NSW Security of Payment discussion

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Coinciding with Queensland’s review of the Security of Payment legislation, New South Wales Fair Trading has released a discussion paper (Paper) covering the operating and possible opportunities for reform of the Building and Construction Industry Security of Payment Act 1999 NSW (the Act).

The most recent reforms

In response to a spate of insolvencies in the Construction industry, in 2012 the NSW Government launched the Collins inquiry, an independent inquiry into insolvency in the construction industry. The final report, released in January 2013 consisted of 44 recommendations focusing on strengthening the position of subcontractors. Following the collins Inquiry the NSW government made amendments to the Act. The three key changes made were:

  • the establishment of maximum payment terms of progress payments;
  • the requirements of a supporting statement declaring that all subcontractors have been paid; and
  • the removal of the requirement to identify that a payment claim is made pursuant to the Act.

In early 2014, during Parliamentary conduct a full review of the Act in 2015.

The Paper comes as an important first step towards a formal review of the Act and seeks submissions on issues which were raised by the Collins Inquiry.

Current proposals for reform

The Paper is organised into five key areas of discussion. The prominent issues and ideas for potential reform put forward by NSW Fair Trading are the following:

1. Scope and operation of the Act

  • Contracts for residential building work made with owner occupiers are currently exempt from the operation of the Act. The Paper suggests the possibility of the Act extended to cover all residential building projects. This approach follows that of Tasmania, Western Australia and the Northern Territory. If extended, a minimum project value of $1 million could be introduced.
  • The Paper also discusses the possibility of extending the current 6 month time limit for taking action under the Act.

2. Progress Payments

  • The paper makes a comparison with the Queensland equivalent security of payment legislation where claimants have six months from the last day work was carried out.
  • The current West Coast Model enables claims up and down the contractual chain. The widening of the operation of the Act in this way has been put forward as a potential area for reform.
  • In 2014, the requirement for payment claims to state that they are being made under the Act was removed. The Paper questions whether this requirement should be reintroduced to clarify the payment process.

3. Adjudication of Disputes

  • There are a number of options for reform discussed in the Paper involving Adjudicators and Authorised Nominating Authorities. These range from increasing the qualification requirements of adjudicators to the establishment of an independent process for the appointment of an adjudicator. This proposal is similar to the current system in Queensland.

4. Rules for different sized projects

  • The current processes under the Act are the same regardless of the size or complexity of the project or the amount in dispute. Concerns have been raised that the current Act is suitable for simple projects but unsatisfactory for the more complex and higher value disputes. Suggestions have been made for a dual system (as in Queensland) with greater flexibility in timeframes for complex claims.

5. Supporting statements and retention money trust accounts

  • The requirement for retention money trust accounts commenced in May 2015. This imposed an obligation on head contractors for retention money to be held in trust for contracts worth $20 million or more. The paper questions whether this threshold should be lowered, or even imposed on all contracts.
  • The Paper also seeks feedback on the effectiveness of supporting statements by head contractors declaring that they have paid all monies due to subcontractors.

In contrast to Queensland’s discussion paper, there is no limit to the scope of reforms which may be considered. Every aspect of the Act is open to comment and possible reform. The true scope of possible reforms will have become more once a full report has been collated.

Industry professionals are encouraged to use this opportunity for comment on almost any aspect of the Act. Submissions close on 26 February 2016. 

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