Security of Payment: New Arsenal for those seeking Payment

Rebecca Hegarty

By Rebecca Hegarty

Are you a subcontractor, contractor or principal contractor in relation to building and construction work or related goods or services in NSW? If you are, then recent amendments to the Building and Construction Industry Security of Payment Act 1999 NSW (the “Act”) may affect you.

Amendments to the Act

Effective from 28 February 2011, a new Division 2A was inserted into the Act.

The amendment provides Claimants under the Act, who have made an adjudication application, with a mechanism to freeze money held by a Principal Contractor that is owed to a Respondent, as security for monies owed to them, and, if they move quickly, to demand payment from the Principal Contractor.

This amendment does not limit or affect any other action by a Claimant to enforce a payment claim or adjudication determination.

Prior to the amendment

Before the changes to the Act, if you obtained an adjudication certificate and filed it as a judgment at court you could apply for a debt certificate and serve a notice of claim on the principal contractor under the Contractors Debts Act 1997 (NSW).

This effectively assigned to a claimant, the principal’s obligation to pay money owed to the respondent for work or materials it had engaged the respondent to carry out or supply (i.e. if that work or materials are part of or incidental to the work carried out or materials supplied by the claimant).

However, under the old section of the Act, by the time you obtained a debt certificate and served the notice of claim the principal contractor may have had already paid monies owing to the respondent. Recognising this gap, amendments to the Act were introduced to require principals to retain those monies and not pay it to the respondent for a period of time so that a claimant had a chance of claiming them.

Definitions under the Act

Who is a Claimant? 

A person/company who serves a payment claim under the Act.

Who is a Respondent?

A person/company on whom a payment claim is served under the Act.

Who is a Principal Contractor?

A person/company owing money to the Respondent for work carried out or materials supplied by the Respondent to the person as part of or incidental to the work or materials that  
the Respondent engaged the Claimant to do. 

The definitions are flexible enough to extend down the length of the contract sequence so, for example, a head contractor may be a principal for the purposes of the Act if the sub contractor under him receives a payment claim from a subcontractor next in the sequence.

Clarification of how it works: Questions that might be raised

I am a subcontractor and Claimant, so what do I do?

What if I do not know who the Principal Contractor is?

You can request the Adjudicator, in connection with your adjudication application, to direct the Respondent to provide this information to you (Section 26E). There are penalties for the Respondent for not complying or for giving false or misleading information.

I am a Principal Contractor, so what am I obliged to do?

Otherwise;

What happens if I do not comply?

Protections for a Principal Contractor

Penalties

The Amendments to the Act introduces penalties for non compliance in certain obligations for the Claimant, Respondent and Principal Contractor under this Division.

How good is this extra ammunition? It’s all in the timing…

It is always a good thing to have additional options in seeking to recover money. The amendments to the Act give a timing advantage to a Claimant who previously had to wait until it had a judgment to obtain a debt certificate and make a claim against a Principal Contractor under the Contractors Debts Act 1997 (NSW).

However, if the Principal Contractor had already paid money due to the Respondent, then the Claimant would miss out on that money. The amendments to the Act allow a subcontractor who is making an adjudication application to get in earlier by serving a payment withholding request on a Principal Contractor to put a freeze on that money in the Principal contractor’s hands, and, if the Claimant acts very quickly, to obtain payment from the Principal Contractor (by completing judgment and Contractor’s Debt Act procedures within the 20 days allowed).

As always, it’s all in the timing....

If you need more information on the Building and Construction Industry Security of Payment Act and how it might affect you as a contractor, or sub-contractor, contact one of our experienced lawyers at Coleman Greig listed below. We can provide advice on recovering monies owed, and how to deal with claims as quickly and effectively as possible.

Rebecca Hegarty, Lawyer
Phone: 9895 9289
Email:
rhegarty@colemangreig.com.au

Mark Williams, Lawyer
Phone: 9895 9245
Email:
mwilliams@colemangreig.com.au