On 28 February 2011, changes to the Building and Construction Industry Security of Payment Act 1999 (NSW) came into effect. The results of these changes have impacted upon many key roles within the building and construction industry, and therefore it is important for members of the industry to review and understand how these changes affect them. These amendments provide subcontractors who are owed money by contractors more incentive to use the adjudication processes to settle disputes.

Due to the amendments, there is potential for contractors to have their cash flow frozen when dealing with payment claims or when a subcontractor applies for adjudication. The changes have also made it possible for large amounts of cash to be tied up for over a month due to the operation of these amendments, and they will need to be taken into consideration by head contractors and major subcontractors when entering into future contracts.

The Security of Payment legislation provides rights for parties seeking payment for work they have done and the plant and materials they have supplied. The Building and Construction Industry Security of Payment Act 1999 (NSW) aims to maintain the stability and efficiency of the construction industry. Perhaps the most important parts of the Act are the quick adjudication of disputes over progress payments, and also how it provides for a fairer and quicker payment system for all parties in the industry.

Since the changes have been made, a subcontractor applying for adjudication under the Act is also able to issue a payment withholding request to a principal contractor. As a result of that notification, the principal contractor is required to retain the amount of the claim from any money owed to the respondent (the contractor the payment claim has been made against). These amendments apply to any adjudication proceedings that are pending or commenced after 28 February 2011. They do not apply to proceedings where an adjudication determination has already been made.

If you are a principal contractor you need to make sure you (if you are a sole trader or partnership) or your company acts on any payment withholding requests that are received.

This means that you must retain unpaid money to the value of the adjudication application until one of the following occurs:

•   The adjudication application for the payment is withdrawn;
•   The respondent makes payment to the claimant under the payment claim;
•   The claimant serves a notice of claim on the principal contractor under the Contractors Debts Act 1997
•   A period of 20 business days elapses after a copy of the adjudication determination is served on the principal contractor by the claimant.

You are a “principal contractor” if you have a requirement to pay or will have a requirement to pay a contractor for work they did or materials they supplied if the work/supply was part of or “incidental” to the work or materials that the contractor engaged the subcontractor to do or supply. As a principal contractor you will now be directly liable to a claimant if you fail to retain money when issued with a payment withholding request.  Principals and contractors can avoid this by ensuring that they have appropriate administrative procedures in place to determine the monetary amounts owing to their respective contractors and subcontractors, and to retain that amount when required to do so.

If you do not owe any money to the respondent, you are not required to retain the amount claimed in the payment withholding request. However you must notify the claimant of that fact within 10 business days of receiving the request. There are penalties for principal contractors if they do not comply with these requirements.

If you are a respondent you may be required to provide information about the principal contractor to the adjudicator, to assist the claimant in identifying who and where the payment withholding request should be served upon. There are penalties for respondents if they fail to provide this information when requested by an adjudicator.

If you are a subcontractor and you wish to serve a payment withholding request on a principal contractor, you now need to fill out the Payment Withholding Request form and a statutory declaration confirming that you genuinely believe that the amount of money claimed is owed by the respondent. You are then responsible for sending these forms and a copy of the adjudication application to the principal contractor. Once the adjudication determination has been made you are also responsible for providing a copy of the determination to the principal contractor within 5 business days.

If you withdraw your adjudication application you must advise the principal contractor within 5 business days. There are penalties for claimants if they make a false statutory declaration, or fail to notify the principal contractor of the adjudication determination or withdrawal of an adjudication application.

Here at The Quinn Group our experienced team of lawyers can assist you in understanding how the new changes impact you and your business, and help you with the completion of all relevant documents. For more information or for advice regarding any other business law issues please submit an online enquiry or call us on 1300 QUINNS (784 667) or on +61 2 9223 9166 to book an appointment.