Alert – Amendment of Building and Construction Industry Security of Payment Act 1999 (NSW)

6 December 2010

A discussion paper in September this year (see here) raised a number of issues concerning the operation of the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act).

One issue raised was that if a subcontractor wishes to claim payment from a principal under the Contractors Debts Act 1997 (NSW) (Debts Act), by the time a subcontractor has been through the necessary procedures under the SOP Act and the Debts Act, the protection offered by the Debts Act is often no longer available.

To address this issue, the NSW Government has introduced amendments to the SOP Act.

How a subcontractor claims under the Debts Act

How do the amendments address this issue?

The amendments are intended to:

  • give a principal early warning that an adjudication under the SOP Act is taking place between its contractor and a subcontractor; and

  • require a principal to withhold payment from its contractor of the amount claimed by the subcontractor.

The process by which this is achieved is:

  • a subcontractor who has commenced an adjudication may serve a 'payment withholding request' on a principal.

  • a principal who has received a 'payment withholding request' must withhold payment of the amount claimed by the subcontractor, out of money that is, or becomes, due from the principal to its contractor.

  • the subcontractor must serve on the principal a copy of any adjudication determination within 5 business days and then has 20 business days to utilise the process under the Debts Act to recover the adjudicated amount from the principal.

Issues for consideration

  • For principals: If a principal does not withhold the required amount, the principal becomes directly liable to the subcontractor. Accordingly, principals will need to ensure that they have procedures in place to ensure that they withhold any amounts required. Note that a principal is not required to pay a subcontractor a withheld amount until it receives notice under the Debts Act.

  • For contractors: Contractors should note that their relationship with a principal may be effected when the principal receives notice to withhold simply because an adjudication is taking place. This will be the case even when a subcontractor makes a large unsubstantiated claim. This will also effect the cash flow to the Contractor.

When do the amendments commence?

The amending Act was assented to on 29 November 2010, with the commencement date being 28 February 2011.