After several months of speculation, the reforms to NSW security of payment legislation are now expected to commence this month. Developers, builders and construction contractors that operate in NSW must ensure that their procurement, management and payment systems accommodate the new changes.

The government has announced that the amendments to the Building and Construction Industry Security of Payment Act 1999 (NSW) will come into effect from 21 April 2014. Formal proclamation of the commencement of the amendments has not yet occurred, but the NSW government has revealed the commencement date on its ProcurePoint website.

It is important that industry participants understand that the reforms will only apply to contracts entered into on or after 21 April 2014. Contracts entered into before proclamation of the Act will not be affected.

In previous In Briefs (links to the right), we outlined four key reforms featured in the amendment Act. Upon proclamation, two of the reforms will come into effect immediately:

  • Maximum payment terms will apply to all construction contracts. Contracts must provide for payment terms of no more than 15 business days for payments to head contractors and 30 business days for payments to subcontractors.
  • A payment claim will no longer need to include an endorsement that it is made under the Act.

The remaining reforms, which will only come into effect when regulations are made, are:

  • payment claims made by a head contractor include a supporting statement declaring that all subcontractors have been paid what is due and payable; and
  • head contractors deposit any retention money withheld from subcontractors into a trust fund.

Exempt residential construction contracts will still not attract the Act's operation. The reforms will not apply to Contracts that are connected with such exempt residential construction contracts.

The government has indicated on the ProcurePoint website that regulations for the supporting statement reform will be introduced by 21 April 2014. The prescribed form of that statement is not yet available, but the government has indicated that it will only require a head contractor to confirm that payments have been made to subcontractors it has directly engaged. The statement will not, for example, require the head contractor to confirm that subcontractors further down the contracting chain have been paid, which has been flagged by some as a potential issue.

Interestingly, the government has made very little mention of the retention money trust scheme, which it put forward in its Consultation Paper in October 2013. Over previous months, the government has been consulting industry participants for its views on this trust scheme, which is proposed to be administered by the Office of the Small Business Commissioner. It appears from government's announcement that this reform is still some way off.

The government has published a series of fact sheets on the ProcurePoint website offering basic guidance to industry on the operation of the first three reforms. It has also foreshadowed the publication of a compliance and enforcement policy, which will include further guidance material on the reforms.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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