01 Oct 2010

Reforms proposed to Security of Payment Act regime for NSW

The NSW Department of Services, Technology & Administration has released a discussion paper setting out possible areas of reform for the regime applying to contractors claiming payment under the Building and Construction Industry Security of Payment Act 1999.

The changes proposed to the Act will have important implications for owners/principals and contractors alike. Some of the key reforms proposed in the discussion paper are set out below.

Submissions on the discussion paper and the issues it raises are due by 8 October 2010.

Exclusion of "predatory claiming practices"

One of the principal aims of the proposed reforms is to prevent what it describes as "predatory claiming practices". This label (applied to certain conduct on the part of some claimants) reflects the concerns of many involved in the construction industry that the Act is sometimes used in an aggressive or predatory manner.

Certain types of claims may be overly complex or include excessive documentation. As a result, it is difficult for owners/principals to adequately respond to, or for an adjudicator to assess, the claim in the short timeframes prescribed by the Act.

The discussion paper proposes to exclude the ability of claimants to bring:

  • prolongation claims (also referred to as "acceleration", "delay", "disruption" or "loss of productivity" claims);
  • claims for damages for breach of contract or breach of legislation (such as the Trade Practices Act 1974); or
  • claims for latent conditions.

Additional wording to be included in all payment claims

The Act currently requires that payment claims indicate clearly that they are made under the Act. The discussion paper proposes that all claims should also carry the following additional wording:

"If the claim is not paid or otherwise dealt with in accordance with the procedures or periods prescribed by the Act, the claimant will be legally entitled to pursue the claim under the adjudication process, or in certain circumstances, judgment may be entered against the principal for the full amount of the claim."

This wording is intended to ensure that respondents are alerted to the possible consequences of failing to comply with the requirements of the Act in responding to a payment claim.

Time limit for claims

It is also proposed that there be a 12 month time limit for bringing a claim. While the Act currently provides for a 12 month time limit, this has been interpreted by the courts as only requiring some of the work claimed to have been performed in the last 12 months.

In a move to avoid claims under the Act being brought years after the relevant work was completed, it is proposed that all work to which a claim relates must have been completed within the previous 12 month period.

Interest to be charged on overpayments

The discussion paper proposes that interest apply to overpayments resulting from adjudications. In other words, where a progress payment determined by an adjudicator is in excess of the progress payment finally determined in accordance with the contract (for example, by arbitration or a court), interest would be charged on the amount of the overpayment.

Other proposed reforms

Other proposed reforms have important implications for the adjudication process, in particular:

  • changes to the criteria for eligibility to operate as an authorised nominating authority;
  • specified levels of qualifications, experience and performance for potential adjudicators;
  • provision of adjudication applications and responses to the adjudicator at the same time;
  • setting a ten day period for the adjudication determination commencing once both the adjudication application and response are received;
  • the possibility of a subcontractor "joining" a principal in a claim brought by the subcontractor against the head contractor; and
  • consideration of limiting the fees adjudicators can charge to encourage the use of the system for small claims.

Clayton Utz will continue to monitor developments in relation to the reform of the Act.


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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.