These recent changes affect 'owner occupier construction contracts'. These types of contracts are generally building work done to residential properties where the person who engages the builder resides or proposed to reside.
These changes come into effect 1 March 2021. For all owner occupier construction contracts entered into before 1 March 2021, the previous laws will continue to apply.
When a building contractor makes a payment claim under the Building and Construction Industry Security of Payment Act 1999 to the homeowner, if the contract fails to expressly outline when the progress payments become due and payable, payment should be made 10 business days after the payment claim was made.
A homeowner who has been served a payment claim may reply by providing a payment schedule to the building contractor. There are strict timeframes for the homeowner to provide a payment schedule. These are:
Penalties apply if the homeowner does not pay the building contractor on time, including suspension of the construction work under the construction contract and interest payable on the unpaid amount of a progress payment.
Security of Payment laws are designed to create a regular cash flow for building and construction contractors by mandating progress payments.
Up until now, Security of Payment laws did not apply to owner occupier construction contracts.
This meant builders (head contractors) who carried out residential construction work were not able to make a payment claim against a homeowner (principal), even though subcontractors who carried out work on the same project could make such claims against the builder.
This was putting builders in a difficult financial position if the homeowner had not paid the builder, but the builder was obliged to pay subcontractors.
While the relationship between a residential builder and a ‘mum and dad’ homeowner is of a different nature to that of a builder and subcontractor, residential builders face similar cash flow issues to subcontractors, including insolvency, when they do not receive prompt payment for building work carried out.
Adding owner occupier construction contracts to Security of Payment laws will ensure builders and subcontractors in the building and construction industry are being paid promptly for their work.
The Security of Payment Guide provides easy-to-read guidance on key aspects of the Security of Payment legislation.
From 26 June 2021 it will be mandatory for all construction contracts with a value of over $20,000 to contain the Security of Payment Guide. This is prescribed in clause 8 of the Home Building Regulation 2014.
After 26 June 2021, not including the Guide in construction contracts with a value of over $20,000 will attract a $8,800 fine in the case of a corporation and a $4,400 fine in any other case.