Key points:
An amendment to the Building and Construction Industry Security of Payment Regulations 2011 (SA) has recently come into effect.
Contracts with the Crown exceeding $4 million (ex GST) are now exempt from parts of the security of payment regime.
Exemptions include the adjudication process and the ability of a contractor to suspend works.
The changes have retrospective application. Contractors who might be a party to a “prescribed contract” should consider how these changes might affect their operations.
Overview:
The Building and Construction Industry Security of Payment Regulations 2011 (SA) has recently been amended. The amendment exempts certain construction contracts entered into with the Crown from certain provisions of the Building and Construction Industry Security of Payment Act 2009 (SA).
While the Act allows the Regulations to exempt specified persons or matters (or classes thereof) from the operation of the Act, this is the first time that power has been used.
What are the ‘prescribed contracts’ subject to the exemptions?
The amendment introduces the term ‘prescribed contract’, which are contracts that:
are entered into between the Crown and another person; and
under the contract, the total amount payable to the other person will exceed $4 million (ex GST) over the term of the contract.
The amendment has retroactive effect: it does not matter when the contract was entered into. If a contract was entered into before (or after) the commencement of this amendment, and it meets the above criteria, it is a prescribed contract.
We note the ‘term of the contract’ does not include any ‘extension of the contract’. We understand this clarification as meaning it is the initial contract sum which is to be considered, and not any variation or other mechanism which may increase the amount payable to the contractor.
What are the main exemptions?
The exclusion of certain sections of the Act have significant consequences on contractors who enter into, or are already a party to, prescribed contracts.
There are four significant changes which contractors need to be aware of:
If the Crown fails to provide a payment schedule in response to a payment claim, it does not immediately mean the Crown becomes liable to pay the claimed amount. Further, the contractor does not have access to the mechanisms provided by the Act to take steps to enforce payment, including by making an adjudication application or by commencing proceedings.
If the Crown fails to pay a contractor in time for the whole or part of a scheduled amount, the contractor does not have the statutory right to make an adjudication application in relation to that payment claim.
Where a contractor commences proceedings to recover an unpaid portion of a claimed amount as a debt, the Crown is now permitted to raise a cross claim and / or defence.
A contractor no longer has the right to suspend construction work or the supply of related goods and services where a claimed or adjudicated amount is unpaid.
What is the overall effect of these exemptions on prescribed contracts?
The exemptions to certain provisions of the Act for prescribed contracts are significant and benefit the Crown. They erode the safety the security of payment regime provided for contractors and limit the statutory rights and recourse contractors have to the Crown’s benefit.
The adjudication process is designed to be fast and to ensure money remains flowing in the industry. The removal of certain aspects of this process leaves contractors who sign up to prescribed contracts with fewer options in seeking to recover payment from the Crown.
A notable carve out is the statutory right for a claimant to suspend construction work or the supply of related goods and services. Contractors affected by these amendments should carefully consider their contracts to ensure they have a contractual right to suspend.
A copy of the amendment is available from this link.
For more information, please contact Matthew Hawke or Matthew Del Corso from our Building, Construction & Infrastructure Team.
This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice. You should not act upon the information contained in this publication without obtaining specific professional legal advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.