People involved in the building and construction industry need to be aware of changes to security of payments legislation that have come in force. This legislation does not apply only to tradies, builders and developers but also to professions including architects, surveyors, and building engineers.
The Building and Construction Industry Security of Payment Amendment Act 2018 (NSW) (Amendment Act) came into effect on October 21, 2019.
The Act gives all contractors undertaking construction work and suppliers of goods or services the right to receive progress payments for work performed.
It sets down maximum payment deadlines and the option of adjudication if payment is not made on time. While it can provide worthwhile protection, many contractors miss out on progress payments because they are unaware of the Act, as well as the systems and deadlines that must be followed.
What are the changes?
There are 12 major changes and they include;
- Subcontractors are no longer able to use the Act for claims against builders who do work for home owners,
- Changes to dates on which payment claims can be served,
- One payment claim may now be made after the termination of a construction contract,
- A reduction in maximum payment terms for subcontractors from 30 to 20 days (for main contractors it remains at 15 days),
- New powers for the Department of Finance Services and Innovations to investigate and enforce compliance with the Act and new penalties for corporations (up to $4,400) and individuals (up to $2,200) found to hinder, refuse or fail to comply with an investigation,
- Substantially increased penalties (to a maximum of $110,000) for a corporate head contractor that fails to serve a supporting statement with a payment claim or for serving a supporting statement knowing that it is false or misleading, and
- Corporations in liquidation are not permitted to serve or enforce a payment claim or make an adjudication application.
The changes provide good and bad news for the various parties in the industry. Changes such as being unable to use the Act to make claims against builders who work for homeowners makes the problem of not being paid worse for contractors.
Knowing how to use the system is key
There have been several building company collapses in the region of late. While homeowners (builders’ customers) have some protection via ‘home building compensation cover’, many subcontractors have been left with little hope of being paid for work they have carried out.
SOPA does not provide protection for builders against homeowners so some starve contractors. The problem is contractors don’t want to take the heavy-handed approach due to fear of losing a good customer. But if they were such a good customer, they would pay for the services rendered.
The Act provides protection to contractors but only if they know how to use the system and take appropriate steps within prescribed time frames. There needs to be more education across the industry about how to use the system. But contractors should make time to understand the system for themselves as it can be a very effective way of protecting cash flow. It is a wise investment of time.
As a minimum, people should ensure their claims (invoices) include these words – “This is a payment claim made pursuant to the Building and Construction Industry Security of Payment Act’.”