Significant changes proposed for NSW building and construction industry

New South Wales Fair Trading recently released the Building and Construction Industry Security of Payment Amendment Bill 2018 (Draft Bill), which proposes significant changes to the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act) that “are designed to provide greater protection for subcontractors and promote cash flow and transparency in the contracting chain”. The release of the Draft Bill was also accompanied by a Consultation Paper which proposes the introduction of ‘deemed statutory trusts’. They are both open for public comment until 18 September 2018.

The key proposed reforms under the Draft Bill include:

Reference dates:

1. there will be a statutory minimum entitlement to at least one progress payment per month; and
2. an additional reference date will arise on termination.

Reducing the time for payment:

1. there will be a maximum of 10 business days for principals to pay head contractors from the date a payment claim is made (currently 15 business days); and
2. there will be a maximum of 20 business days for head contractors to pay subcontractors from the date a payment claim is made (currently 30 business days).

Endorsement of payment claims: the Draft Bill reinserts the requirement that a payment claim must be endorsed under the Act.

Exclusion of parties in liquidation: corporations in liquidation will be prohibited from serving a payment claim or taking any action to enforce a payment claim or an adjudication determination.

Time for an adjudicator’s decision: the 10 business day timeframe for an adjudicator to make his/her determination will begin to run after the adjudicator has received the adjudication response (instead of after the adjudicator has notified the parties of his/her acceptance).

Code of Practice for Authorised Nominating Authorities (ANAs): ANAs will be required to comply with a Code of Practice, a contravention of which could result in the ANA’s authority to nominate adjudicators being withdrawn and/or a penalty of up to 50 penalty units (which currently equates to $5,500).

Inspection of trust account records: subcontractors will be able to inspect the head contractor’s retention money trust account records in respect of the retention money that is held on trust for them.

Offences for directors and certain managers: directors and certain managers of a corporation will beguilty of an offence if the director or manager knows or ought reasonably to know an offence is being committed by the corporation and fails to take all reasonable steps to prevent or stop the commission of that offence. These offences include failures to comply with requirements relating to supporting statements, misappropriation of trust monies, and failing to provide information upon request.

New investigative and enforcement powers to investigate, monitor and enforce compliance – ‘authorised officers’ will have the power to:

1. request, inspect and take possession of documents;
2. ask and require answers to questions;
3. enter premises without a search warrant (other than residential premises);
4. apply for search warrants; and
5. issue penalty notices for certain offences.

Deemed Statutory Trusts

The NSW Government has released a Consultation Paper which proposes to introduce deemed statutory trusts whereby monies are automatically taken to be held on trust, the moment they are received, for parties further down the contracting chain. For example, where a head contractor receives payment from a principal, the head contractor (the trustee) will be deemed to hold, on trust, the proportion of that amount that is referrable to work performed by a subcontractor (the beneficiary). The same protection would apply to secondary subcontractors where a subcontractor receives payment from the head contractor.

It is proposed that deemed statutory trusts will operate such that:

• a fiduciary relationship will exist between contracting parties which extends beyond the usual debtor-creditor relationship;
• the trustee is obligated to protect the interests of the beneficiary;
• the trustee must be able to account for trust monies at all times and ensure that it is available to be paid to the beneficiaries;
• there will be a wider range of remedies available for subcontractors in the event of a trustee’s failure to make payment.

Have your say

The NSW Government is seeking public and stakeholder feedback on the Draft Bill as well as the Consultation Paper. Stakeholders have until 18 September 2018 to make submissions regarding the proposed changes.

For more information, please click here.

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