04 Feb 2016

Security of Payment reform returns to the agenda

by Frank Bannon, Mark Gillard

Potential changes to NSW security of payment laws are wide-ranging, and could affect payment claims, exemptions, offsets and adjudications.

Industry participants should be considering submissions to the review of the Building and Construction Industry Security of Payment Act 1999 (NSW) currently underway. NSW Fair Trading's discussion paper covers a wide range of issues relating to the operation, and potential reform of, the Act, which, if implemented, will make significant changes to the security of payment regime. Submissions must be in by 26 February 2016.

The NSW review coincides with a review of the Queensland Security of Payment legislation by the Queensland Government. 

Current review to seek submissions on further potential reforms identified by the Collins Inquiry

In 2012, following a spate of insolvencies among construction contractors, the NSW Government commissioned the Inquiry into Construction Industry Insolvency in NSW chaired by Mr Bruce Collins QC. The objective of the Collins Inquiry was to consider ways in which the incidence of contractor insolvency, and its impact on other industry participants, could be reduced. The final report issued by the Collins Inquiry was over 400 pages long and set out 44 recommendations, with a particular focus on strengthening the rights of subcontractors and suppliers.

While a number of the recommendations of the Collins Inquiry were ultimately adopted as part of the Building and Construction Industry Security of Payment Amendment Act 2013 (NSW), when the NSW Government released its initial response to the findings of the Collins Inquiry, it foreshadowed a "comprehensive review" of the Act to follow in 2015. The Government indicated that it intended to undertake trials of other proposed reforms (such as the mandatory use of Project Bank Accounts) before giving further consideration to their broader introduction.

The current discussion paper foreshadows a broad-ranging review which includes consideration of a number of proposed reforms which were identified by the Collins Inquiry. In particular, the discussion paper suggests that some recent areas of reform, such as the requirement for head contractors to hold retention payments in a trust account and the trial of using Project Bank Accounts on selected public projects, may be revisited and possibly extended.

Moreover, the discussion paper seeks submissions on other issues which were raised by the Collins Inquiry, including increasing time limits in the adjudication process and removing the right of a claimant to choose the Authorised Nominating Authority for an adjudication application.

Some significant areas which might change as a result of the review

Some of the more significant issues and potential reforms identified for specific consideration during the review include:

  • changes to the current exemptions to the application of the Act;
  • allowing payment claims to be made both up and down the contracting chain;
  • changes to the minimum payment due dates (currently 15 days for payments to head contractors and 30 days for payments to subcontractors);
  • extension of the deadline for providing a payment schedule in response to more complex claims;
  • expansion of the trust account requirement for retentions to cover the whole contracting chain (currently this requirement is limited to retention money retained by a head contractor out of money payable to a subcontractor);
  • possible introduction of project bank accounts for private sector projects;
  • whether to permit the use of offsets against other contracts‎ in cases where a subcontractor is engaged in multiple contracts with the same head contractor;
  • changes to the regulation of ANAs and the ability of parties to choose them;
  • introducing mandatory qualifications for ‎adjudicators;
  • giving adjudicators the power to extend time for a determination without the agreement of the parties;
  • the introduction of a requirement for mediation prior to an adjudication application being made;‎
  • different categories of claim with different processes/timeframes depending on the size of the claim;
  • extending the period from commission of an offence during which prosecutions can be made (currently six months for summary proceedings for offences under the Act); and
  • broadening the application of offences under the Act to include general liability for directors and limited liability on employers for actions of employees.

Have your say                                                                                               

Interested parties can make submissions to NSW Fair Trading by 26 February 2016. Clayton Utz will continue to monitor developments in relation to the review and provide in-depth analysis of any amendments to the Act which result from it.

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