Building and Construction Industry Security of Payment Act 1999 now applies to Contracts for Residential Building Work which were entered into after 1 March 2021 - Owners beware, these changes that can adversely affect you

08/05/2023

Since 1999 the Building and Construction Industry Security of Payment Act 1999 has applied in New South Wales and similar Acts apply in other States and Territories which allows a person who undertakes building work to recover from the person for whom the work is undertaken, moneys for the work undertaken pursuant to the Contract or an “arrangement” to carry out the building works.

The Security of Payment Act was introduced to enable a person building who had undertaken work, to recover moneys due for their work. The law restricted the person for whom the building work was being undertaken to avoid the provisions of the Security of Payment Act.  The Building and Construction Industry Security of Payment Act 1999 provided that the person for whom the work was undertaken could not contract out of his or her obligations under the Security of Payment Act.

The Security of Payment Act has always had provisions which identified the circumstances and the construction work that was subject to the Security of Payment Act. 

One of the previous exceptions was that the Builder or Contractor undertaking work on a residential building for a person who intended to or was living in the building the subject of the Contract or arrangement and as such, could not make a claim under the Building and Construction Industry Security of Payment Act 1999.

However there has been a change to the Security of Payment Act which now allows for the Home Builder to utilise the provisions of the Home Building Act in relation to works carried out under a Building Contract made on or after 1 March 2021.

This has changed the circumstances in which Home Builders can now utilise the provisions of the Security of Payment Act.  As indicated for example, in our article dated 3 May 2023, there are default provisions in favour of the Claimant if the Owner does not respond to set time limits that apply.

A Builder for example, could make claims and if they are not paid as required under the Security of Payment Act, the Builder may choose to not take action to enforce its rights either under the Contract or in accordance with the provisions of the Security of Payment Act during the building process. 

However because a Builder or Contractor does not utilise the provisions of the Building and Construction Industry Security of Payment Act 1999 on each and every occasion that the Builder would be entitled to utilise those provisions, there is no restriction on the Builder utilising those provisions in relation to later Payment Claims that complies with the Building and Construction Industry Security of Payment Act 1999 (SOP Act).

It is important to note that a Builder can make a Payment Claim under the SOP Act usually, once a month or as provided for in the Contract.  If the Claimant does not proceed to an Adjudication Application, the Claimant Builder or other person seeking payment for building works may include in a subsequent Payment Claim amounts that were included in previous Progress Claims which had not been paid.

Just because a Builder has not utilised the provisions of the Security of Payment Act to proceed to Adjudication, it does not mean that the Builder will not seek to utilise those provisions in relation to subsequent claims.

There are critical relationship issues that may determine the circumstances. 

Owners should be aware that strict time limits apply.

We recommend that the Owners become aware of the processes and prepare and keep appropriate records to enable them to respond to each Payment Claim.

It is critical that Owners are aware of the provisions relating to claims and the effect of not responding to the claims as required under the Security of Payment Act.

It is important to obtain advice prior to entering into a Building Contract.  Further even if you have not obtained advice prior to entering into the Contract, it is critical to be aware of the circumstances, risks associated with the process under the SOP Act and separately, the terms of the Contract.  We can provide suggestions to enable you to prepare for such a claim. 

Even if the claim is for an amount that is not properly payable, the default position under the Building and Construction Industry Security of Payment Act 1999 is that you must pay and then if you wish, you can seek to recover any overpayment in a separate Court case to recover the overpayment.  A case to do this is likely to be expensive and involve associated risks.

Litigation is expensive, time consuming and an emotional drain and should be avoided if it can be avoided. 

The provisions of the Security of Payment Act have previously been applicable to Subcontractors and other persons undertaking building works for residential building where the Contract or arrangement was not directly with the Owner who intended to live in the property but rather for example, the Contract is with the Head Contractor.

This change which applies to Building Contracts entered into after 1 March 2021, will affect how the Builder proceeds with claims and the possible adverse effects and the Owner who does not properly protect themselves.

If you are proposing to enter into a Contract with the Builder for the construction of your new home or a Builder who has commenced construction and issues have arisen with the Homeowner, our experienced Lawyers at Watson & Watson Lawyers can assist you.  Please contact Richard Watson Accredited Specialist stream of Building and Construction or his Personal Assistant Shereen Da Gloria to discuss your matter. Sometimes delay in seeking appropriate and timely advice can be an unnecessary setback for you.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 9221 6011.