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Dispute Resolution Alert: Update to the NSW Security of Payment Regime

Walter MacCallum, Jos Mulcahy, Joe Denina, Kailee Shurmer

In September 2020, the NSW Government released the Building and Construction Industry Security of Payment Regulation which removes “owner occupier construction contracts” as a prescribed class to which the Building and Construction Industry Security of Payment Act for residential building work does not apply, according to the Building and Construction Industry Security of Payment Regulation 2020 (NSW) Sch 2.

Commencing from today, 1 March 2021, residential builders can utilise the Security of Payment regime to resolve disputes and recover progress payments from owner occupiers. More importantly, this change will have a retrospective effect and apply to all owner-occupier construction contracts entered into from 21 October 2019 onwards.

Until now, residential building work for an owner-occupier has been exempt from the Security of Payment regime, under the Building and Construction Industry Security of Payment Act 1999 (NSW) ss 4(1), 7(5). This meant that builders carrying out work on an owner occupier’s new or existing home:

  • could not utilise the quick adjudication process to resolve a dispute with the homeowner; and
  • did not get the benefit of the statutory rights to payment where the homeowner does not provide a payment schedule indicating the reasons why the homeowner is withholding all or part of the builder’s progress payment claim.

While a subcontractor engaged by the builder could use the Security of Payment regime to resolve disputes and recover progress payment claims from the builder, a builder had no such right against an owner-occupier of residential property.

Presently, the majority of building disputes in New South Wales worth less than $500,000 end up in the NSW Civil & Administrative Tribunal (NCAT) for resolution. The changes to the Security of Payment regime mean that if a builder’s progress claim is disputed by the homeowner, the builder can apply for an independent adjudication of the disputed payment claim instead of commencing proceedings through NCAT.

Then if a builder is successful at an independent adjudication, it will obtain an enforceable determination against the homeowner in around 21 days from the date the adjudication application was lodged – a far quicker process than a contested NCAT dispute.

While these changes are great for builders who are familiar with the requirements of the Security of Payment regime, they will place a significant burden on owner-occupiers - requiring them to become familiar with the process and the requirements of the Security of Payment legislation with its very strictly prescribed time periods. It will also disadvantage builders who are not aware of the process.

Before entering into a contract for residential building work, homeowners should be familiar with:

  • the requirements for a valid payment claim;
  • understanding when and how often a progress claim can be served by a builder;
  • understanding the time frame within which a homeowner must respond to a progress payment claim and how to prepare a payment schedule where payment is disputed; and
  • understanding the adjudication process.

If you’re an owner-occupier presently in the middle of a residential building project, be aware that these changes will apply to your contract from 1 March 2021 and the above are steps should be taken as soon as possible.

We are here to help

If you require further information or support, please contact Walter MacCallum, Jos Mulcahy, Joe Denina, Kailee Shurmer of our Dispute Resolution team.

If you would like to keep up to date with Alerts, Insights and upcoming events, you can subscribe to our mailing list here.

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