Revised SOP Amendment Bill overhauls entitlement to recover progress payments

4 mins 31.10.2018 Richard Crawford and Andrew Hales

In response to significant stakeholder feedback, changes to the SOP Amendment Bill amending the Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act) passed through the NSW Legislative Council on 24 October 2018. The new amendments go further than some of the changes proposed in the earlier version of the bill released for consultation, primarily to sections 8 and 13, together with further refinements to the adjudication process and offences. On the other hand, some of the initial proposed changes have been removed from the bill. See our August 2018 edition of Construction Law Update for our earlier analysis of the bill and other amendments which remain unchanged.

Key new amendments

Abolition of entitlement based on reference dates and simplification of the process for recovering a progress payment

Section 8 has been amended so that the entitlement to receive a progress payment is no longer triggered by a 'reference date'. The entitlement is now activated by the performance of work or the supply of goods and services under a construction contract. Section 13 has been amended to clarify how a party entitled to payment under the new section 8 can recover a progress payment.
A new section 13(1A) provides that a payment claim may be served on and from the last day of the month in which work was first carried out (or related goods and services first supplied) under the contract and on and from the last day of each subsequent month. This ensures that claimants can make a monthly payment claim. Parties can also stipulate a different monthly date under new section 13(1B). Parties may also agree that payment claims are to be made more frequently than monthly (section 13(5)).
A new subsection 13(1C) entitles a subcontractor to serve a payment claim on and from the date of termination of a contract. This amendment closes the loophole identified by the High Court in Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd [2016] HCA 52.
A head contractor will be subject to the shorter 20 business day deadline for paying progress payments to its subcontractors (section 11(1B)(a)). However, the revised Bill omits the proposed reduction of the existing 15 business day deadline for payments from a principal to a head contractor.

Amendments to the adjudication process

As in the consultation bill, a new section 17A confirms that a claimant may withdraw an adjudication application prior to the appointment of an adjudicator at any time with notice. However, section 17A(2) provides that after the appointment, a withdrawal will be ineffective if the respondent objects and the adjudicator believes that it is in the 'interests of justice' to uphold the objection. This is a broad test and the adjudicator must consider the objectives of the Act – prompt payment – against factors such as that it may be unjust to force a claimant to incur additional costs in proceedings that it no longer wishes to press.

Section 32A(2) explicitly empowers the NSW Supreme Court to sever part of an adjudicator's determination infected by a jurisdictional error whilst confirming that the balance is enforceable. This overcomes the decision in Multiplex Constructions Pty Ltd v Luikens & Anor [2003] NSWSC 1140, which invalidated the entirety of a determination where one part was affected by a jurisdictional error.

Refinement of penalties

The SOP Amendment Bill largely upholds the increased penalties contained in the consultation Bill, in particular those relating to directors and other officers of a corporation. The statutory limitation period remains at two years after the date of an offence. However, there has been a watering down of the criminal sanctions attached to providing false or misleading information (section 32P). In particular, the maximum three month imprisonment for offending individuals has been removed.
Under a new subsection 35(4), regulations may prescribe information that is required to be provided to a subcontractor when entering into a construction contract. The regulations may also create offences punishable by a penalty up to 100 penalty units in relation to these requirements. Further ministerial powers of delegation are provided in the new section 36A.
Although the investigative and enforcement powers proposed in the consultation bill remain largely unchanged, the SOP Amendment Bill has inserted a new section 32E which directs that notices given under Part 3A of the Act (investigation and enforcement powers) have extraterritorial application. As long as the matter affects or relates to construction work carried out in NSW, a notice may be given to a person in respect of a matter even though the person is outside NSW or the matter occurs outside NSW.

Next Steps

It is proposed that regulations will be developed following further stakeholder engagement. It is expected that an exposure draft of the regulations will be released for public consultation early next year.