The NSW Department of Finance Services and Innovation has issued an Options Paper and is seeking feedback from stakeholders and the public on reforms to the Security of Payment Act. This opportunity provides stakeholders with the chance to voice their opinions on the timing and extent of the proposed changes, which have important practical implications. The amendments require administrative and legislative change to bring into effect, and include tighter payment timeframes, new liabilities for directors, and a more robust investigative and enforcement framework, amongst other reforms.
What are the Security of Payment Reforms?
On 28 November 2018 assent was given to the New South Wales Building and Construction Industry Security of Payment Amendment Act 2018 (the Amendment Act). It has not, however, yet commenced. The Amendment Act includes reforms to promote cash flow in the supply chain, increase transparency of payments and provide greater protections to subcontractors. The reforms seek to give subcontractors greater confidence about being paid on time, and removes the concept of the 'reference date' as a pre-condition to entitlement to claim.
Key reforms include:
- reduction of the maximum duration for a head contractor to pay a subcontractor from 30 to 20 business days;
- a new payment structure that allows subcontractors to make a payment claim at least once per month for work (unless otherwise provided for in the construction contract), and to make a final claim after the contract is terminated;
- increased penalties and personal liability for directors and managers;
- potential extension of the retention trust account requirements to construction projects with a value of $10 million or more; and
- increased compliance and enforcement powers.
Some of the reforms require legislative and administrative changes before implementation. Other reforms impose significant changes to industry practices, requiring an appropriate transitional period before commencement. These changes mean stakeholders will need to watch for new liabilities, and companies need to ensure they meet the new timeframes as well as review internal processes to ensure compliance.
What is the NSW Fair Trading Options Paper?
In December 2018, NSW Fair Trading released an options paper titled Security of Payment Reforms- Implementation Options (the Options Paper) which sets out various options for the commencement of the reforms, seeking industry feedback. NSW Fair Trading also seeks feedback on the matters that will be included in the amending Regulation.
Feedback will be used to assist the drafting process. An exposure draft amending Regulation will be released for public comment in early 2019.
The Options Paper identified the following categories of reform and a proposed timeframe:
- Reforms with a minimal transition period which do not require subordinate legislation or significant preparation time, proposed to commence in February 2019. This category includes reforms that change investigative and enforcement provisions, increase penalty units for offences, prohibit a corporation in liquidation from making payment claims, as well as new Supreme Court powers to strike down, where appropriate, part of a challenged adjudicator's determination affected by jurisdictional error, amongst other reforms;
- Reforms with a transitional period which are likely to have a direct impact on industry practices and require preparation time before commencement with a proposed commencement date of June 2019. This category includes reforms to the payment period and payment claim provisions amongst other reforms; and
- Reforms requiring subordinate legislation or administrative changes before commencement, proposed to commence in December 2019. This category includes the removal of the 'owner-occupier' exemption, reforms to the keeping of records and inspection of records by subcontractors, reforms allowing regulations to prescribe information to be given to a subcontractor which will assist in better understanding of the operation of the Act, a code of practice for Authorised Nominating Authorities, accessorial liability of directors and managers of companies, and the reduction of project value threshold for retention money requirement.
The scope for invited responses ranges from comment on proposed start dates only, through to whether some changes should have prospective effect only or be limited to specific parts of the contracting chain. The Options Paper can be accessed here.
Call for submissions
Please contact us if you would like any assistance with submissions or have any queries about the reforms.
NSW Fair Trading is encouraging the public to review the Options Paper and provide comments online directly to NSW Fair Trading. Submissions will close on 28 January 2019. Submissions will be publicly available.
Once the consultation period has closed, feedback will be analysed and options assessed.