2024 Security of Payment Law Amendment

Since 1 March 2021 home builders and contractors in the residential building industry have been able to rely on the Building and Construction Industry Security of Payment Act 1999 (NSW) (“SOPA”) to more quickly recover progress claims.

For more information of about the benefits of the SOPA for contractors check out our Security of Payment Guide.

Until recently the right to utilise the SOPA has effectively empowered contractors to recover payment for residential building work notwithstanding that the contractor had not complied with the licensing or insurance obligations under the Home Building Act 1989 (NSW) (“HBA”) and that they would otherwise have not been entitled to payment under the contract by virtue of the HBA.

This change reinforces the importance of contractor compliance with licensing and insurance obligations under the HBA if they wish to take full advantage of the SOPA’s mechanisms to recover progress payments swiftly and efficiently.

Why is compliance more critical than ever for home builders and contractors?

For contractors, compliance with these licensing and insurance obligations is no longer just about staying within the legal bounds—it’s also about ensuring cash flow.

With the new amendment, failing to meet these obligations means contractors are not eligible to claim a progress payment under SOPA and that an Adjudication Application in respect of a contractor to whom Section 8(2) applies will not be successful.

This poses a significant risk to a contractors’ ability to swiftly recover payment for work performed without the need to commence proceedings in the NSW Civil & Administrative Tribunal (NCAT), which can be protracted and expensive, making compliance a vital business necessity.

Can a Payment Claim still be made by an unlicensed contractor and/or for uninsured work.

Interestingly, the door seems to have been left open for unlicensed contractors and/or contractors who have done residential building work over $20,000 in value without a complying contract of insurance being in place notwithstanding the clarification that there is no entitlement to a progress payment in those circumstances.

This is because Section 13 of the SOPA stipulates that a person who is or who claims to be entitled to a progress payment under Section 8 is entitled to serve a Payment Claim and there is no requirement that a Payment Claim be made in good faith.

Whilst it is now apparent by virtue of the new Section 8(2) that an Adjudication Application in respect of such a Payment Claim would fail, the statutory entitlement to payment of the amount claimed in a Payment Claim where a party fails to provide a Payment Schedule in response the Payment Claim within the allowed time will still arise.

Whether or not a Judgment obtained in this circumstance would be stayed by a Court pending a final evaluation of a contractor’s entitlements is also questionable, as Section 94(1A) of the Home Building Act empowers a Court or Tribunal to order, where it considers it just and equitable to do so, that a contractor is entitled to recover payment for residential building work on a quantum meruit basis despite a contract of insurance being required but not being in place for the work.

Homeowners therefore must continue to remain vigilant of the need to respond to Payment Claims and ensure that where a contractor is no longer entitled to a progress payment by virtue of the new Section 8(2), that reason is stated in a Payment Schedule provided in response to the Payment Claim strictly within the allowed time.

For more information about statutory rights to payment see the chapter on “Recovering Statutory Debts under the Act” in our Security of Payment Guide.