On 21 November 2018 the NSW Government approved amendments to the Building and Construction Industry Security of Payment Act. The changes have not yet taken effect, and are not likely to take effect until 2019 (on a date yet to be announced).
The Government has also indicated that there will be amendments to the regulations. It plans to release an exposure draft of the amended regulations for public consultation in early 2019. We will update this post once the regulations have been finalised.
What is changing?
The changes fall into three categories:
1. Miscellaneous tweaks to the payment claim and statutory adjudication process, and related provisions.
2. Increasing the focus on compliance, including the introduction of director and manager penalties.
3. Introducing a code of practice for authorised nominating authorities.
These are discussed below. You can find a copy of the amending legislation here.
Changes to the payment claim and adjudication process
In a practical sense, the two biggest changes are:
- payment claims will (once again) need to state that they are made under the Security of Payment Act; and
- minimum subcontractor payment terms for contracts governed by the Act will be reduced to 20 business days (down from 30 business days).
Various other changes have been made, mostly to address issues that have been the subject of litigation. These include the following:
- The concept of ‘reference dates’ has been entirely removed from the legislation.
- If a contract is terminated, the contractor will have an express right to make a payment claim under the Security of Payment Act.
- A corporation in liquidation will not be able to serve payment claims or take action to enforce them, including by making an application for adjudication.
- A claimant now has an express right to withdraw an adjudication application. A respondent may object to the withdrawal if an adjudicator has been appointed.
- The Act gives the court an express right to set aside an adjudication determination for jurisdictional error. If only part of a determination is affected by jurisdictional error, the court may set aside that part only, while confirming the balance of the determination.
- The regulations may prescribe information that is required to be provided to a subcontractor when entering into a construction contract. (No further details about the form or extent of this prescribed information is available at this stage.)
- The exemption from the application of the Act for residential owner occupier contracts has been removed, but on the basis that this will instead appear in the regulations. There does not appear to be any substantive change in intent.
Increase in penalties
The penalties for corporations for offences under the Security of Payment Act will increase. Some of the penalties for non-compliance by individuals will increase as well. The main changes are summarised in the table below.
The Act will incorporate a new part that provides Government authorised officers to call for documents, conduct interviews, enter premises and seize things (eg computers) for the purposes of investigating, monitoring and enforcing compliance with the Act. There will be penalties for non-compliance with those provisions.
Also note that, quite apart from the fines imposed under the legislation, non-compliance with the Act will often need to be disclosed during tender processes, and can sometimes result in contractors becoming ineligible for tendering for certain types of work (mainly Government-funded work).
*At the time of publication, one ‘penalty unit’ in NSW equates to $110. The dollar values in the table above are current at the date of this post, but may change over time.
Personal liability for directors and managers
Where a corporation commits an offence under the Security of Payment Act, individuals will be exposed to personal liability where they are:
- a director of the corporation; or
- involved in the management of the company and are in a position to influence the conduct of the corporation in relation to the commission of an offence.
This exposure can arise in one of two ways.
First, where the person is knowingly concerned in the commission of the offence (whether by aiding and abetting, inducing, conspiring with others or otherwise).
Second, where the person knows that the offence would be or is being committed or is ‘recklessly indifferent’ as to whether it would be or is being committed’, and fails to take all reasonable steps to prevent or stop the commission of that offence.
In relation to the second scenario above, the Act suggests various measures that could be taken with a view to preventing or stopping the commission of an offence, such as assessing compliance, regular professional assessments of the organisation’s compliance and the provision of information, training, instruction and supervision to ensure compliance.
Corporations seeking to avoid the risk of personal liability for their directors and managers will need to put systems in place (eg audit and training programs) to demonstrate the ‘reasonable steps’ taken by the corporation to ensure compliance.
Authorised nominating authority code of practice
The Act will empower the Minister to make a code of practice to be observed by authorised nominating authorities. The second reading speech for the amending legislation explained that the purpose of this change is to ‘address stakeholder concerns about the function and effectiveness of ANAs’. Further:
‘The code of practice will outline and clarify the expectations, responsibilities and obligations of ANAs when undertaking their function. Specifically, the code will address matters in relation to the conduct, assessment and selection, training and monitoring of adjudicators, as well as complaint-handling procedures. A failure to comply will be an offence and will also be grounds for withdrawing authorisation.’
The Government plans to release draft regulations for public comment and consultation in 2019.
- The 2019 changes to the NSW Security of Payment Act are not yet in effect, but are likely to commence some time in 2019 (on a date yet to be announced).
- Some of the key detail will be contained in the regulations, yet to be released.
- Contractors will need to review and possibly amend their subcontracts, to ensure compliance.
- All organisations governed by the Act will need to implement formal training and audit programs, if they wish to avoid the possibility of their directors and managers being exposed to personal liability for non-compliance.