Security of Payment

How to obtain payment when working in the construction industry?

It is not uncommon within the construction industry to encounter parties to a contract delaying payment, unduly reducing the value of payments, or even withholding payments entirely.

Prior to 1999 there was an increasing trend of terms within contracts drafted to the benefit of the principals or head contractors.

These included terms to avoid payment on a regular basis and only permitting payment on completion of the contract.

As a result, builders and subcontractors were left without payment for extended periods of time and therefore suffering severe rising cash flow issues.

To assist contractors, subcontractors, consultants, and suppliers in recovering due monies, the Building and Construction Industry Security of Payment Act (NSW) – or simply the Security of Payment Act NSW - was introduced in 1999.

 The Act outlines specific rights and protections for contractors, as well as prescribing a statutory mechanism for recovering progress payments. It provides all individuals within the industry the right to:

·         Claim payment monthly for work performed or goods supplied.

·         Rely on enforceable due dates for payments; and

·         Obtain judgement for outstanding Payment Claims from the Courts.

Payment Claims and Adjudication

The purpose of this process is to be able to make a claim quickly and ensure that the building works are not stopped indefinitely.

If you are a contractor seeking payment under a contract, the Security of Payment Act NSW establishes that you must firstly make a payment claim. This payment claim must identify itself as being made under the Security of Payment Act NSW.

The principal, such as a landowner or developer, then has 10 business days to respond, outlining the amount of payment that they propose to make.

This response is called the payment schedule. If the principal does not provide the payment schedule, then the contractor may recover their claimed amount as a debt owed.

If a payment schedule is provided, but the contractor does not agree with the amount proposed, the contractor can make an adjudication application – in which an adjudicator independently determines the amount of money due to the contractor by the principal.

The adjudication process under the statutory scheme is beneficial in comparison to other methods of dispute resolution. Advantages of adjudication include:

·         It is cost effective – it will generally be cheaper than going through the Courts.

·         It is informal and much simpler to use.

·         It has small statutory timeframes, allowing fast outcomes; and

·         A determination by an adjudicator is general a final decision.

If you are facing a debt owed in this situation or have been served with a claim, it is important that you act quickly and get the right advice.  Start a conversation by emailing martinc@culletonlawyers.com.au or call 02 4223 4243.