Legal Insights

Amendments to the Building and Construction Industry (Security of Payment) Act 2009

• 24 April 2024 • 5 min read

Recently, there have been updates to the Australian Capital Territory’s Building and Construction Industry (Security of Payment) Act 2009 (the Act). These changes, effective from 11 March 2024, may not have received much attention, but will impact on parties who are seeking to contract construction services or building works, including government bodies. Insolvencies of three Canberra construction companies since the updates to the Act have come into effect can not be linked to the changes to the Act, but they demonstrate the pressure that continues to face the construction industry.

There are two key changes to be aware of:

The concept of ‘reference dates’ has been removed. The 'reference date' was a mechanism to determine the date on and from which a party could claim a progress payment. Instead, contractors may now submit a payment claim on a monthly basis and upon termination of the contract.
Parties to contracts are no longer able to agree to excessive payment terms. This means the maximum timeframe for paying a progress claim submitted by a contractor is limited to 15 business days from receipt of the payment claim. This time period is inclusive of the time allowed to assess the progress claim (which is up to 10 business days).

The changes to the Act aim to make payment practices more consistent nationwide and prevent contractors and subcontractors from being forced into accepting longer payment terms.^[1]

While these changes align the Act more closely with the NSW legislation, they do not provide a mechanism for sequencing payments from principals to head contractors, and then onto subcontractors. As explained before, the NSW legislation contains a 'stepped' payment regime, which provides longer duration for payment of subcontractors than head contractors. In practical terms, principals will be reluctant to agree to shorter payment periods than the mandated 15 business days, making it challenging for timely payments to trickle down the chain.

Failing to make this distinction between timeframes for payment under head contracts and subcontracts puts pressure on head contractors, who now need to try and get their financiers to meet the 15 business day time period, if they are drawing down from construction finance facilities to pay subcontractors. It also puts head contractors in a difficult position to try and negotiate with principals to agree a shorter time period than 15 business days to assess head contractor progress claims and make payments.

In practice, progress claims are often detailed and complex and within that 15 business day time period, the Act allows a party 10 business days to assess the progress claim and issue a payment schedule. The pressure is now on to reduce the time frame to assess progress claims so as to allow more of the 15 business days to make payments.

To avoid this difficulty in NSW, the NSW security of payment legislation allows parties to agree stepped time periods between head contracts and subcontracts, so that the maximum payment terms for paying head contractors is 15 business days from receipt of a progress claim while for subcontractors it is 20 business days from a progress claim. This seems like a sensible fix to apply to the Act in the Territory.

It remains to be seen whether the Act as amended is going to lead to more adjudication claims or less compliance by those parties upstream of subcontractors.

The below table sets out the previous legislation, the current legislation (as of 11 March 2024) and the NSW position.

Removal of reference date

Previous ACT Legislation

Section 15(5)

A claimant must not give more than 1 payment claim for each reference date under the construction contract.
New ACT Legislation

Section 15(5)

A claimant must not give more than 1 payment claim for each calendar month, unless the construction contract provides for more than 1 payment claim to be given in a calendar month.
NSW Position

Section 13 (5)

Except as otherwise provided for in the construction contract, a claimant may only serve one payment claim in any particular named month for construction work carried out or undertaken to be carried out (or for related goods and services supplied or undertaken to be supplied) in that month.

Payment terms

Previous ACT Legislation

A progress payment under a construction contract is payable—

(a) on the day when the payment becomes payable under the contract; or
(b) if the contract does not set a day—10 business days after a payment claim is made under part 4 in relation to the payment.
New ACT Legislation

A progress payment under a construction contract is payable on the earlier of the following:

(a) 15 business days after a payment claim is given under part 4 in relation to the payment;
(b) the day when the payment becomes payable under the contract.
NSW Position

(1A) A progress payment to be made by a principal to a head contractor under a construction contract (other than an exempt residential construction contract) becomes due and payable on—

(a) the date occurring 15 business days after a payment claim is made under Part 3 in relation to the payment, except to the extent paragraph
(b) applies, or
(b) an earlier date as provided in accordance with the terms of the contract.

(1B) A progress payment to be made to a subcontractor under a construction contract (other than an exempt residential construction contract) becomes due and payable on—

(a) the date occurring 20 business days after a payment claim is made under Part 3 in relation to the payment, except to the extent paragraph (b) applies, or
(b) an earlier date as provided in accordance with the terms of the contract.

New ACT Legislation

Section 15 (3A)

A payment claim may be given on or after—

(a) the last day of the calendar month in which the construction work was first carried out, or the related goods and services were first supplied, under the contract and of each subsequent calendar month; or
(b) if the construction contract provides for a payment claim to be given before the last day of a calendar month—the day provided under the contract; or
(c) if the construction contract has been terminated—the day of termination.
NSW Position

Section 13

(1A) A payment claim may be served on and from the last day of the named month in which the construction work was first carried out (or the related goods and services were first supplied) under the contract and on and from the last day of each subsequent named month.

(1B) However, if the construction contract concerned makes provision for an earlier date for the serving of a payment claim in any particular named month, the claim may be served on and from that date instead of on and from the last day of that month.

Commonwealth Government contracts

As a side note, a large number of construction contracts in the Australian Capital Territory are let by or on behalf of the Commonwealth government.

While the contracts generally make provision for payments of builders in a manner that accords with the progress claim / payment schedule mechanisms as envisaged by security of payment legislation, the Commonwealth Government does not agree to be bound and it separately has its own policy known as Supplier Pay On Time or Pay Interest (RMG 417) that aims to facilitate timely payments to suppliers, assist their cash flow, and reduce the cost of supplying to the Commonwealth Government.

RMG 417 applies to all non-corporate Commonwealth entities and provides that the maximum payment terms applicable are:

5 calendar days for electronic invoicing (where both parties have the capability to deliver and receive eInvoices through PEPPOL^[3]; and
in all other circumstances, 20 calendar days unless shorter maximum payment terms are agreed.

Government bodies procuring construction services will struggle to agree to requests from head contractors to pay within 15 business days of receipt of a progress claim (or a shorter period) in order to help those head contractors meet their corresponding obligations under the Act to pay subcontractors within the same period. A period of 10 business days to assess progress claims is already challenging for some bodies to issue a payment schedule and turning around to make payment within a further 5 business days of this schedule will be a real challenge.

^{[1] Explanatory Memorandum, Building and Construction Legislation Amendment Bill 2023 (ACT).
[3] PEPPOL stands for Pan-European Public Procurement Online which is an international eProcurement framework.}

By Pria O'Sullivan, and Susan Guo