Is someone doing construction work for you? If you are a party to a contract under which construction work or related goods or services are being provided to you in NSW then the Building & Construction Industry Security of Payment Act 1999 (NSW) (the “Act”) affects you.

If you receive an invoice or claim for payment that refers to the Act, move quickly to seek legal advice to ensure you don’t miss the opportunity to dispute a claim for payment if you are not satisfied with the supply of the work, goods or services.

The following Plain English Guide outlines the Act and how you should respond to any claims made against you.

A Trap for the Unwary

What does the Act do?

The Act gives a builder or construction supplier rights that are in addition to those under a construction contract. It aims to assist their cash flow by providing a quick way to deal with interim claims for payment. For you, it will be a case of ‘speak up or pay up’.

If you receive a claim under the Act you are called the Respondent. The party who makes a claim under the Act against you is called the Claimant.

Those who can make a claim against you under the Act include your:

• contractors
• subcontractors
• suppliers
• consultants

Does the Act apply to the contract you have with your creditor?

The Act applies to all contracts, whether written or not, for construction work carried out or for related goods / services supplied in NSW.

It does not apply to:

• construction contracts forming part of a loan agreement, contract of guarantee or contract of insurance.
• construction contracts where price is not determined by the value of the work or, related goods / services.

What is ‘construction work’?

The definition is wide and includes:

• construction, alteration, repair, restoration, maintenance, extension, demolition or dismantling of buildings or structures forming or to form part of land whether they are permanent or not;
• walls, roadworks, power-lines, telecommunication apparatus, aircraft runways, docks and harbours, railways, inland waterways, pipelines, reservoirs, water mains, wells, sewers, industrial plant and installations for land drainage or coast protection;
• installation in any building, structure or works forming or to form part of the land such as heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply, fire protection, security and communications systems;
• external or internal cleaning of structures or works;
• preparation work such as site clearance, earth-moving, excavation, tunnelling, boring, laying foundations, scaffolding, prefabrication of components, landscaping and provision of roadways and other access works;
• painting or decorating of the internal / external surfaces.

What are “related goods & services” in relation to ‘construction work’?

The following ‘goods’ are covered:

materials which form part of the construction work;

plant or materials sold or hired out for use in connection with carrying out construction work.

The following ‘services’ are covered:

• labour to carry out construction work;
• architecture, design, surveying or quantity surveying in relation to construction work;
• building, engineering, interior or exterior decoration or landscape advisory services.

Payment Claims

The Act gives a Claimant the right to make progress claims against you and receive payment. This includes final or one off payments and retention monies.

What will a Payment Claim look like?

• It could be a separate document headed ‘Payment Claim’ or just a routine tax invoice you receive;
• it must be addressed to you;
• it must identify in sufficient detail, the work or related goods and services that you have been provided with;
• it must state the amount your creditor claims is due;
• it must state that it is made under the Act;
• it can include attachments such as delivery dockets and completion certificates;
• if it is being issued by a head contractor it must be accompanied by a supporting statement that indicates that it relates to that payment claim (“supporting statement” means a statement that is in the form prescribed by the regulations and (without limitation) that includes a declaration to the effect that all subcontractors, if any, have been paid all amounts that have become due and payable in relation to the construction work concerned);
• it should be served on you as specified in your construction contract or if nothing is stated, then by personal delivery, post or fax to you. Record the date you receive it carefully.

When can a Claimant make a Claim?

• A payment claim can be made against you on and from each reference date under your contract.
• A reference date is the date in your contract a claim can be made or if nothing is stated, the last day of the month in which the construction work was first carried out or goods / services supplied.
• Only one claim can be made in relation to each reference date.

Due date for payment

The time for payment will be stated in your contract. If the contract is silent, then the Act says it’s 15 business days after delivery of the payment claim for a payment being made by a Principal to a Head Contractor, and 20 business days for a payment being made to a subcontractor, whichever time is earlier. This is a short and strict time limit so make a note of this date and either seek legal advice in that time or respond.

Disputing the claim

You can do this by serving a Payment Schedule on the claimant within the time for payment. The Payment Schedule needs to:

• Be in writing – stating that is a Payment Schedule under the Act;
• Identify the payment claim it relates to;
• State what amount, if any, you propose to pay (the scheduled amount). This amount may be “nil”;
• If the scheduled amount is less than the amount claimed, explain in sufficient detail all of the reasons why (it is important you provide the reasons here because if they are not stated in the Payment Schedule you cannot raise any defence, set-off, or cross claim or other reasons for not paying).

Serve the Payment Schedule as required under the your contract, or if nothing is stated, by personally delivering, posting or faxing it so that it reaches the Claimant, no later than 10 business days after you received the payment claim.

