Building and construction industry security of payment

14 March 2018

Since 2000 there has been legislation in place to help contractors and suppliers on construction projects ensure payment for goods and services they have supplied.  The legislation does not apply to residential building work.  In New South Wales the legislation is the Building and Construction Industry Security of Payment Act 1999.

What is not widely known and is of benefit to the subcontractor is that since 21 April 2014 a payment claim or invoice does not need to refer to the legislation for the subcontractor to utilise it.  This was brought in because there was anecdotal evidence that smaller subcontractors were reluctant to endorse their claims for fear the principal contractors would cut them off from future work.

The building contract entered into may provide for progress payments to be made as work is carried out.  The subcontractor is required to serve a payment claim.  It must identify the construction work and the amount of the progress payment sought.  The progress or payment claim can seek payment on the due date set out in the contract or 10 business days after the progress claim is made.

The payment claim must be accompanied by a signed supporting statement under the regulations including a declaration to the effect that all subcontractors, if any, have been paid all amounts that are due and payable.

Pursuant to section 14 of the Act, the contractor is to either make payment or serve a payment schedule on the subcontractor within 10 business days.  A contractor should serve a payment schedule identifying the payment claim to which it relates, the amount that it proposes to make and if it is less than the claimed amount, give reasons for withholding payment.  If the payment schedule is for less than the payment claim, the subcontractor can accept the amount set out in the payment schedule or the claimant may choose to make an adjudication application under the Act within 10 business days after receiving the payment schedule.  If the contractor has not served a payment schedule then the subcontractor can commence proceedings in Court for the amount of the payment claim.

Alternatively, the subcontractor could commence Court proceedings for the amount which the contractor has admitted is payable.  The legislation prevents the contractor from raising any defence in relation to matters arising under the construction contract or bringing any cross-claim against the subcontractor in those Court proceedings.

Application for adjudication is made to an Authorised Nominating Authority (ANA).  An adjudicator is allocated.  The adjudicator may request further submissions from either party and set deadlines, call a conference and carry out an inspection of any matter to which the claim relates.  If the adjudicator requests further written submissions from either party then he must give the other party an opportunity to comment on those submissions.

The parties are not entitled to any legal representation at any conference called by the adjudicator.  He is to determine the amount of the progress payment and issues written reason and his determination.

In a case we were recently involved in, the contractor had served a payment schedule for part of the first progress payment and paid monies.  The contractor had served payment schedules within the required time for less than the amount sought on progress claims 2 and 3 and the contractor had failed to serve a payment schedule within the required time for progress claim 4.  The contractor was not prepared to make payment of the amounts it acknowledged as due unless the subcontractor signed a Release to accept the lesser amount in full satisfaction.  The subcontractor commenced Court proceedings for the amount admitted as due for progress claims 2 and 3 and for the balance of progress claim 4.  It knew that the contractor could not raise any defence to the claim or bring a Cross-Claim.  Proving service of the payment claims would allow an early hearing date to be given and not have the usual building litigation with Defences and Cross-Claims.  The subcontractor had the right to separately and later sue for the balance of monies due to it.  Following the commencement of Court proceedings, the matter was resolved at a settlement conference very early and without significant cost involving the totality of claims.

Summary

  • The process does assist subcontractors who are often dealing with larger and more financially powerful head contractors. The adjudication process is said to be informal and prompt and results in a certificate with reasons and the head contractor is required to pay that amount within a short time and otherwise the certificate can be filed as a judgment debt in the Court of competent jurisdiction.
  • It is very important that the time limits be met by the subcontractor and contractor.
  • The Act applies even if there is no reference to it on the invoice or payment claim, provided the payment claim is in accordance with the Act.
  • The process can avoid lengthy and costly building litigation and can result in prompt and regular payment being made of progress claims.
  • For the contractor the process can deal with claims properly and quickly so that good business relations are maintained for the job and hopefully the next job.

We can advise you in relation to these procedures.

 

Stephen Titus 

Accredited Specialist in Commercial Litigation