On 20 August 2024, important amendments were made to the Building and Construction Industry Security of Payment Act 1999 (SOP Act) in New South Wales, introducing new compliance requirements that could significantly impact how you manage payment claims in residential building projects.
In Sunshine East Pty Ltd v CBEM Holdings Pty Ltd [2023] NSWSC 744, the Supreme Court of NSW held that a payment claim relating to residential building work (the work of which had been deemed to have be completed to an acceptable standard), was valid even though the contractor was unlicensed and uninsured in breach of the Home Building Act 1989 (HBA) . The Court’s decision raised concerns about the enforceability of consumer protections under the HBA, particularly when contractors do not meet licensing and insurance requirements.
The amendments to the SOP Act intend to close this loophole as payment claims will be invalid unless the construction contract complies with the HBA, including the requirement for proper licensing and insurance.
Key Changes to the SOP Act
Amendments to Section 8: Right to Progress Payments
The recent amendments have revised Section 8 of the SOP Act, which governs the right to progress payments under a construction contract. The new wording for Section 8 is as follows:
- A person who, under a construction contract, has undertaken to carry out construction work or to supply related goods and services is entitled to receive a progress payment.
- A person is not entitled to a progress payment under subsection (1) if the construction contract—
(a)does not comply with the Home Building Act 1989, section 4, or
(b) involves construction work that is residential building work done in contravention of the Home Building Act 1989, section 92.
This change emphasises the importance of compliance with the HBA in determining entitlement to progress payments. If a construction contract does not meet the requirements of Section 4 of the HBA, or if the work involves residential building work carried out in violation of Section 92 of the HBA (which stipulates that contract work must be insured), then the party undertaking the work is not entitled to a progress payment under the SOP Act.
What Does This Mean for Builders and Contractors?
For those in the construction industry, these changes necessitate a closer examination of how payment claims are prepared and submitted. Builders and contractors must now ensure that their contracts, and any subsequent payment claims, fully comply with both the SOP Act and the HBA.
Failure to comply could not only invalidate a payment claim and could also expose builders to additional liabilities under the HBA. This could mean increased legal and financial risks, especially in cases where disputes arise.
How Can We Help?
At Keystone, our team is well-versed in both the SOP Act and the HBA, and we can help you navigate these new compliance requirements. Whether you are a builder seeking to ensure your payment claims are watertight or a homeowner needing advice on your rights under these new reforms, we are here to assist.
If you have any questions about how these changes may affect your business or your home, please don’t hesitate to get in touch.