Security of Payments: Dates, Deadlines & Traps
The Building & Construction Industry Security of Payment Act 1999 (NSW) (“the Act“) is unlike any other law in the country (apart from its interstate equivalents). The purpose of the Act is to improve cash flow for contractors, suppliers and professionals in the building industry (“contractors“). It applies to contracts for the carrying out of construction work (or supply of related goods or services) in NSW with only few exceptions.
The purpose of the Act is achieved by:
1. creating a statutory right to payment of a Payment Claim that is not disputed within the allowed time, and
2. establishing a regime for the swift and independent Adjudication of a disputed Payment Claim.
The Act, therefore, enables contractors to recover payment without becoming involved in expensive and prolonged Court proceedings.
Where to Begin What is a Reference Date?
All rights under the Act flow from the service of a valid Payment Claim. A Progress Claim or a Tax Invoice will be a valid Payment Claim provided that it sufficiently identifies the construction work (or related goods or services) to which it relates and is issued in relation to an available Reference Date. (1)
Understanding the Reference Dates in relation to your contracts is essential to effectively using the Act for your business.
Only one Payment Claim may be issued in relation to each Reference Date. Reference Dates have nothing to do with the due dates for payment.
A Reference Date is a date from which a claim for a progress payment may be made under a contract. If the contract makes no express provision in relation to the matter, the Reference Date is the last day of each month in which construction work is carried out.
Final Date for Payment Schedule
If a party to a contract receives a Payment Claim (“the respondent“) claiming an amount that is disputed, unless they provide a Payment Schedule in response to the Payment Claim strictly within the allowed time they will:
1. become liable to pay the amount claimed, and
2. be prohibited from raising any Cross Claim or Defence under the contract if action is taken to enforce a statutory right to payment regardless of the merits of the dispute.
Essentially, where a respondent fails to provide a Payment Schedule the contractor will have an indisputable statutory right to payment of the amount claimed in the Payment Claim and will be entitled to suspend work under the contract if payment is not received by the due date. (2)
The next date that every contractor should track is, therefore, the final date that a respondent has to provide a Payment Schedule.
A Payment Schedule may only be provided by the earlier of the period specified in the contract (if any) and 10 business days after the Payment Claim was served. Tracking the date of service of a Payment Claim is, therefore, also essential practice. (3)
Trap: Will I Know When I Receive a Payment Schedule?
There is no prescribed form for a Payment Schedule. To be safe, you should assume that any written response to a Payment Claim (including emails and SMS messages) that either specifies a lesser amount payable or indicates that no amount will be paid will be a Payment Schedule for the purposes of the Act.
Why & When to Adjudicate
If a Payment Schedule is provided within the allowed time specifying an amount that the contractor rejects the contractor may apply for the independent Adjudication of the amount payable. Strict time frames exist in relation to the lodging of Adjudication Applications (4) and there is usually only one chance to present your case and supporting submissions to the Adjudicator.
To be safe, you should assume that there is only 10 business days to lodge an Adjudication Application after receiving a Payment Schedule. If you receive a Payment Schedule, or a document that you think might be a Payment Schedule, it is usually best to speak to a Lawyer experienced in Security of Payment Adjudications the same day.
The Adjudication of disputed Payment Claims is an invaluable regime for contractors to use to avoid expensive and prolonged litigation through the Courts.
Importantly, an Adjudication Determination may be registered with the Courts and enforced as a Judgment debt. Unless a statutory right to payment has arisen in relation to a Payment Claim, Adjudication is by far the quickest and cheapest way of obtaining an enforceable Judgment and ultimately getting paid.
2014 Amendment Trap
As there is no longer any requirement for a Payment Claim to indicate that it is a claim made under the Act, (5) contractors who do not keep track of Reference Dates and unknowingly issue a valid Payment Claim may lose the chance to apply for Adjudication of a disputed Payment Claim without even knowing that the time for lodging an Adjudication Application had begun to run. This lack of knowledge could cost your business tens or even hundreds of thousands of dollars fighting defended litigation that could have been avoided had an Adjudication Application been made in time.
Using Security of Payments
In summary, if you are a contractor that carries out work or supplies goods or services to which the Act applies you should:
1. apply your mind at the outset of a project to the Reference Dates that will arise under the contract,
2. track closely the dates of service of a Payment Claim and the final dates for provision of a Payment Schedule, and
3. seek legal advice promptly should a statutory right to payment arise or if you consider that you may need to apply for Adjudication of a disputed Payment Claim.
Quite literally, tracking these dates and taking action promptly when necessary could be the difference between the success or failure of your business.
(1) For contracts entered into on or after 21 April 2014 for residential building works by a subcontractor there is also a requirement that the Payment Claim indicate that it is made under the Building & Construction Industry Security of Payment Act. A Payment Claim served by a Head Contractor on a Principal must be accompanied by a Supporting Declaration.
(2) The due date for payment is the earlier of the date specified in the contract and the dates specified in Section 11 of the Act. Work my only be suspended if the contractor has first served Notice of Intention to Suspend under Section 15(2)(b) of the Act.
(3) To best avoid disputes in relation to the dates of service, Payment Claims should be served by facsimile transmission wherever possible with a copy of the successful transmission confirmation kept in the job file.
(4) See Section 17(3) of the Act for the different timeframes that an Adjudication Application can be made. An Adjudication Application can also be made where a Payment Schedule was not provided subject to Section 17(2) of the Act.