Many Owners Corporations and thus strata managers have to deal with contractors doing works to existing buildings, and thus claims under the Building & Construction Industry Security of Payment Act 1999 (NSW) (the Act).
The Act was introduced in 1999 with the intention of ensuring cashflow in construction projects generally, outside of litigation, with a process of claims and dispute notices, and essentially interim orders by adjudicators as to payments that would leave parties still able to sue each other at law but keep contractors solvent and funds flowing.
With 6 months having passed since the changes to the Act on 21 April 2014, it is worthwhile revisiting them to ensure strata managers are aware of them and they are taken into account when client body corporates are having building work done that is governed by the Act.
1. Prompt Payments – amendments to section 11 of the Act
Under the changes, head contractors are entitled to receive payment from the principal no later than 15 business days after the submissions of a payment claim. In turn, head contractors must make progress payments to sub-contractors no later than 30 business days after receiving a payment claim.
A contract cannot include payment terms longer than the maximum payment period, as set in section 11.
For principals such as Owners Corporations, there are cash flow implications that arise under the changes. The due date for payment made under a construction contract is now prescribed by the proposed changes to be no later than 15 business days after the payment claim is made, and restricts parties 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.
Owners Corporations will need to ensure that their financial arrangements are organised to enable compliance with the new regime.
2. Requirement for a supporting statement – amendments to section 13 of the Act
A new supporting statement requirement applies only to head contractors. A head contractor submitting a payment claim to a principal must provide a supporting statement with a declaration that the sub-contractors you have engaged have been paid what is due and payable.
Penalties of up to $22,000 and/or three months imprisonment may be imposed where a head contractor has knowingly provided false or misleading information.
The regulations provide a template form for the required supporting statement, which requires within it individual identification of both; (a) sub-contractors who have been paid all amounts due and payable; and (b) sub-contractors for which an amount is in dispute and have therefore not been paid.
3. Removal of requirement for a payment claim to include a statement that is made under the Act
This is perhaps the most important change for strata managers and body corporates when dealing with contracts to which the Act applies. When a head contractor puts in a payment claim they no longer need to include a statement that it is a claim made under the Act. This requirement has been removed. As such, it will no longer be as obvious that a claim has been made under the Act, and the process provided for with all the strict deadlines and binding effects has commenced. As a result, strata managers and body corporates need to ensure that they are aware that payment claims can be regarded as claims under the Act even though they do not explicitly say they are.
For more information, please contact our Sydney Strata team:
Paul Jurdeczka | Partner
(02) 8289 5819
Our Sydney Construction team is also able to assist body corporates in construction matters generally.