Building and Construction Industry Security of Payments Act Report

This report provides a comprehensive analysis of the Building and Construction Industry Security of Payments Act 1999 in New South Wales, Australia. It examines the Act's operational mechanisms, including the adjudication process for resolving payment disputes, the roles and rights of contractors and subcontractors, and the importance of payment schedules. The report details the recent amendments to the Act, such as those related to subcontractors' rights, executive liability, and increased penalties for non-compliance, as well as the introduction of investigation and enforcement powers. It also addresses how the Act functions in relation to regular court actions, including judicial review. The report emphasizes the Act's objective to ensure timely payments and protect the rights of parties involved in construction contracts. This analysis is contributed by a student and published on Desklib, a platform that provides AI-based study tools for students.

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Building and Construction Industry Security of Payments act 1999
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How the NSW Act work?
The amendment of the Building and Construction Industry Security of Payments act 1999
commenced on 21st April 2014. The amendment is only applicable where there is a construction
contract made during or after that date. The Act presented an exceptional form for the
adjudication of disputes on the amount to be paid as progress payments. An autonomous
adjudicator develops a provisional determination concerning the progress payments by a
respondent. It is Imperative to note that, it is only the applicant who can start the adjudication
process. Nevertheless, both sides are at liberty to deliver their individual proposals to the
adjudicator, subject to Section 20(b) of the Act. An adjudicator can only be selected, through an
authorized Nomination Authority selected by the claimant. The process as well as the time of
selection to the adjudication process are strictly administered through the Act. (Brand, &
Davenport, 2012 p. 17-23).
The determination of the adjudicator, while not the ultimate, is binding to both parties
pending an amicable solution to the matter is met through either a private arrangement, a court
order or any other suitable process. If the accused doesn’t meet the arbitrated amount by the
agreed date, the determination of the arbitrator can then be documented as a ruling in a court of
practiced jurisdiction. If a respondent subsequently applies to the court to have the verdict set
aside, the plaintiff is not eligible to make cross-claims against the applicant. Moreover, he cannot
raise any defense concerning the matters that might be arising under the Act. Under the amended
laws, it is observed that the respondent must pay an agreed amount to the court as security
awaiting the closing outcome of the court proceedings (Coggins, 2011 p. 15-18).

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The amended Building and Construction Industry Security of Payments act 1999 is not
applicable to construction contracts, particularly for residential building works on the party for
whom the work is carried out resides in. Such an agreement is often an exempt residential
construction contract.
Under the Building and Construction Industry Security of Payments act 1999,
Contractors are eligible to get progress payment within the agreements of the contract. This can
be done through a verbal, or written contract where the contract specify that the contractor has no
entitlement to receive progress payment. This includes independent contractor agreement which
provide the rights and obligations for both parties (Kwak, 2012 p. 158). Moreover, progress
payment is evaluated on the work value or supplies that have been conducted within the terms of
the contract. If there is disagreement over the amount owed in progress payments, contractors
might choose to bring in an arbitrator to assist in determining the dispute (Din, & Ismail, 2014).
In addition to that, unless the agreement states otherwise, any claim for progress payment can
only be paid once every month.
Payment schedule
If the defendant does not intend to reimburse the amount agreed by the claimant, they
have the right to deliver a new schedule within a period of ten days before the claim is made. A
payment schedule is a notice in written form that must be served to the claimant, informing him
that the respondent does not intend to pay the amount claimed. The schedule of payments must
indicate the amount payable to the claimant together with the reason why the respondent wants
to pay a lesser amount than the amount agreed (Coggins, Fenwick Elliott, & Bell, 2010 p. 178).
Breach of the Act: The act Safeguards the rights of the contractor as well as the supplier
under the construction contract in order to receive progress payment to conduct the services or

