How does the Security of Payment Act work?

The Building and Construction Industry Security of Payment Act 1999 (NSW) provides specific rights and protections for contractors to ensure they receive ‘progress payments’ for work completed over time. It outlines a statutory mechanism for recovering progress payments. This legislation aims to reduce the incidence of insolvency in the construction industry.

Who is covered?

The Security of Payment Act covers most commercial contracts. However, residential building work is excluded where the principal resides in, or proposes to reside in, the premises where the construction work is taking place. Both head contractors and subcontractors are protected under this Act; whether the contract is written or not. 

Procedure for recovering progress payments 

The Act provides a mechanism to assist contractors and subcontractors to get paid in the construction industry.

Essentially, the Act gives you a right to progress payments and enables you to initiate a fast track process for obtaining these payments, as compared with conventional court proceedings. 

Identifying reference date

The process is initiated by a reference date, which is the date under a construction contract on which a progress claim is to be made. The parties can agree on the due date for progress payments. 

Alternatively, as per the legislation, if a date has not been specified then it is the last day of the month in which the work being claimed was performed. Typically, a payment claim must be made within 12 months after the construction work or the goods or services to which the payment claim relates were last carried out or supplied. 

Making the claim

Upon the reference date or thereafter, if a payment has not been made then the contractor has a right to claim progress payments. A payment claim must be served on the person who, under the construction contract, is or may be liable to make the payment. 

The payment claim must expressly state that it is being made under the Act and contain the correct information. The correct information includes sufficient detail that enables the respondent to be aware of the issues in dispute and understand what you are claiming for and how the amount claimed has been calculated. 

Note that a head contractor is required to attach a supporting statement with the payment claim or else it is deemed invalid. A supporting statement is a declaration claiming that all subcontractors have been paid all amounts due and payable. 

Serving the claim

In accordance with the Act, the documents relating to the claim should be serviced to the other party in the manner that is provided under the construction contract. When the contract does not specify the method of service then you may serve the documents by: 

• delivering it to the person personally, or 
• lodging it during normal office hours at the person ordinary place of business, or
• sending it by post addressed to the person ordinary place of business, or
• emailing to an email address specified by the person for the service of documents that kind 

These methods of service will be effective unless expressly prohibited by the contract. Also, remember to keep evidence of service. For the claim to be effective it must be served properly on the respondent.

Responding  

The principal has a limited amount of time to deal with the claim. Once the claim is served, the respondent can either pay the full amount for the payment claim by the due date or serve a payment schedule on the contractor within 10 days. 

A payment schedule refers to a schedule of proposed payments that amount to less than the amount claimed. It must be supported by reasons. Note that these reasons are limited to grounds on which the amount claimed is not payable. 

What to do if you still have not been paid?

Adjudication is available when the contractor: 

1. does not receive a payment schedule within the required number of business days after making a claim;
2. receives the payment schedule but disagrees with the amount being offered; or
3. has not been paid the full amount by the due date.  

Adjudication under this statute is a streamlined process that allows a contractor to recover a disputed or unpaid progress payment. It aims to be fast, thus, it imposes various deadlines that must be complied with. Usually, you have 10 days to lodge an application for adjudication, depending on the circumstances. Any response to an adjudication application must be made within the short prescribed timeframe (usually 5 days depending on circumstances). 

Adjudication determinations under the Act are generally issued within 10 business days of the date the adjudication response was required. The respondent must pay the ‘adjudicated amount’. If it remains unpaid, the contractor can seek to have the determination registered as a judgement debt then commence debt recovery proceedings.  

End Note

It is important as a contractor in construction to be familiar with the above payment claim process and to be aware of the rights conferred by the Security of Payment Act to ensure you get paid. To summarise, contractors have the following general protections under the Act: 

• minimum interests rates on late progress payments; 
• a prohibition of ‘paid when paid’ provisions; 
• a statutory right to make regular payment claims, and maximum periods of time for principals to respond to those claims 
• maximum payment terms; 
• a statutory right to suspend work following non-payment; and 
• a statutory right that allows subcontractors to obtain payment directly from the head contractor’s client where an adjudication application is made.

If you would like to speak with our construction lawyers, just contact us via 1300 337 997 or by filling out the contact form.