The Building and Construction Industry Security of Payment Amendment Bill 2013
) puts into effect several recommendations of the Collins Inquiry into Construction Industry Insolvency (November 2012). This Bill is the first of a number of reforms likely to arise from the Collins Inquiry.
The Bill proposes significant changes to the Building and Construction Industry Security of Payment Act 1999
). It is uncertain when the Bill will come into force, but the Government has indicated that strengthening the Act is a priority. The amendments will take effect with prospective effect only (i.e. will apply only to contracts entered into after the Bill comes into force).
These amendments are significant. Their intent is to provide greater protection for subcontractors (including suppliers of services) from the effects of head contractor insolvency, however other proposed changes will have significant consequences in relation to the administration of construction contracts, affecting head contractors and owners/principals higher up the contractual chain.
In this article we have assumed the typical contract structure set out in the diagram below:
Times for payment
The proposed amendments aim to keep cash flowing to those lower in the contractual chain and therefore reinforce the objective of the Act.
Section 11 of the Act will be amended so that:
(a) A progress payment submitted by a "principal" to a "head contractor" will become due and payable no later than 15 business days after the payment claim is made.
(b) A progress payment to be made to a "subcontractor" will become due and payable no later than 30 business days after the payment claim is made.
The current Section 11 makes a payment due and payable in accordance with the construction contract, or if no time is provided, 10 business days after the payment claim is made. The 10 business day period can, therefore, currently be overruled by contractual provisions which frequently extend payment periods to 60 and even 90 days. Under the Bill's changes, a construction contract cannot mandate a "due and payable" date that is later than the relevant 15 or 30 business day period specified in the Act.
Those amendments will affect the cash-flow of subcontractors, head contractors and principals. This may also create problems for principals and head contractors if their accounting software or company policies (including, for example, having to obtain sign off from an overseas parent company) require time frames longer than the maximum periods mandated by the Act.
Abolition of need to refer to the Act in payment claims
Section 13 will be amended so that the claimant no longer needs to identify the claim as being made under the Act. This amendment will not apply to subcontracts under exempt residential construction contracts (contracts connected with residential work being performed for a party who resides in or proposes to reside in the premises). This is to prevent participants in the owner/occupier residential sector, who are less familiar with the Act, being caught out by its application. This exemption is unlikely to affect medium or large scale contractors.
This amendment means that the recipient of any progress claim made under a construction contract entered into after the Bill comes into force must prepare its response (payment schedule) on the assumption that the claimant could proceed to adjudication under the Act in respect of each and every payment claim. This will significantly increase the administrative burden on recipients of progress claims, as recipients will have to ensure they include in Payment Schedules/Certificates all reasons for non payment, including reasons related to the form of the progress claim itself. If a recipient fails to provide a reason, it will be precluded (by existing section 20(2B)) from raising that reason (no matter how cogent) in its subsequent adjudication response if the dispute proceeds to adjudication.
Supporting statements regarding payment of subcontractors
Section 13 will be amended so that it becomes an offence for a head contractor to submit a claim to a principal, unless the claim is accompanied by a supporting statement. Failure to do so will render the claimant guilty of an offence and could attract a fine of up to 200 penalty units (or $22,000.00).
The content of the "supporting statement" will be defined by Regulations to be issued under the Act, but will include a declaration that full payment has been made of all sums due and payable to subcontractors.
Furthermore, knowingly providing a false or misleading statement will render the claimant guilty of an offence, and could attract either (or a combination of) a 200 penalty unit fine or 3 months' imprisonment.
Investigation relating to false claims
The Director-General will be able to appoint "authorised person(s)", to investigate compliance with the new provisions. An authorised person will have powers to demand evidence of compliance from head contractors. Refusal to comply will attract a potential combination of a 200 penalty unit fine and 3 months' imprisonment.
What you will need to do
In relation to contracts made after the Bill's amendments come into force, principals will have to:
Prepare every payment schedule/certificate on the assumption that the Act applies, compelling exhaustive inclusion of all reasons for withholding payment.
Review and, if necessary, adjust accounting practices and payment authorisation procedures to enable payment of any amount due and payable to contractors within the maximum time frames required by the Act.
Head contractors will have to:
Review and, if necessary, adjust their accounting practices and payment authorisation procedures to ensure payment to subcontractors within the time frames set out in the Act.
Be diligent in providing accurate supporting statements to avoid potential criminal sanction.
Be prepared to respond to investigations checking compliance with the supporting statement provisions.
Antony Faisandier also contributed to this alert.