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supply the required goods. Contrary to the agreement, there are serious financial and criminal
penalties if the progress payment is intentionally breached and enforcement actions might be
considered against the property of the respondent (McGrath‐Champ, & Rosewarne, 2009 p. 34-
37).
2. Why was it introduced?
Most of the newly introduced amendments were made through recommendations made
by John Murray in His report regarding security of payment legislation passed in December
2017. The amendments are broad and important. Some of the fundamental changes include
Executive and accessorial liability, exposing directors and last but not least management of
personnel if a corporation commits an offence contrary to the guidelines provided under the Act.
Objects of the Act: Section 3(1) of the amendment Act offers a description the fundamental
objects of the of the Act being “Ensuring that any individuals who gets a construction contract
has the liberty to accept or recover progress payment in relation to the completion of the
services.” In simple terms the Act creates a new system that enables court to exercise statutory
entitlement. First, the claimant must serve the court with a written claim for payment upon the
individual who might be liable to make the payment under their agreement. If the respondent
disputes the liability, the respondent might prepare and serve the claimant as for the reasons as to
why he may be withholding the payment claim (Wong,Wang, & Do, 2014 p. 187-189).
In any case the dispute withholds, or the claimant does not receive any amount by the
agreed date, then the matter might be transferred to an adjudicator at the wish of the claimant.
Once the adjudicator makes his determinations, and no payments have been made yet, the
claimant can request the adjudication certification with the intention of ceasing the work. Such
an adjudication can be used as a judgement in a court of law and implemented accordingly.

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While the defendant has the right to be part of the proceedings, he has no right to bring cross-
claim against the applicant or raise any defense associated with the construction contract.
Moreover, the respondent has the obligation to pay a certain agreed amount to the court in an
unpaid amount as securing awaiting completion of the pending amount (Quinlan, 2012 p. 200-
230).
There is a number of important features of this system. First the process doesn’t detract
from, “any form of entitlement that might be held by the claimant under the laws.” (s 4(a)). The
Amendment Act creates what is termed as “dual railroad track structure.” In this system, the
statutory procedures operate utilizing the processes provided for in a construction contract
(Cheng, et.al., 2010 p. 17).
3. How the Act Works in relation to regular actions of the court
This section will offer a comprehensive overview and critique of the key operations of
the Act from the perspective of the court, with more emphasis being directed towards; the
fundamental objects of the Act; the nature of the available judicial frameworks under the Act and
lastly the impact of judicial review upon the resolution of a dispute.
The Court's approach to Judicial Review: The nature and availability of a court review act as a
new framework where there can be swift resolutions for the application of adjudication. This
includes scheduling the timeframe for payment of necessary amount. A fundamental issue for the
court has always been whether such court reviews should be available where it is shown that the
adjudication has made a wrong determination. However, such features have provided key
features to this kind of relief or discretionary relief (Ross, 2013 p. 12). Lastly, the scheme that
has been created by the court favors a broader range of judicial review, where relief is only

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guided in very few non-judicial activities to provide legislative intentions that are clear. In such
circumstances, Judicial review lies against the determination given in good faith (Wu,
Kumaraswamy, & Soo, 2010 p. 29).
4. Recent Amendments
Subcontractors Rights: A subcontractor can be defined as an individual who is to conduct
construction work or the supply the necessary goods and services under the agreement. Section 4
of the Act clearly indicates that a person cannot be considered as a head contractor unless he has
entered into a construction agreement which necessitates someone else to take certain parts
designed for a head contractor. Anybody else, other than a head contractor ought to be
considered as a subcontractor. A head contractor is considered as a head contractor when there is
a principle. There are instances at which projects are conducted without a principal, and thus a
head contractor., the project manager and the consultants are all considered as subcontractors
(Brand, & Davenport, 2012 p. 178).
A subcontractor can sue for the unpaid part of the contract price. The outstanding part
might be equal to the amount that has been withheld as retention. However, since the amount is
not the subcontractor’s money, the subcontractor cannot sue for such funds. If the amount
withheld as retention is paid by the contractor to someone else, it would be hard for the
subcontractor to trace the money and sue the persons responsible (Bell, & Vella, 2010 p. 38).
Section 12A (1) indicates that the regulations might require retaintion money to be
deposited as trust for the subcontractor entitle to the amount. This concept might be
misconceived and thus, retention money is not simply held in trust for the subcontractor. The
trust funds ought to be funds that offer security for both parties. They should all have an equal
interest in the funds. In this way, the money acts as a security that can be drawn by the contractor

