Big changes ahead for Security of Payment legislation in NSW

Contractors and principals will need to keep an eye out for significant amendments to the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act) that will soon take effect.

The changes are relevant to both claimants and respondents and alter the compulsory contents of payment claims, how a due date for progress payments is determined, and how retention monies are to be withheld from payments.

The new amendments are aimed at protecting the interests of subcontractors following a high number of insolvencies in the construction sector in recent years.

Robert Milne, a Contracts & Procurement Specialist at KLJ Procurement & Projects says, “No one in the construction industry should ignore their need to address these changes.”

Changes to payment claims

A payment claim will no longer need to identify that it is made under the SOP Act, with the exception of payment claims made under exempt residential construction contracts.

Previously it was necessary to identify a payment claim under the SOP Act using wording along the lines of “This is a payment claim made under the Building and Construction Industry Security of Payment Act 1999”. The new changes mean this statement will soon no longer be required for a payment claim to be valid under the SOP Act. Parties who are likely to receive payment claims will need to implement more robust processes for dealing with the receipt and processing of all claims for progress payments.

Payment claims made by head contractors will soon have to incorporate a supporting statement that includes a declaration that all subcontractors have been paid all amounts that have become payable to them in relation to the construction work being claimed for by the head contractor. There will be serious penalties associated with knowingly making false or misleading statements in a supporting statement. The final form of the statement is still to be regulated, so affected parties will need to stay turned for further details.

Changes to due dates for payment of progress payments

Parties to a construction contract were previously able to agree on a due date for the payment of progress payments, however this will no longer be the case. The new changes provide that a progress payment to be made by a principal to a head contractor is payable no later than 15 business days after a payment claim is made. A progress payment to be made to a subcontractor becomes payable no later than 30 business days after a payment claim is made.

Changes to withholding retention money

The changes to the SOP Act also provide that new regulations may be established requiring retention money to be held in trust for a subcontractor, and for head contractors to pay retention monies into a special-purpose trust account.

While the details of the new regulations are still to be decided upon, it is currently anticipated that they may include requirements for head contractors to pay retention monies into a trust account administered by the Office of the Small Business Commissioner within 24 hours of that money being deducted from a progress payment.

The regulations are also likely to prescribe a process for release of the retention monies from the trust account in the event of a dispute over a party’s entitlement to receive the retained funds.

Watch this space

At the time of publication of this article, the changes to the SOP Act and associated regulatory changes discussed above are yet to come into effect. KLJ Procurement & Projects will aim to keep you updated with further details on the changes as they become available, but for now we recommend that all participants in the construction industry keep an eye out for further developments.

Further information

If you have any questions about this article or would like further information about how the SOP Act or its recent changes may affect you, please contact Robert Milne at KLJ Procurement and Projects

Fill out the attached form to send an email to one of our consultants, they will be in touch as soon as possible.