The Building and Construction Industry Security of Payment Amendment Bill 2013 (the Bill) has been introduced to the NSW parliament, aiming to stem the tide of insolvencies in the NSW construction industry.  

Over the course of the 2011-2012 financial year, there were 1,113 insolvencies in the NSW building and construction industry. This involved high profile cases, such as Kell and Rigby, St Hillier’s and Southern Cross Constructions.

According to an ‘e-brief’ by the NSW Parliamentary Research Service, many of these insolvencies left subcontractors “empty-handed”.

Proposing significant changes to the NSW Building and Construction Industry Security of Payment Act 1999 (the Act), the Bill was introduced by the NSW Government in response to the recommendations of the Collins Inquiry – an inquiry led by Bruce Collins QC considering the recent spate of construction firms going bust.

If passed by both houses of parliament, the Bill will effect significant changes to the security of payment legislation in NSW, providing greater protection for subcontractors, while promoting cash flow and transparency in the contracting chain.

The key proposed changes to the Act are:

1. Removing the requirement that payment claims must state that it is a claim made under the Act in order for the Act to apply.

This change was proposed to make the Act simpler and easier for subcontractors to use, and to encourage them to use the Act. In effect, any progress claim which simply identifies construction work to which the claim relates, as well as the amount that is due, will be treated as a valid payment claim.

2. Payment claims by head contractors to include declaration that all subcontractors have been paid.

Currently, there is no requirement for a payment claim made under the Act to be accompanied by a statutory declaration or statement as to the payment of workers and subcontractors.

The Bill proposes that a head contractor be required to submit a supporting statement with each payment claim. This ‘supporting statement’ must include a declaration that all subcontractors have been paid all amounts due in relation to the construction work concerned. Failure to provide a supporting statement can attract a maximum penalty of $22,000.

Furthermore, a head contractor cannot serve a payment claim on the principal with a supporting claim he or she knows is false or misleading. This offence can result in a maximum penalty of $22,000, three months imprisonment, or both.

3. Changes in due dates for progress payments.

The due date for progress payments is currently defined as the date on which the payment becomes due and payable in accordance with the terms of contract or, if there is no express provision about the matter, 10 business days after a payment claim is made.

The Bill proposes implementing a time frame in which progress payments are to be made:

  • For progress payments claimed by a head contractor from a principal, the due date for payment will be no later than 15 business days after a payment claim was served
  • For progress payments claimed by a subcontractor from a head contractor, the due date for payment will be no later than 30 business days after a payment claim is made

Any provision of a construction contract that allows for payment later than the time frames mentioned above will be deemed void for the purposes of the Act. However, these amendments do not apply in the case of certain residential construction contracts.

The Collins Inquiry also recommended creating a statutory construction trust for projects valued at $1 million or more.

Under this proposal, any payment made on a construction project in respect of work carried out, or materials supplied, will be subject to a trust for the purpose of paying subcontractors and suppliers down the contractual chain.

While this recommendation has not been implemented by the Bill, the NSW Government is trialling the use of a construction trust system in selected government projects. The outcome of this trial will determine the possibility of an industry-wide implementation.