As advised in our previous update, on 21 November 2018, the NSW government passed the Building and Construction Industry Security of Payment Amendment Act 2018 (NSW) (Amendment Act), which introduces important changes to the Building and Construction Industry Security of Payment Act 1999 (NSW) (BCISPA), including:
- reintroducing the requirement for payment claims to be endorsed;
- reducing the time for head contractors to pay subcontractors after receiving a payment claim from 30 business days to 20 business days; and
- creating a statutory reference date on termination of a construction contract.
The amendments have not yet commenced due to the NSW election caretaker period; however, the NSW government is starting to make moves. This week, the Department of Finance Services and Innovation issued a draft of the regulation (Draft Regulations) to accompany the Amendment Act.
The Draft Regulations
The Draft Regulations contain only those reforms which are critical to facilitating commencement of the Amending Act and contain three main reforms.
Owner Occupier Residential Disputes Excluded
Firstly, the Draft Regulations exempt “owner occupier construction contracts” from the operation of the BCISPA. This means that a residential builder will not be able to make a payment claim or adjudication application against an owner under the BCISPA in respect of a contract for residential building work that is carried out on land that the owner resides or proposes to reside in.
Executive Liability Penalties
Secondly, the Draft Regulations prescribe offences in relation to head contractor obligations regarding retention money trust accounts as executive liability offences. This means that a director or individual in management for a head contractor may be held personally liable for up to $22,000 for an offence committed by the company concerning retention trusts (which applies to projects with a contract sum of $20million or more). Such offences include:
- Failing to pay retention money into an approved authorised deposit taking institution (i.e. approved under the Property Stock and Business Agents Act 2002);
- Withdrawing money from a retention money trust account for reasons other than:
- to pay the money for the purpose for which it was retained;
- as agreed by the head contractor and the subcontractor/supplier; or
- in accordance with the order of a court or tribunal.
- Failing to provide information requested by the Secretary of the Department of Finance, Services and Innovation (Secretary) within 7 days of a request;
- Failing to notify the Secretary:
- if a retention money trust account becomes overdrawn; or
- of a closure of a retention money trust account.
- Failing to keep prescribed trust account records.
Prescribing penalty notice offences
The Amendment Act enables an “authorised officer” to issue penalty notices for certain offences under BSCIPA. Lastly, the Draft Regulations now specifies the offences under the BCISPA and regulations for which penalty notices may be issued and the amount of the penalty payable by the corporation and director/manager responsible.
Public Feedback and Commencement Dates
In December last year the NSW Fair Trading released an options paper suggesting the Amendment Act be commenced in four different stages. However, feedback from the public in response indicated a preference for a single commencement date for all the reforms and for that date to be a set without undue delay.
The Draft Regulations are available for public consultation until 21 June 2019. Following this, NSW Fair Trading anticipates that the Amendment Act and Draft Regulations will commence in mid-September this year.
We will keep you up to date regarding the Amendment Act commencement date as soon as it is confirmed by the NSW Government.
Takeaway
In the meantime, head contractors and developers should begin to:
- implement procedures such as formal training and audit programs to avoid the possibility of their directors and managers being exposed to personal liability for non-compliance; and
- revisit their construction contracts and contract administration practices to ensure they are prepared for when the amendments come into force and can comply with them.
Key contacts:
