These recent changes affect 'owner occupier construction contracts'. These types of contracts are generally building work done to residential properties where the person who engages the builder resides or proposed to reside.
These changes come into effect 1 March 2021. For all owner occupier construction contracts entered into before 1 March 2021, the previous laws will continue to apply.
What are the changes?
When a building contractor makes a payment claim under the Building and Construction Industry Security of Payment Act 1999 to the homeowner, if the contract fails to expressly outline when the progress payments become due and payable, payment should be made 10 business days after the payment claim was made.
A homeowner who has been served a payment claim may reply by providing a payment schedule to the building contractor. There are strict timeframes for the homeowner to provide a payment schedule. These are:
- within the time outlined in the construction contract, or
- within 10 business days after the payment claim is served (whichever is earlier).
Penalties apply if the homeowner does not pay the building contractor on time, including suspension of the construction work under the construction contract and interest payable on the unpaid amount of a progress payment.
Why were these recent changes made?
Security of Payment laws are designed to create a regular cash flow for building and construction contractors by mandating progress payments.
Up until now, Security of Payment laws did not apply to owner occupier construction contracts.
This meant builders (head contractors) who carried out residential construction work were not able to make a payment claim against a homeowner (principal), even though subcontractors who carried out work on the same project could make such claims against the builder.
This was putting builders in a difficult financial position if the homeowner had not paid the builder, but the builder was obliged to pay subcontractors.
While the relationship between a residential builder and a ‘mum and dad’ homeowner is of a different nature to that of a builder and subcontractor, residential builders face similar cash flow issues to subcontractors, including insolvency, when they do not receive prompt payment for building work carried out.
Adding owner occupier construction contracts to Security of Payment laws will ensure builders and subcontractors in the building and construction industry are being paid promptly for their work.
Security of Payment Guide
The Security of Payment Guide provides easy-to-read guidance on key aspects of the Security of Payment legislation.
From 26 June 2021 it will be mandatory for all construction contracts with a value of over $20,000 to contain the Security of Payment Guide. This is prescribed in clause 8 of the Home Building Regulation 2014.
After 26 June 2021, not including the Guide in construction contracts with a value of over $20,000 will attract a $8,800 fine in the case of a corporation and a $4,400 fine in any other case.
Further information
Earlier changes - from October 2019
The Building and Construction Industry Security of Payment Act 1999 has changed. Make sure you are aware of these changes when you sign a new contract from 21 October 2019.
- Contracts signed before 21 October 2019 are not affected by the new laws.
- Rights to progress payments and the procedure for recovering these payments have changed, but only for contracts signed on or after 21 October 2019.
- The existing exemption for residential building work involving an ‘owner-occupier’ continues to apply.
Changes to progress payments and payment claims
Rights to progress payments have changed. For new contracts, the entitlement to a progress payment is no longer triggered by a ‘reference date’. Instead, a person has an entitlement to a progress payment if work has been performed or was undertaken to be performed. This applies to all construction contracts from 21 October 2019.
Other key changes:
- You can now make monthly payment claims unless the contract allows for more frequent claims.
- A payment claim may be served from the last day of the month in which work was first carried out, or goods and services first supplied and from the last day of each subsequent month. Alternatively, if a contract makes provision for an earlier date for serving a payment claim, a claim may be served from that date.
- Only one payment claim can be served per month for work carried out (or goods and services supplied) in that month, unless the contract provides otherwise. For example: a claim can be made any time in April for work done in March, but any work already done in April to that date cannot be included in that claim. Another claim for April's work can be made on the last day of April or any time after.
- A payment claim can be for more than one progress payment and can include an amount from a previous claim. It can also include work that was performed in earlier months but not claimed yet.
All payment claims must now state that they are being made under the Building and Construction Industry Security of Payment Act 1999.
Changes to payment claim timeframes
Some due dates for progress claims have changed. The impact will depend on where you sit in the contracting chain. The table below provides a summary of the key dates including for contracts signed before 21 October 2019.
| Payment claim | New key deadlines/due dates | Old key deadlines/due dates |
|---|---|---|
| Payment by principal to head contractor | 15 business days after claim is made | 15 business days after claim is made |
Payment by head contractor subcontractor (non-residential) | 20 business days after claim is made | 30 business days after claim is made |
| Payment by head contractor to subcontractor (residential) | 10 business days after claim is made if there is no express provision in the contract | 10 days after claim is made if there is no express provision in the contract |
Terminated contracts
For contracts signed from 21 October 2019, a person can make a payment claim even though a contract has been terminated. The payment claim may be served on and from the termination date.
Adjudication
Adjudication continues to be available in certain circumstances if there are disputes about payment claims. It is important that key deadlines are met to be eligible for adjudication.
Some processes have changed slightly. Refer to the applying for adjudication page for details on the application process.
The time an adjudicator has to determine an application is the key change after 21 October 2019:
| Before 21 October 2019 | From 21 October 2019 |
|---|---|
An adjudicator will not determine an adjudication application until:
| An adjudicator will not determine an adjudication application until:
|
Under the changes, applications for adjudication can be withdrawn. Prior to an adjudicator being appointed, a claimant may withdraw at any time with notice. After appointment, a withdrawal will be of no effect if a respondent objects and the adjudicator believes it is in the interests of justice to uphold the objection. The Act ensures that an adjudicator will be paid for their services provided up until the point of withdrawal.
The process will depend on what stage the adjudication is up to. Refer to the table below for a summary of the process.
| Stage of Adjudication | Withdrawal requirement |
|---|---|
| Before an adjudicator is appointed to determine the application | Serving written notice of the withdrawal on the respondent and on the authorised nominating authority or the adjudicator |
| If an adjudicator has been appointed—before the application is determined with no objections from the other party | Serving written notice of the withdrawal on the respondent and on the authorised nominating authority or the adjudicator |
| If an adjudicator has been appointed—before the application is determined and the other party objects | The adjudicator must agree it is in the best interest of justice to continue or if the withdrawal can be made |
| A corporation goes into liquidation at any stage up to date of determination | The claim is automatically withdrawn |
Changing role of the courts
The NSW Supreme Court has been given new powers if part of an adjudication may have been affected by a jurisdictional error. The Court may make an order setting aside the whole or any part of the determination. The Supreme Court may identify the part of the adjudicator’s determination affected by jurisdictional error and set aside that part only, while confirming the part of the determination that is not affected by jurisdictional error.
Authorised Nominating Authorities
An Authorised Nominating Authority (ANA) receives the adjudication application, nominates an adjudicator and can issue an adjudication certificate. A new enforceable Code of Practice is currently being finalised and will commence early 2020. In the meantime, an ANA is required to continue to operate in accordance with their existing code of practice.
Companies in liquidation
The purpose of the Security of Payment laws is to assist claimants to maintain cash flow throughout the duration of a construction project, and to enable claimants to obtain payment on an interim basis but preserving the parties’ final rights — ‘pay-now-argue-later’. For insolvent claimants, payment would not assist the company’s cashflow and would therefore not go toward completing the construction project.
If the corporation claimant is liquidated:
- the claimant no longer needs the cash flow to run its business
- any payments by a respondent under compulsion of the Act to that claimant would, in effect, convert an interim payment into a final payment.
The law has been changed to clarify that the Act does not apply to a claimant corporation that is in liquidation.
Penalties
Penalty units have been updated for offences under the Act.
Offences include, providing false or misleading information and intentionally delaying or obstructing an authorised officer in the exercise of their functions.
A breach of these provisions attracts a maximum penalty of $110,000 for a corporation and $22,000 for an individual.
NSW Fair Trading has been given powers to enforce compliance with the laws, including the power to issue penalty infringement notices.
Executive liability
Changes have been made so that directors and other individuals involved in the management of a corporation are held liable for their involvement in contraventions of the law.
The changes apply accessorial liability to all offences under the Act which are capable of being committed by a corporation. Specifically, liability will extend to a person who is involved in contravention where the person:
- aids, abets, counsels or procures the commission of the corporate offence
- induces, whether by threats or promises or otherwise, the commission of the corporate offence
- conspires with others to affect the commission of the corporate offence
- is in any other way, whether by act or omission, knowingly concerned in, or party to, the commission of the corporate offence.
These changes only apply to the most serious offences under the Act.
Enquiries outside New South Wales
Security of Payment regimes operate in all states and territories in Australia. Contact details for the responsible agencies are provided below.
| State | Contact |
|---|---|
| Victoria | Victorian Building Authority Telephone: 1300 815 127 |
| Queensland | Queensland Building and Construction Commission Telephone: 13 93 33 |
| Western Australia | Western Australia's Building Commission Telephone: 1300 489 099 |
| Northern Territory | Department of Lands, Planning and the Environment NT Telephone: (08) 8924 7608 |
| South Australia | Office of the Small Business Commissioner Telephone: (08) 8303 2026 |
| Tasmania | Department of Justice Telephone: 1300 654 499 |
| Australian Capital Territory | Land, Planning, Building and Housing Telephone: 13 22 81 |