Security of Payment Act NSW
The Building and Construction Security of Payment Act
The Building and Construction Security of Payment Act 1999 (NSW) (SOPA) was introduced to regulate the payment process in the building and construction industry.
The purpose of this legislation was to enhance and promote the flow of cash (or alleviate financial pressures) through timely payment of progress claims and in addition to this, to provide quick and fair dispute resolution.
Due to the recent increase in insolvency in the building and construction industry, the New Wales Government commissioned an Independent Inquiry to assess the cause and extent of the insolvency.
Following the recommendations of the Independent Inquiry, the New South Wales Government has proposed the various amendments to the claim payment claim process under the SOPA. The amendments proposed are primarily aimed at prompt payment of progress claims.
The key changes to the SOPA are summarised below.
Payment claims made under the SOPA
- Current: To be considered a valid payment claim under the SOPA, it is essential that the contractor includes a statement indicating that the payment claim is made under the SOPA. This ensures the contractor obtains the rights and remedies prescribed by the SOPA.
- Proposed: This statement (commonly referred to as “This is a payment claim made under the Building and Construction Industry Security of Payment Act 1999 (NSW)” is to be no longer required or necessary.
Due dates for payment of claims
- Current: Parties to a construction contract are entitled to negotiate and agree on a time frame for the payment of progress claims.
- Proposed: Regardless of any contractual provisions as to payment deadlines, the period for making a progress payment (unless the contract provides for earlier payment date) must be:
15 business days after a payment claim is submitted by a Head Contractor to a Principal.
30 business days after a payment claim is submitted by a Subcontractor to a Head Contractor.
Supporting statements to accompany payment claims
- Current: Construction contracts usually impose an obligation to provide a Statutory Declaration with any payment claims.
- Proposed: Payment claims submitted by a Head Contractor to a Principal is to be accompanied by a supporting statement. A Head Contractor will commit an offence if:
It fails to provide a supporting statement (fine of $22,000); or
It knowingly provides a false or misleading supporting statement (fine of $22,000, or 3 months imprisonment or both).
The supporting statement will need to declare, to the effect, that all Subcontractors have been paid all amounts that have become due and payable in relation to the construction works. Head Contractors may also be required to produce evidencing payment made to Subcontractors.
Statutory retention trust
- Current: Parties commonly provide retention money through an unconditional bank cheque or by way deducting money from progress payments to build up the retention reserve. Typically, an amount equating to 5% of the contract sum is withheld as retention money.
- Proposed: Retention money is to be held by the Head Contractor in a trust account for the Subcontractor.
Once the amendments are in effect, it is vital that Subcontractors, Contract Administrators, Head Contractors and Principals are familiar with the amendments and make sure that they comply with them to protect their interests. It is likely that the new provisions will make the assessment and payment of progress claims more rigorous and onerous on these parties as well as their account’s department.
Parties (such as a strata scheme, and community association) who do not commonly deal with payment claims should be aware that they may no longer be on notice that a claim is made pursuant to the SOPA.