How not to get caught by security of payment changes in the building and construction industry

Principals and head contractors who have not changed their procedures for making and responding to payment claims under the Building and Construction Industry Security of Payment Act 1999 (NSW) since 21 April 2014 need to do so as a matter of urgency.

The amendments

Construction contracts and contracts to supply related goods and services entered on or after 21 April 2014 are subject to the following amendments to the Act:

• There is no longer a requirement to include the words “This is a payment claim under the Building and Construction Industry Security of Payment Act 1999” in a payment claim to be effective as a payment claim under the Act.
• Payment claims made by head contractors must include a supporting statement that all subcontractors have been paid, and identify any subcontractors with whom an amount is in dispute.
• Head contractors are entitled to payment of progress claims within 15 business days of service of a payment claim, and subcontractors are entitled to payment of progress claims within 30 business days of service of a payment claim.

Changes required to your procedures

In practical terms, this will require at least the following procedural changes:

• Principals and head contractors alike will need to treat every invoice received in relation to a construction contract or a contract to supply related goods and services as a payment claim if it identifies the construction work (or related goods and services) to which it relates and the amount claimed to be due.
• Head contractors will need to ensure that a properly completed supporting statement (a template for the supporting statement is available as Schedule 1 to the Building and Construction Industry Security of Payment Amended (Supporting Statement) Regulation 2014) is attached to each invoice for a progress payment submitted to the principal.  It is an offence to serve a payment claim on the principal if it is not accompanied by a properly completed and accurate supporting statement. 
• Principals should check that progress claims received from head contractors attach a properly completed supporting statement. However, principals should note that, whilst the Act may have made it an offence to serve a payment claim on the principal if it is not accompanied by a properly completed and accurate supporting statement, it does not stipulate that a payment claim served without a supporting statement is invalid or ineffective to engage the machinery of the Act.
• Both principals and head contractors will need to ensure their systems for payment are able to cope with the mandatory payment timeframes (which apply irrespective of the contractual provisions regulating the time for payment).  It is recommended that contract conditions be drafted to mirror the timeframes in the Act so as to avoid confusion.

Advice

Information regarding the amendments that is intended to provide guidance to industry participants as to the operation of the amendments can be found on the NSW Government’s Procure Point website.  It is to be hoped that the courts do not provide a different interpretation. 

In the meantime, principals and head contractors need to be quick to adopt the changes. This may be particularly onerous for government bodies and statutory authorities which have less flexible institutional procedures and are less agile than their commercial counterparts.

Bartier Perry can provide advice on the effect of the amendments in any particular circumstances that our clients experience.

Author: David Creais