Security of Payment Act
The Building and Construction Industry Security of Payment Act 1999 (‘Security of Payment Act’) aims to mitigate instances of insolvency in the construction industry. The Act prescribes a statutory mechanism for recovering progress payments and provides statutory rights for contractors, including: a right to progress payments; a right to interest on late payments; and a right to suspend work following non-payment. Construction work and payments can be claimed under the Act, even if the contract does not provide progress payments or is not written.
Section 7 of the Act specifies who is covered under the Act. In summary, the Act applies to any construction contract. Exclusions under section 7 include, but are not limited to, where the construction work is carried out outside NSW and construction work carried out more than 12 months ago.
Making a Payment Claim
A payment claim can be made where the claimant is subject to the Security of Payments Act and is seeking to recover progress payment.
Examples of payments the claimant may be seeking include the following:
- Construction work they have completed;
- Construction material they have supplied;
- Consulting services that have been provided;
- Cash security and retention money; and
- At the end of the contract, a final payment.
To make a claim, a payment claim must:
- Identify the construction work, or related goods or services, to which the progress payment relates;
- Indicate the amount claimed to be due;
- Be made at the time stated in the contract or, if no time is stated, on the last day of the month; and
- Be in writing and addressed to the respondent.
Any payment claims relating to a construction contract must address that it is a payment claim made under the Security of Payment Act.
Where a claim is made by a head contractor[1], there is an additional criterion of a ‘supporting statement’. This shall include a declaration that subcontractors have been paid what is due and payable to them.
Submitting a Claim
A payment claim must be served by delivering, posting, or faxing it to the respondent, unless otherwise indicated by the contract. The date of service, or the date that the respondent receives the claim, should be recorded.
Following a Payment Claim
Once a payment claim has been made, the respondent has ten (10) business days to serve a payment schedule in writing. Payment schedules must comply with the legal requirements of the Security of Payment Act and, according to the NSW payment schedule template,[2] should include:
- The name and address of the respondent and claimant;
- A reference to the relevant payment claim;
- The amount claimed in the payment claim;
- The amount proposed to be paid by the respondent;
- The reasons for withholding payment, if any;
- The date the payment schedule was prepared; and
- The signature of the respondent or an authorised representative.
If the respondent fails to serve a payment schedule, the Security of Payment Act deems them liable for the entire amount claimed. The claimant can then choose to recover this amount as a debt in court or using the adjudication process. Similarly, an application for adjudication can be made if the payment schedule is issued but the claimant disagrees with the assessment.
Adjudication
Adjudication is a rapid payment process that is provided for by the Security of Payment Act. It is a streamlined process that is aimed to avoid the costs and time restraints of a court process. The adjudicator is an independent person (not a judge) who determines the amount due of a disputed payment claim.
The claimant may apply for adjudication within ten (10) days of receiving the payment schedule. Following this, any response to the adjudication application must be made within either five (5) business days of receiving the application, or two (2) business days after receiving notice of the acceptance of an appointed adjudicator, depending on which is longer.
Adjudication determinations are generally issued within ten (10) business days of the date the adjudication response was required. Once an adjudication determination has been made, the respondent must pay the stated amount, otherwise:
- They will be liable for interest;
- The contractor may give notice of its intention to suspend work; and
- The contractor may apply for an ‘adjudication certificate’ which can be registered in court as a judgement, allowing them to commence debt recovery proceedings.
Adjudication is designed to be a fast, reliable avenue for contractors to claim payments under the Security of Payments Act. However, given the exceptionally short timeframe and strict guidelines surrounding the application process, it is recommended that you obtain legal advice when utilising the adjudication process.
The team at Morgan + English would be happy to help with any enquiries surrounding any security of payment claims. Feel free to reach out to Daniel daniel@morganenglish.com.au to speak further on a matter.
[1] The Security of Payment Act defines head contractor to mean the person who is to carry out construction work or supply related goods and services for the principal under a construction contract (the main contract) and for whom construction work is to be carried out or related goods and services supplied under a construction contract as part of or incidental to the work or goods and services carried out or supplied under the main contract. Note there is no head contractor when the principal contracts directly with subcontractors.
[2] Note each State may have different requirements or templates to follow.
