Maintaining cash flow in the building and construction industry

Laura Bazouni

Getting paid, in full and on time, is vital to the survival of any business because money is the life-blood of a business. However, in tough economic times, maintaining cash flow to your business can become more difficult and costly - especially in the building and construction industry.

The Building and Construction Industry Security of Payment Act 1999 (Act) was designed to enable suppliers, contractors and subcontractors in the building and construction industry to get paid more quickly and avoid expensive construction disputes.

The Act applies to all contracts (written and oral) for building and construction work or for the supply of related goods or services within NSW and covers a wide range of claims commonly made in the building industry including progress claims, final payments, most variation claims and milestone payments. However, the Act doesn’t apply to domestic building contracts, financial contracts with financial institutions or construction contracts where the consideration payable isn’t calculated by reference to the value of the work or services.

A certain procedure must be followed in order to make a claim under the Act and it starts with a “payment claim” by the person claiming payment (claimant). A claimant makes a claim under the Act by serving the payment claim on the person liable to make the payment under the construction contract (respondent).

A payment claim must clearly identify the construction work carried out or the goods or services supplied up to the date of the claim, and specify the amount being claimed from the respondent. In addition, it can only be made on or from the date specified in the construction contract which is generally known as the “reference date” and if there is no reference date, then on the last day of each month. Importantly, only one payment claim may be served for each reference date.

The clock starts to tick after the payment claim has been served and the Act provides a short timeframe in which certain things must be done by the respondent. This is one of the benefits of the Act because claimants generally achieve an outcome in a relatively short period of time.

Within 10 business days of receiving the payment claim or any shorter time specified in the construction contract, the respondent can dispute the claim by serving the claimant with a “payment schedule” setting out the amount that the respondent proposes to pay. If a payment schedule is received within the 10 business days, the claim can subsequently be determined by an independent adjudicator. The respondent can, in the payment schedule, propose a lesser amount for payment. If this occurs, the claimant must apply within 10 business days to have the amount adjudicated; otherwise the right to dispute the lesser amount will be lost. A claimant may also begin court proceedings.

If the respondent doesn’t serve a payment schedule on the claimant within 10 business days, then the full amount sought in the payment claim must be paid to the claimant. Alternatively, if the respondent does provide a payment schedule, the scheduled amount must be paid to the claimant.

If the claimant fails to make payment in line with the payment claim or schedule, then the claimant may enforce their rights by making an adjudication application or applying to the court for summary judgment. Once judgment has been granted, the claimant can enforce the court judgment against the respondent in a number of ways in order to receive payment, including bankrupting/winding up the respondent or garnishing their bank account.

For more information please read our Plain English Guide to Making a Claim under the Building & Construction Industry Security of Payment Act 1999 (NSW) and our Plain English Guide to Contesting a Claim under the Building & Construction Industry Security of Payment Act 1999 (NSW).

If you require any further information regarding the Act or require assistance please contact:

Laura Bazouni, Lawyer
Phone: +61 9895 9200
Email: lbazouni@colemangreig.com.au