Contractual relationships and how they define the time for payment under the SOP Act - it's a danger zone!

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By Ziv Ben-Arie, Partner, Andrew Wallis, Partner and Peter Meades, Partner

Cash flow is a key business risk which needs to be managed diligently and effectively. The construction industry, more so than any other, is heavily dependent upon receiving payment on time and in the amount claimed.

The amendments to the Building and Construction Industry Security of Payment Act 1999 (Act) in April 2014 attempted to solve this issue by requiring that “head contractors” be paid within 15 business days of service of the payment claim, whilst most “subcontractors” (except those working on exempt residential projects) are to be paid within 30 business days of receiving the payment claim.

On their face, these amendments are designed to reduce the likelihood of contractors becoming insolvent, but in practical terms the changes have had a negligible and possibly negative impact upon this problem. The ambiguity of the amended legislation has created a multitude of complications, particularly when determining whether a party is a “head contractor” for 15 business days or 30 business days.

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