News

By Robert Riddell (Partner) and Gareth Gillespie (Lawyer)

Before 1 March 2021, owner-occupiers were off-limits when it came to security of payment claims.  Owner-occupier contracts were exempt from the Building and Construction Industry Security of Payment Act 1999 (NSW) (SoP Act).  Under the old rules, contractors had to commence proceedings against owner-occupiers in the NCAT or in a court to recover unsatisfied payment claims.  It was messy, slow, and often very expensive.

That has now changed for contracts entered into on and from 1 March 2021.  It is now pay now argue later, provided the payment claim is appropriately endorsed. A great outcome for contractors!

An owner-occupier is a person who lives in, or intends to live in, the dwelling that is the subject of the construction work.

At a glance:

• Contractors can now serve monthly SoP progress claims on owner-occupiers on and from the last day of each month (the contract can provide a different day of the month, but only one payment claim per month, that is the first, will qualify as an SoP payment claim);
• An SoP payment claim must be endorsed with the words “This is a payment claim under the Building and Construction Industry Security of Payment Act” for the SoP Act to apply to that claim.
• Head contractors must attach a simple supporting statement to their payment claim declaring that subcontractors have been paid.
• The recipient of the SoP payment claim must provide a payment schedule within 10 business days (or any lesser period provided in the contract) or all of the amount claimed is due and payable, on its due date, as a statutory debt.
• If an amount is scheduled in the payment schedule, the scheduled amount is due and payable, on its due date, as a statutory debt.
• If no payment schedule is provided or the contractor is not happy with the scheduled amount, it can apply to have the payment claim adjudicated.
• Any clause in the contract that is inconsistent with the SoP Act is void (e.g. “pay when paid” clauses or clauses attempting to contract out of the SoP Act).  So owner-occupiers cannot “contract out”
• The contractor must give the owner-occupier the “Security of Payment Guide” and the “Checklist” at the time of contracting.

Some more detail:

Because owner-occupier contracts are no longer exempt from the SOP Act, any clause of an owner-occupier contract that purports to exclude, modify or restrict the operation of the SoP Act will be void under s 34 (the “no contracting out” provision).

Previously, s 8A(2) of the Home Building Act 1989 (NSW) (HBA) applied to owner-occupier contracts with the effect that a right to claim progress payments could only be included in the contract if the progress payments were tied to the achievement of milestones or if the contract was a “cost plus” contract.  However, now that the SOP Act applies to owner-occupier contracts, those shackles have been released.  Periodical progress claims are again an option for owner occupied residential building work. 

Once served with a payment claim, the owner-occupier has 10 business days in which to serve a payment schedule in response, unless the contract provides for a shorter period.  If the owner-occupier fails to serve a payment schedule, they will become liable for the full claimed amount.  If the dispute proceeds to adjudication, the owner-occupier will not be able to advance any reasons for not paying that not stated in the payment schedule.

The due date for payment of a progress claim is 10 business days after the payment claim is served on the owner-occupier, unless the contract provides a different date.  If an owner-occupier fails to pay by the due date for payment, the contractor can suspend work (two days after serving a suspension notice) and can seek to enforce the progress claim through adjudication or, if no payment schedule was served, through fast-tracked summary judgment Court proceedings.  Interest is also payable on unpaid progress claims, even if the contract does not provide for interest. 

The time-frames in the SoP Act are tight, including the time-frame to make an application for adjudication, so don’t sit on an unsatisfactory payment schedule, a failure to provide a payment schedule or an overdue scheduled amount as your rights under the SoP Act might ‘time out’.  Take advice as to when you need to move on it.

Supporting statements and the “Security of Payment Guide”

As with payment claims generally, a payment claim served on an owner-occupier by a head contractor must be accompanied by a supporting statement declaring that all subcontractors engaged by the head contractor have been paid.  The Department of Fair Trading have published a special short-form of supporting statement to be used only for owner-occupier contracts, which is available on Fair Trading’s website and here on myBIG.

The due date for payment to subcontractors is 10 business days after the head contractor is served with the subcontractor’s payment claim, unless the contract between the head contractor and the subcontractor provides a different date.  If a scheduled amount is not paid then summary judgment and adjudication options are available to enforce the debt.

If an owner-occupier contract is for work worth more than $20,000, the contractor needs to give the owner-occupier a copy of the “Security of Payment Guide” or risk being fined. 

The obligation to provide these documents is in addition to the obligation under the HBA to provide the “Consumer Building Guide” for residential building work worth more than $5,000. 

Conclusion

These changes are a big win for small to medium contractors.  Contractors are now on the front foot when faced with tardy or recalcitrant owner occupiers, as they now have access to the SOP Act’s fast track, pay now, argue later processes to recover progress payments. 

With that said, contractors need to ensure that they provide the owner-occupier with a copy of the “Security of Payment Guide” and the “Checklist” at the time of contracting.

Piper Alderman has a busy building regulatory practice, dealing with security of payment issues and claims on a daily basis.  Feel free to contact Rob Riddell on +612 9253 3858 if you have any questions about the changes or if you need assistance with getting paid.

This article is based on the law in force at the time of publication and is a summary only.  Seek legal advice on your specific situation before exercising your rights under the SOP Act.