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in cases of subcontractor defaults and security if the contractor defaults payments. To safeguard
the interests of the contractor in the money held, the contractor is entitled to have a charge over
the monies in trust (DURING, 2011).
Such matters clearly show that, it has now become evident that the new requirement
under the Act emphasizes on regular communication between the involved parties, thus offering
opportunities for the avoidance of dispute or resolutions. Conversely, the outcomes indicate a
significant shift in claimant's discernment of how the payment of claims impacts the working
environment between the parties. In such circumstances, Section 13(3)(b) of the Act provides
that claims can also include any agreed amount that is held under the agreement. This implies
that, payment can only be made for the amount held under the agreed terms. For the contract to
which Section 12 is applicable, the claimant might have to make to separate claims, one against
the trustee and the other one against the respondent (Brand, & Uher, 2010 p. 179-180).
Increased penalty units for offences: The amount that the respondent can pay expressed
in punitive units if he fails to comply with the offence identified in the Act has significantly
increased. For instance, if a contractor fails to provide supporting statements with the claim for
payment, the penalty that would be received by the corporation has increased from $ 22, 000 to $
110,000 (Maritz, & Robertson, 2012 p. 16-19).
Executive liability: Executive liability is another additional element in the new
amendment. Under the amended Act, a person can be considered as liable, if they are the
directors or have been involved significantly in the company operations among other things.
Moreover, they fail to take the necessary steps to stop the offence from being committed. The
maximum penalty for an individual committing an executive liability offence is $ 20,000. To

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recover unpaid payments under a contract, subcontractors and suppliers can use the provided
guidelines to provide liability (Ramachandra, & Rotimi, 2011).
Investigation and enforcement powers: The Amendment Act includes new guidelines
related to authorized officers who are obliged to Monitor, investigate or enforcing compliance
with the Act. The new laws provide authorized officers with broader powers such as inspection
of seized records, demanding additional information from a respondent under the circumstance
set out by the Act. The amended Act brings forth new offences associated with the powers of
authorized officers. This include failure to comply with the set requirements of obstruction of an
authorized officer (Ramachandra, & Rotimi, 2015 p. 171-173). The Amendment act also allows
officers to adequately issue a notice for penalty infringement to an individual who has committed
an offence under the regulations of the Act. This allows the authorized officers to provide a
notice of infringement to the person who has committed an offence under the Act as prescribed
by the regulation.
Inspection of trust records by subcontractors: The Act also includes new provisions that
deal with the retention of money in trust accounts by a contractor. Moreover, the Act also
provides that the new regulation might now include provisions focusing on the inspection of
various records associated with the trust accounts (Oyedele, 2012 p. 15-19).
Prescribing information for subcontractors: The Amendment Act also indicates that the
new regulations might also prescribe information necessary to be provided to the contractors
when entering into a construction agreement, and further creating offences for non-compliance.
The Government has however identified that it is willing to work with the key stakeholders in
order to further develop this information.

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subcontractor, head contractor and Principal: The amended Act introduces a clear
definition of the head contractor, the principles and the subcontractor. These definitions are
important in court determinations. They will cause countless challenges for the adjudicators
under the contract entered by both parties. For the new frameworks, there are two different
classifications of the claimant, a head contractor and a subcontractor. The Act is applied
differently to every classification of the claimant. Ashworth, & Perera, (2018) indicates that, if
the amended Act is to be evaluated in terms of losers and winners, a head contractor can be
considered as the winners and the subcontractors as the losers (p. 26-29)
The main challenge for the adjudicators is that most of the parties might not deal with the
issues of status of the involved parties, that is, whether the applicant is the lead contractor or a
subcontractor and whether the applicant is the lead contractor of a subcontractor and whether the
respondent is a principle or some other titles. Unfortunately, such definitions have created
confusion and ambiguity. It is always a fault for the emended Act to explain a term to imply
something dissimilar to the ordinary denotation of the term. There will be multiple construction
contracts where there is more than just a single contractor. This might come out as a big error if
all principals are given meanings that exclude some principles. Therefore, whenever in the
context of a construction contract, the terms head contractor, principal of subcontractor is
utilized, the court has to determine whether the term has its ordinary meaning or a defined
meaning (Lim, 2014 p. 34-37).
Conclusions
In summary, the 2013 amendment Act makes it much easier for the subcontractors to
receive prompt payments for the work they have done. The introduction of the Act has had its
share of both the positive and negative impressions in minimizing financial impact in both

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parties. From the subcontractor point of view, the Effect of the amendment Act has been
optimistic. Now subcontractors can successfully adjudicate under the Act, especially those that
might want to make small claims. However, despite the constructive impact of the amendment
Act, subcontractors often have a low level of working knowledge of the adjudication procedures.
Therefore, the extent of the positive impact is still not clear.

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