Amendments to the NSW security of payment regime: what you need to know

20 August 2019

The New South Wales Government has announced that amendments to the Security of Payment Act 1999 (NSW) (the Act) and Building and Construction Industry Security of Payment Regulation 2008 (NSW) (the Regulations) will commence on 21 October 2019.

The Building and Construction Industry Security of Payment Amendment Act 2018 (the Amendment Act) and the Building and Construction Industry Security of Payment Amendment Regulation 2019 (the Amendment Regulations) provide key amendments to the existing security of payment regime in NSW. The amendments will apply to construction contracts entered into on and from 21 October 2019, construction contracts entered into before this date will still be governed by the old regime.

Key amendments to the Act

We have previously given a detailed breakdown of the key amendments introduced by the Amendment Act. A brief summary of those amendments is set out below:

Payment terms	Maximum time for payment from head contractor to subcontractor has been reduced from 30 business days to 20 business days
Payment claims	Must be endorsed with words that say it is being made under the Act in order to enliven the statutory payment regime
Reference dates	The concept of reference dates has been removed Replaced with a statutory entitlement to make a payment claim once per month and an additional final claim after termination
Adjudications	Court may sever part of an adjudicator’s decision if it is affected by jurisdictional error and enforce the valid remainder Adjudicator has 10 business days to make a determination after receiving adjudication response Claimant may withdraw an adjudication application at any point before determination
Penalties	Penalty units for offences have been significantly boosted across the board, for example, offences relating to supporting statements has increased from 220 penalty units ($22,000) to 1,000 penalty units ($110,000) Personal liability for directions and management for certain offences by their company Penalty Notices may now be issued by authorised officers

Key amendments to the Regulations

Owner Occupier	Owner Occupier construction contracts are now exempt from the security of payment regime
Penalty Notice Offences	Includes offences under the Act relating a principal contractor failing to withhold appropriate funds once served with a payment withholding request Include offences under the Regulations relating to retention money

Severance of adjudication decision

As noted above, the Amendment Act now provides a mechanism for the Court to sever parts of an adjudication that are ‘infected’ by jurisdictional error. This concept recently received judicial consideration in WA, where the majority of the Court of Appeal found that the common law principles of severance could be applied to remove the invalid portion of the adjudication determination.[1]

A recent English case also dealt with the issue of severance of an adjudication. The decision in Willow Corp S.à.r.l v MTD Contractors Limited [2019] EWHC 1591 (TCC) on 25 June 2019 permitted the part-enforcement of a flawed adjudication decision. While the case dealt with an error of law, rather than a jurisdiction error, the case highlighted the common sense approach that an adjudicators decision may be severed where the error may be contained to a specific and contained issue.

In this regard, the amendments to the Act may be seen as responsive to a growing trend of saving adjudicators’ decisions where possible. Given that adjudicators’ decisions are by their nature interim, this approach aligns with the purpose of the legislation, namely to maintain cash flow certainty for subcontractors. Queensland still offers no assistance in relation to an adjudication determination which contains jurisdictional error,[2] highlighted by a recent decision handed down by the Queensland Supreme Court.[3]

Looking ahead

Industry participants must ensure they are aware of the 21 October 2019 commencement date. Some key practical tips are:

Be mindful of what may or may not constitute a payment claim. Without endorsement, a payment claim will not enliven the Act.
Contract drafting will have to reflect the reduced time for payment between head contractors and subcontractors.
Consider if a jurisdictional error contaminates the whole adjudication decision or whether it is a discrete, severable portion of the decision.

_[1]_{Duro Felguera Australia Pty Ltd v Samsung C&T Corporation [2018] WASCA 28}

_{[2] BM Alliance Coal Operations Pty Ltd v BGC Contracting Pty Ltd [2015] 1 Qd R 228}

_{[3] KDV Sport Pty Ltd v Muggeridge Constructions Pty Ltd & Ors [2019] QSC 178}

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