If you have not served a payment schedule or paid by the due date:

You are liable to the Claimant for the claimed amount and the claimant can sue you for this debt through the Court. Alternatively, the Claimant may serve you with a notice that they intend to apply for Adjudication in relation to the claim and suspend work or supply on giving you notice of this. They can also exercise a lien over unfixed plant or equipment they have supplied to you.

If you have served a payment schedule but for less than the amount claimed and it is disputed by the Claimant:

The Claimant may apply for an Adjudication to determine the issue.

Adjudication

Adjudication is conducted by an independent person who decides the amount, if any, that is due in respect of the progress claim. Only a Claimant, can start this process.

Notice of intention to seek adjudication –

If you failed to serve a Payment Schedule;

• The Claimant must send a letter to you to warn you of their intention to apply for adjudication and give you a final chance to provide a payment schedule within 5 business days after receiving the notice. Again make careful note of the date you received this notice.
• This notice must be served on you within 20 business days immediately following the due date for payment;

Notice of intention to suspend work –

• The Claimant can serve a notice on you under Section 15(2)(b) of the Act, warning of their intention to suspend construction work or the supply of related goods / services under the contract. The Claimant must give you at least two business days’ notice.
• The suspension will last until 3 business days after the date on which you made payment. After that the Claimant must resume the work or supply.

If a right to suspend is exercised under the Act:

• the Claimant is protected against any loss and expenses it incurs as a result of you removing from them any part of the work or supply;
• you, or anyone claiming through you, will not be able to recover any loss or damage suffered during the suspension from the Claimant.

Adjudication Application by a Claimant

The application:

• must be made by the Claimant in writing;
• must be addressed to an Authorised Nominating Authority (ANA) such as Adjudicate Today or LEADR (Association of Dispute Resolvers);
• must be made within time under the Act;
• must, at the same time, be served on you;
• must attach a copy of the payment claim;
• must attach a copy of any payment schedule;
• may contain all relevant information (eg. photos, reports, delivery dockets) and state the reasons given by the respondent as to why payment hasn’t been made;
• may attach a copy of the contract and terms and conditions;
• may attach a copy of relevant notices given to the respondent;
• must enclose the application and adjudication fee.

The ANA will then choose an adjudicator and you and the Claimant will receive a notice from him/her accepting the application.

Adjudication Response by a Respondent

If you had provided a payment schedule within time, you can lodge a response with the adjudicator. The response must be lodged with the adjudicator within 5 business days after receiving a copy of the application, or 2 business days after receiving notice of an adjudicator’s acceptance of the application, which time expires later.

The adjudication response:

• must be in writing;
• must identify the adjudication application to which it relates;
• may contain any submissions relevant to the response as the respondent chooses to include; and
• must be served on the claimant.
• As mentioned above, the response cannot include any reasons for withholding payment unless those reasons have already been included in the payment schedule.

What happens after the adjudicator makes a determination?

• The adjudicator must serve a copy of the determination and the Respondent has  must pay within the time specified.
• If the Respondent fails to pay, the Claimant can apply for an adjudication certificate and file this and an affidavit at court as a judgement.
• Any judgement can be enforced against you in the same way as any other court judgement.

Questions & Answers

What if the claimant’s work was defective and my failure to respond was an oversight?

For a start, you have made your life much more difficult, as your non-response has given rise to a statutory debt that must be paid by the due date. If you are sued, your options for defending the claim, if any, are very limited.

The person who sues you would need to show that this is correctly a claim under the Act, that it was properly served and that is does not offend the Act e.g. it is not more than one payment claim in relation to the relevant reference date. However, apart from this, unless you can show there has been misleading and deceptive conduct on the part of the claimant in relation to the way the payment claim was served, you will have to pay the amount claimed.

Do I therefore lose all my rights under the contract?

No. Section 32 preserves these rights and provides that any amount you paid must be taken into consideration in any proceedings under the contract. So you can still subsequently sue the claimant on the basis of defective work or goods. This is because the Act is designed to force an interim resolution to a payment claim. It does not affect the final rights of the parties under the contract. You may also be able to recover money you have been forced to pay a Claimant under the Act.

Important Points

When you sign a contract for construction work or supply of related goods or services, to be done, remember:

• An invoice you receive may be enough to trigger application of the Act
• Tight timelines will apply and they are strictly enforced
• You only have 10 business days to respond to the payment claim
• Seek legal advice if you have any reservations about making a payment

How can Coleman Greig help you?

Coleman Greig’s experienced commercial lawyers can assist you with:

• Drafting effective building contracts
• Negotiating disputes and payment claims
• Advice regarding the Building & Construction Industry Security of Payment Act 1999
• Debt recovery services
• Representation in Court

For more information on how our building and construction lawyers can help you buy a house or apartment, please contact our team.

Disclaimer: The information provided above is a general summary and is not intended to be nor should it be relied upon as a substitute for legal or other professional advice.