Higher penalties and offences for directors and managers under the NSW Security of Payment Act come into effect soon – are you ready?

22 Nov 2018

Significant changes to the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act) – including to compliance and enforcement – will soon be in force, following the passage yesterday of the Building and Construction Industry Security of Payment Amendment Bill 2018. 

You now need to review multiple internal processes to avoid breaching the Act (including new offences) and ensuring you meet tighter payment timeframes. Directors in particular will need to watch out for new liabilities, including certain new offences relating to supporting statements.

Increased penalties and personal liability for directors and managers

A key focus of the Bill is on compliance and enforcement with the provisions of the SOP Act. 

Directors and certain managers of a corporation would be guilty of an offence if:

  • they are an accessory to an offence committed by the corporation; or
  • for certain offences relating to supporting statements under section 13(7) and (8), if the director or manager knows or is recklessly indifferent as to whether the offence would be or is being committed, and fails to take all reasonable steps to prevent or stop the commission of that offence.

Penalties for a range of offences will be increased significantly, particularly for corporate offenders.

Specially appointed "authorised officers" will have the power to require the production of documents or answers to their questions, enter premises without a search warrant (other than residential premises), apply for search warrants, and issue penalty notices for certain offences (the recipient of the penalty notice can pay the penalty notice or contest the matter in court).

Finally, Authorised Nominating Authorities (ANAs) will be required to comply with a new code of practice (a draft of which is yet to be published).  Contravention of this code could result in the Minister withdrawing an ANA's authority to nominate adjudicators, and could (in certain cases) constitute an offence with a maximum penalty of 50 penalty units ($5,500).

Reference dates

The Bill will amend the SOP Act to provide a statutory minimum entitlement to a progress payment at least once per month in which work is carried out (each such date called a reference date).  This applies even when the construction contract provides for milestone payments or a single one off payment.

Parties can agree to more frequent reference dates (eg. weekly). 

Also, if the construction contract is terminated, an additional reference date will occur on the day after the date of termination. 

Requirement for endorsement

The requirement to include in a payment claim a statement that the payment claim is made under the SOP Act will be reintroduced into the SOP Act.

Due date for payment

The time for payment by head contractors will be reduced to 20 business days (currently 30) after the payment claim is made. 

No assistance for claimants in liquidation

Recently, there has been a number of court decisions about whether a claimant who is in liquidation can rely on the provisions of the SOP Act to recover moneys.  Obviously, the issue faced by respondents in such circumstances is that any money paid to the claimant might not be recoverable.  Notably, the courts in NSW and Victoria have adopted different positions on this issue. 

The Bill will amend the SOP Act to provide that a corporation in liquidation cannot serve a payment claim under the SOP Act, and cannot take any action in relation to or enforce a payment claim or an adjudication determination. 

Application to residential construction contracts

The Bill will remove the owner-occupier exemption from the SOP Act.  Owner-occupiers considering entering into construction contracts should consider carefully their obligations under the SOP Act, and ensure that the proposed construction contract is consistent with those obligations. 

Owner-occupiers should also ensure that they comply strictly with the requirements of the SOP Act, in particular the timing requirements of the SOP Act for the giving of payment schedules, failing which an owner-occupier could be liable to pay the entire amount of a payment claim.

Judicial review

Under the Bill, an adjudication determination affected by jurisdiction error can now be set aside in whole or in part. 

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.