Security of Payments

 

The Building and Construction Industry Security of Payment Act 1999 ensures that contractors receive payment for construction work by providing them with an enforceable statutory right to progress payments. The act allows builders and contractors to make claims for progress payments even if the terms of their contract expressly forbid progress payments.

Getting paid for building works
What is the Security of Payment Act?
The Building and Construction Industry Security of Payment Act 1999 ensures that contractors receive payment for construction work by providing them with an enforceable statutory rights. The Security of Payment legislation establishes a cost effective and efficient procedure for builders and contractors to recover progress payments regardless of whether the terms of the contract allow progress payments.

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If you haven’t been paid there are two important steps that you need to take:

  1. Make a valid payment claim; and
  2. Apply for adjudication or commence legal action.
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What is a Payment Claim?
You can make a payment claim for work or goods supplied in the last 12 months if you are:

What can payment claims be made for?

Payment claims can be made for construction work and services completed in the last 12 months including:

  • construction work you have done
  • construction material or plant you have provided
  • consulting services you have provided
  • interest on overdue progress payments
  • your losses and additional costs due to work being deleted from your contract while you suspended work (see: Can I suspend work if I haven’t been paid?)
  • cash security and retention money
  • the final payment, at the end of a contract.

Payment claims cannot be made for residential work where the home owner lives in or intends to live in the dwelling where work is being carried out and the work undertaken:

  • exceeds a total cost of labour and materials is of $5,000; or
  • is electrical wiring work; or
  • is plumbing, draining and gas fitting work; or
  • is air conditioning and refrigeration work (except plug-in appliances).

A subcontractor can still make a payment claim to a head contractor on residential building work.

Who can make a payment claim?

Payment claims can be made by:

  • head contractors;
  • subcontractors;
  • suppliers;
  • plant and equipment hirers; and
  • consultants.

When can a payment claim be made?

Building contracts often specify when payment claims can be made. If no dates are included in the contract then they can only be made on the last day of each month. Only one payment claim can be made for each date. If money has not been paid for a previous claim you can still add this to a future claim.

How do I make a payment claim?

To make a payment claim you need to:

  • make a written claim stating the amount due and describing the construction work, related goods or services you are claiming; and
  • give the claim to the respondent at the time specified in the contract or on or after each reference date in person, by post or fax (or in any other additional way outlined in the contract).

Make sure you have a record of the date the respondent receives the payment claim so you can prove when.

If you’re a head contractor you’ll also need to make a supporting statement with a declaration that you have made all payments to subcontractors you’ve engaged to complete building work.This statement must be in the form prescribed by the Security of Payments Act.

How many payment claims can I make?

Only one payment claim can be made for each reference date. The reference date is either stated in the building contract or, if it isn’t, the Security of Payments Act allows one payment claim to be made on the last day of each month.

Do I need a contract to make a payment claim?

A Security of Payment claim requires an agreement between the parties for the work to be performed. A verbal agreement or written contract are both sufficient to make a payment claim.

Can I stop work if I don’t receive payment?

Before suspending work on a building site it’s important to seek legal advice. If you suspend work without a valid basis your suspension of work could itself be a breach of contract. This could result in you having to pay for the increased cost of completing construction.

You can suspend work two days after you provide a written warning if the respondent fails to pay:

  • the whole amount claimed by the due date for payment (where no payment schedule was served);
  • the scheduled amount by the due date for payment (as indicated in a payment schedule provided within the set timeframe); or
  • the adjudicated amount within 5 business days after an adjudication determination.

What is Adjudication?

Adjudication is an alternative means of resolving payment disputes where the Security of Payments Act applies.

  1. Adjudication application lodged;
  2. Respondent has 5 business days to lodge a payment schedule if they have not 10 business days following the payment claim;
  3. Both side provide written submissions;
  4. The adjudicator will provide a decision in 10 business days.

The adjudicator will make a decision and provide a certificate confirming this. The certificate is enforceable like a court judgment once filed at a court registry.

What is a payment schedule?
A payment schedule is a document outlining why the respondent is refusing to pay and how much they are willing to pay you. Once you serve a payment claim the respondent has 10 business days to provide you a payment claim. If they don’t provide you with one they’ll be required to pay for the building works. If you apply for adjudication to resolve the payment dispute, the respondent has a second chance to present a payment schedule within five days of receiving a notice of intention of adjudication.

When will I receive payment?
Once you make a payment claim the respondent has 10 business days to provide you with a payment schedule that explains why the don’t want to pay. Once this period expires, and if no payment schedule is provided, payment should be made:

  • 15 business days after the claim is made for a head contractor, claiming from the principal;
  • 30 business days after the claim is made for a subcontractor completing non-residential work); and
  • 10 business days after the claim is made for a subcontractor, doing residential work.

If I make a payment claim can I be sued for defective work?

If you make a payment claim the respondent can still sue you for defective or incomplete work even if you are successful in making your payment claim. If you make a successful payment claim, however, you’ll be in a much stronger position. You’ll have the cash flow required to defend any legal proceedings. You should also remember that even if you don’t make a payment claim the respondent could still sue you for defective or incomplete work.

What do I do if I don't want to pay?
If you receive an invoice or a payment claim for work that is incomplete or defective make sure you don’t ignore it. Prepare a payment schedule, a document outlining why you are refusing to pay and how much you are willing to pay, and send it to the person or business making the claim within 10 business days. If you don’t you’ll be required to pay for all the building work being claimed. If you receive a notice of intention of adjudication you’ll have five days to serve a payment schedule if you haven’t already.

What must be included in a payment schedule?

The payment schedule must:

  • identify the relevant payment claim;
  • indicate the amount (if any) the respondent proposes to pay (scheduled amount); and
  • explain why the scheduled amount is less than the claimed amount,  and any reasons for withholding payment.

Do I need to serve a payment schedule?

If you don’t provide a payment schedule within the 10 business days or the time specified in the contract you have to pay the full amount of the claim. This can cause a significant strain on your cash flow as you’ll be required to pay the amount of the claim and then you’ll need to commence legal proceedings to recover any amount you’ve overpaid.

If you do serve a payment schedule you’ll only be required to pay the amount listed in the schedule. The person making the payment claim will have to commence proceedings for breach of contract or another cause of action to recover the outstanding amount.