Local Government Legal

Local Government Legal prepares a regular email newsletter with legal updates on relevant court judgements and a summary and analysis of legislative changes.

September 2014 – Amendments to the Building and Construction Industry Security of Payments Act 1999

The Act is intended to create a structured payment scheme for all “construction contracts” which is defined to mean “a contract or other arrangement under which one party undertakes to carry out construction work, or to supply related goods and services, for another party. [emphasis added]”

The definitions of construction work and related goods and services are contained in sections 5 and 6 respectively. Both terms are very broadly defined and should be interpreted widely.

For example, “construction work” includes:

  • The construction, alteration, repair, restoration, maintenance, extension, demolition or dismantling of buildings or structures (s5(1)(a));
  • The construction etc of works including walls, roadworks, telecommunication apparatus and installations for purposes of land drainage or coast protection etc (s5(1)(b));
  • The installation of any building, structure or works of fittings including heating, lighting, air-conditioning, security and communications systems etc (s5(1)(c))
  • The cleaning of buildings, structures or works carried out in the course of their construction etc (s5(1)(d)
  • Preparatory work such as site clearance and the erection of scaffolding (s5(1)(e);
  • Painting or decorating (s5(1)(f).

For example, “related goods and services” includes:

  • Materials and components to form part of any building structure or work and plant or materials for use in construction work (s6(1)(a));
  • The provision of labour to carry out construction work and architectural, engineering and other services in relation to construction work (s6(1)(b)).

If the contract is a construction contract, section 7 provides that the Act will apply to the contract unless it falls within an exception provided for in section 7. For example, a construction contract that forms part of a loan agreement etc, or a construction contract for the carrying out of residential building work.

Amendments to the Building and Construction Industry Security of Payment Act 1999 (the Act) and the Building and Construction Industry Security of Payment Regulation 2008 (the Regulation) came into force on 21 April 2014. The purpose of the reforms is to provide greater protection for subcontractors and promote cash flow and transparency in the contracting chain.

The recent changes to the Act and Regulation can be summarised as follows:

  • Previously, parties to a construction contract could agree when payment would be made. The Amending Legislation imposes maximum payment periods, as follows:
    • by a principal to a head contractor, 15 business days from the date of the making of a payment claim;
    • to a subcontractor, 30 business days from the date of the making of a payment claim.

A contract may provide for a due date for payment that is earlier than the maximum term.

  • Previously, a payment claim was required to be identified as a payment claim under the Act. As a result of the amendments, provided the payment claim relates to construction work or related goods or services, it will be a claim under the Act.
  • Head contractors are now required to provide a ‘supporting statement’ (in the form prescribed in Schedule 1 of the Regulation). This includes a declaration that all subcontractors have been paid all amounts that have become due and payable in relation to the construction work concerned.
    • Penalties of up to $22,000 and/or 3 months imprisonment may be imposed where a head contractor has knowingly provided false or misleading information.
    • A failure to serve a supporting statement will not necessarily invalidate the payment claim to which it relates, so a principal should still respond to a claim in accordance with the Act even if it does not attach a supporting statement.
  • The Act now provides for the establishment of a regime in the Regulation for the retention of monies by head contractors in a segregated trust account. As yet however no such Regulation has been made.

The changes only apply to contracts entered into after the Amending Legislation came into force (21 April 2014) so there will be a need to carefully manage contracts under the correct statutory regime. It may be prudent to amend some contracts so that they are consistent with the amended legislation, particularly in relation to the timeframes for payment noted above. Similarly, now that all invoices from contractors are claims under the Act, some revised procedures may be required so that claims are correctly identified when received and dealt with in accordance with the revised time periods and statutory procedures.

Note: This information is not to be relied upon as legal advice.

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