NSW Releases Draft Construction Security of Payment Regulations for Public Consultation

Tuesday 7 July 2020 @ 11.43 a.m. | Legal Research

On 26 June 2020, NSW Fair Trading released the draft Building and Construction Industry Security of Payment Regulation 2020 (NSW) (“the draft Regulation”) for public consultation.

The draft Regulation aims to replace the existing Building and Construction Industry Security of Payment Regulation 2008 (NSW) (“the 2008 Regulation”), and to better support the changes made in late 2019 to the Building and Construction Security of Payment Act 1999 (NSW) (“the Act”).

In 2018, the Act was reviewed in order to improve the level of security provided to subcontractors to ensure that they received payment for completed work. In 21 October 2019, the Building and Construction Industry Security of Payment Amendment Act 2018 (NSW) commenced and amended the Act in order to introduce a new payment structure to support faster payments and improve dispute resolution. These reforms aimed to address poor payment practices and the high incidence of insolvencies in the building and construction industry.

Changes under the draft Regulation

One of the key changes under the draft Regulation is the extension of trust obligations for retention money to a broader scope of building and construction projects. Under the 2008 Regulation, head contractors are required to pay retention money into a trust account for construction projects valued at a minimum of $20 million. Retention money is defined under section 12A(5) of the Act as money held and payable by the head contractor to a subcontractor, as security for the performance of the construction contract. The draft Regulation proposes that the threshold for project values requiring retention money be reduced to a minimum of $10 million for projects entered into from 1 January 2021.

In order to offset the increased regulatory burden arising from the changes in project value threshold, the draft Regulation no longer requires annual reporting in relation to the operation of retention money trust accounts.

The draft Regulation also seeks to introduce qualifications and eligibility requirements for adjudicators. Clause 19(1) of the draft Regulation proposes that a person applying to be an adjudicator will be required to have one of the following:

“(a) a degree or diploma in architecture, building surveying, quantity surveying, building and construction, construction management, engineering or law conferred by an Australian or foreign university or tertiary institution and at least 5 years’ experience in—

(i) the management and administration of construction contracts, or

(ii) the resolution of disputes in connection with construction contracts, or

(b) at least 10 years’ experience in the management of construction contracts or the resolution of disputes in connection with construction contracts.”

Furthermore, clause 19(2) of the draft Regulation proposes that a person will not be eligible where:

“(a) the person has not completed the required continuing professional development, or

(b) a reasonable person would conclude the person has an actual or perceived conflict or would not adjudicate impartially.”

The required continuing professional development is to be completed each year by an adjudicator, and will be specified under the Secretary’s guidelines, published on the NSW Fair Trading website.

The draft Regulation also seeks to:

  • Creates a new obligation from head contractors to deposit the retention money into the trust account within 7 days of receiving it
  • Introduce an obligation to supply trust account records to subcontractors if their money is held in trust

Consultation Details

Some of the questions posed for the consultation from the Regulatory Impact Statement include:

“Do you support maintaining the exemption for owner occupier construction contracts? Why or why not?

Are there any reasonable circumstances in which retention money could not be deposited into a trust account within 7 days?

Is there any reason why a subcontractor should not be provided with a copy of the ledger for retention money?

Should it be mandatory for all adjudicators to have specific qualifications and experience? If not, why?”

Consultation of the draft Regulation is currently open. Further details on submissions and the progress of the consultation can be found on the NSW Fair Trading website.

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[Draft] Building and Construction Industry Security of Payment Regulation 2020 (NSW) and regulatory impact statement available from TimeBase’s LawOne Service

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