi­sion. The max­i­mum penal­ty is 200 penal­ty units (cur­rent­ly $22,000).

Acces­so­r­i­al liability

A direc­tor or an indi­vid­ual involved in the man­age­ment of a cor­po­ra­tion can also be held liable for offences com­mit­ted by the cor­po­ra­tion if they are an acces­so­ry to the com­mis­sion of a cor­po­rate offence’ by, among oth­er things, being know­ing­ly con­cerned in, or a par­ty to, the com­mis­sion of the cor­po­rate offence. The penal­ty for an offence of this nature can, in the case of an offence against sec­tion 13(8) of the Act, include up to 3 months imprisonment.

2‑year lim­i­ta­tion period

There will be the intro­duc­tion of a 2‑year lim­i­ta­tion peri­od for offences against the Act or reg­u­la­tion i.e. pro­ceed­ings for an offence against the Act or the reg­u­la­tions may be com­menced with­in, but not lat­er than, 2 years after the date on which the offence is alleged to have been committed.

Supreme Court powers

The Act will include pro­vi­sions enabling the Supreme Court to set aside (in whole or in part) an adjudicator’s deter­mi­na­tion if it finds that a juris­dic­tion­al error has occurred. The Supreme Court can iden­ti­fy the part of the adjudicator’s deter­mi­na­tion affect­ed by juris­dic­tion­al error and set aside that part only, while con­firm­ing the part of the deter­mi­na­tion that is not affect­ed by juris­dic­tion­al error.

Cor­po­ra­tions in liq­ui­da­tion can no longer serve pay­ment claims 

The Act will make it clear that cor­po­ra­tions in liq­ui­da­tion will no longer be able to serve pay­ment claims or take action to enforce a pay­ment claim (includ­ing by mak­ing an appli­ca­tion for adju­di­ca­tion of the claim). Adju­di­ca­tion appli­ca­tions by cor­po­ra­tions not final­ly deter­mined before they are placed into liq­ui­da­tion will be tak­en to have been with­drawn imme­di­ate­ly before the day on which it com­menced to be in liquidation. 

There are new Reg­u­la­tions too

The Build­ing and Con­struc­tion Indus­try Secu­ri­ty of Pay­ment Amend­ment Reg­u­la­tion 2019 (NSW) also com­mences on 21 Octo­ber 2019. The objects of the reg­u­la­tion are as follows:

(a) to exempt own­er occu­pi­er con­struc­tion con­tracts from the oper­a­tion of the Build­ing and Con­struc­tion Indus­try Secu­ri­ty of Pay­ment Act 1999 (the Act);

(b) to spec­i­fy the offences with respect to reten­tion mon­ey trust accounts that are exec­u­tive lia­bil­i­ty offences; and

(c) to spec­i­fy the offences under the Act and the Build­ing and Con­struc­tion Indus­try Secu­ri­ty of Pay­ment Reg­u­la­tion 2008 (NSW) for which penal­ty notices may be issued and the amount of the penal­ty payable.

What next?

The changes to the Act and Reg­u­la­tions will need to be under­stood by all those who will enter into con­struc­tions con­tracts from 21 Octo­ber 2019. Some of the changes have clar­i­fied areas that have to date been the sub­ject of quite a bit of case law and in some instances have changed the exist­ing posi­tion tak­en by the courts. In the cur­rent envi­ron­ment of sig­nif­i­cant amounts of build­ing and con­struc­tion work, and the ever-present finan­cial pres­sures on indus­try par­tic­i­pants, the Act can be expect­ed to con­tin­ue to attract a fair­ly high lev­el of judi­cial con­sid­er­a­tion and more changes may come from that.