Changes to the Building and Construction Industry Security of Payment Act 1999 (“the Act”) came into effect from 21 October 2019. For contracts entered into prior to 21 October 2019 the old Act applies, however the new changes apply to contracts entered into after that date.
November and December are usually busy periods in the construction industry with people wanting work completed prior to Christmas and others wanting to be paid prior to Christmas. If you haven’t had the chance to get across the changes yet the summary below will bring you up to speed and provide some food for thought on how you may wish to make changes to your contracts and business practices going into 2020.
Explaining the Subcontractor Payment Rights Under SOPA
Payment terms have been reduced for sub-contracts
- Who is affected the most: Principle contractors, and sub-contractors.
- What has changed: The longest payment terms allowed for sub-contracts under the Act has be reduced from 30 business days down to 20 business days.
- What to do: If you are a principle contractor or sub-contractor, review the payment terms in your construction contracts and be aware of any inconsistencies between the contract and the Act.
Payment claims need to state that they are made under the Act
- Who is affected the most: This change makes it easier for everyone to ascertain when a payment claim is being made under the NSW SOPA (Security of Payment Act), as opposed to not under the Act.
- What has changed: In order for a payment claim to be valid it must expressly state that it is made under the Act. That is, it must state words such as “This is a Payment Claim made under the Building and Construction Industry Security of Payment Act 1999”.
- What to do: If you are a principle contractor or sub-contractor, update your templates to ensure that when you issue a payment claim it states that it is made under the Act. If you are a principle contractor or an owner/developer, be aware of, and advise your office staff that unless a claim states that it is made under the Act the Act does not apply. Claims made under the Act should be treated differently to claims not made under the Act.
The idea of “reference dates” no longer applies
- Who is affected the most: Those making a SOPA payment claim under the Act, principle contractors, and sub-contractors.
- What has changed: Previously the legislation provided that a reference date could be set by the contract and a payment claim must only be made on or from a reference date. Often there was uncertainty between the parties as to which reference date applied to a particular claim. Under the new legislation reference dates do not exist and therefore are not set a precondition to making a claim. The new legislation provides everyone under a construction contract with a right to make a claim every month. Claims must be made on or from the last day of the month, or an earlier date if one is provided for in the contract.
- What to do: Ensure that a payment claims are made on or from the last day of the month, unless the contract provides otherwise.
A contractor may make a payment claim after the contract has been terminated
- Who is affected the most: Those making a claim under the Act, principle contractors, and sub-contractors.
- What has changed: Previously, whether a contractor had a right to make a payment claim after termination of the contract depended upon the wording of the contract. This resulted in uncertainty. Under the new legislation, a claimant now has an express right to make a payment claim after termination of the contract, regardless of what is provided for in the contract.
- What to do: If you are a principle contractor or sub-contractor, update the special conditions in your contracts if necessary to remove any inconsistent clauses. Review your contracts in relation to how the work would be valued by an adjudicator if a SOPA claim was made post termination of the contract.
A company in liquidation cannot now serve a payment claim or proceed under the Act in relation to a payment claim
- Who is affected the most: Those making a claim under the Act, principle contractors, and sub-contractors.
- What has changed: Previously there was no express limitation on making a payment claim under the Act if a company was in liquidation. In addition to being unable to serve a payment claim, any adjudication applications made, but not determined, will be automatically withdrawn on the day that the company went into liquidation.
- What to do: Endeavour to make payment claims as soon as possible where the company is experiencing cash flow issues which may affect solvency.
A claimant may withdraw an adjudication application
- Who is affected the most: This change makes it easier for both parties in an adjudication to terminate the process if a settlement agreement has been reached.
- What has changed: Previously, if the parties reached a settlement agreement before the adjudication application was determined the adjudicator was asked informally to stop work.
- What to do: If you are the claimant, to withdraw the adjudication application you must send written notice to the respondent, plus the adjudicator (or the authorised nominating authority). If you are the respondent, if an adjudicator has been appointed, you should respond to the notice from the claimant and notify the adjudicator (or the authorised nominating authority) whether you consent or object to the withdrawal and provide reasons.
The court may set aside the whole, or part of, an adjudication application for jurisdictional error
- Who is affected the most: Previously there was no express power in the Act pursuant to which the court could set aside part of an adjudication determination for jurisdictional error.
- What has changed: There is now an express power in the Act for the Supreme Court to set aside part of an adjudication determination and confirm what parts of the determination are not affected by jurisdictional error.
- What to do: If you are in the position of considering whether to apply for the an adjudication application to be set aside you should consider obtaining legal advice urgently as this is a very complicated area of the law.
There are significant penalties for offences committed under the Act have significantly increased
- Who is affected the most: Principle contractors are mostly affected however anyone involved in making or responding to a claim, or providing information to an authorised officer.
- What has changed: Some of the penalties have increased significantly from $22,000 to $110,000, in particular the penalties applicable to companies.
- What to do: Educate and provide training to all staff in relation to what constitutes an offence under the Act and implement systems to ensure offences do not occur.
Directors and managers of companies may now be held personally liable
- Who is affected the most: The directors and managers of principle contractors and sub-contractors which are registered as a company.
- What has changed: A director or manager of the company who is found to aid, abet, procure, induce, conspire or who is any way knowingly concerned in committing an offence under the Act is now personally liable.
- What to do: Educate and provide training to all directors and managers of the company in relation to what constitutes an offence under the Act and implement systems to ensure offences do not occur.
Resources for Related Acts
NSW Strata Schemes Management Act 2015
NSW Civil and Administrative Tribunal Act 2013
For more detailed analysis and legal expert commentary on these and other legislative instruments, visit our legal advice articles section. Stay proactive and informed to mitigate risk and ensure compliance with the law.
Please do not hesitate to Contact Williamson Lawyers. if we may be of assistance.
Disclaimer: The information provided in this article is general information only and should not be relied upon as legal advice or be used as a substitute for obtaining legal advice. The specific circumstances relating to you impact upon your legal rights and obligations and personal legal advice based upon your circumstances should be obtained. This area of law changes frequently and the law may have changed after the time this article was prepared, up-to-date legal advice should be obtained.
