As outlined in our March 2013 advisory note, legislative changes are now being proposed as a result of the Collins inquiry into insolvencies in the New South Wales construction industry.
Last week the Building and Construction Industry Security of Payment Amendment Bill 2013 (Bill) was introduced into Parliament. It may be enacted with little amendment as early as the end of 2013. A full copy of the Bill can be found at:
Minister Andrew Constance, in his second reading speech, stated the reasons for the changes were to:
“introduce reforms that will provide greater protection for subcontractors and promote cash flow and transparency in the contracting chain”.
The changes proposed by the Bill do not address a number of the recommendations arising from the Collins inquiry. The Bill does not address for example extending the regime to residential house construction with a value over $1 million or empowering adjudicators to deal with contractual retention funds.
The Bill does however, contain significant proposed amendments to the Building and Construction Industry Security of Payment Act 1999 (ACT), including:
A principal will only have 15 business days in which to make payment to a head contractor, the time running from the date upon which the head contractor’s payment claim was made.
A head contractor will only have 30 business days in which to make payment to a subcontractor, the time running from the date upon which the subcontractor’s payment claim was made.
These requirements will not apply to any exempt contract (pursuant to section 7(2)(b)) or any sub-contract that is “connected to” such an exempt contract).
There will be no ability for the parties to contract out of these terms, provisions and any clauses that seek to do so will be void.
The requirement to include the statutory endorsement on a payment claim is removed, other than for exempt contracts.
For a payment claim to be valid under the Act, a claimant will need to include with the claim a supporting statement in the prescribed form. Amongst other things, the statement will need to carry a certification that all subcontractors have been paid amounts due and payable to them.
It will be an offence to submit a payment claim without a supporting statement or to knowingly submit a supporting statement that is false or misleading. Under the Bill, new provisions give “authorised officers” of the Department of Finance and Services of NSW, powers to investigate, collect documents and enforce these provisions. A failure to include a supporting statement may also result in a fine being imposed.
For principals and those financing principals, there are cash flow implications that arise under the Bill. Under the proposed change the due date for payment made under a construction contract would be no later than 15 business days after the payment claim is made and parties would be barred from seeking to include provisions for payment beyond that time-frame. This alters the current position where parties are entitled to contract a time for payment as they saw acceptable.
Principals will need to ensure that their financial arrangements are organised to enable compliance with the new regime. Otherwise, they may need to make the payment themselves pending receipt of the funds from a financier.
For subcontractors, the Bill may not provide much relief. Many subcontractors may currently already enjoy more favourable terms than the 30 business days proposed in the Bill. It is possible that the statutory terms in the Act will create a default benchmark as head contractors relax subcontractor payment terms from anything earlier than 30 business days to the end of that period. This could negatively affect subcontractors currently enjoying shorter payment terms than 30 business days.
The Bill includes other proposed amendments to the Act. Whilst those highlighted above are significant it would be advisable for principals, head contractors and subcontractors to ensure they understand and are conversant with the changes that are likely to impact upon all parties within the Industry
Careful consideration to commercial implications are required, not least the impacts that the amendments would have on project capital requirements.
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