The Building and Construction Industry Security of Payment Act 1999 (NSW) (‘the Act’) was first introduced in New South Wales in March 1999 and similar legislation has since been adopted by the other states and territories of Australia, most recently South Australia in December 2011.
The purpose of this legislation is to ensure that progress payments (which are required to continue to carry out work on site) are easily and promptly secured without resorting to costly and time-consuming litigation. Note that certain changes to the law began to apply from 21 October 2019. These changes only affect contracts signed after this date, so check that you follow the version of the law which is applicable to your contract. This article reflects the law as it is at the time of publishing.
General
Parties cannot include ‘paid when paid’ clauses in contracts, neither can they ‘opt out’ of the Act.
The NSW legislation does not apply to:
- residential building works within the meaning of the Home Building Act 1989 (NSW);
- construction contracts that form part of a loan agreement, guarantee, or contract of insurance (in certain circumstances);
- consideration payable for the construction work calculated otherwise than by reference to the value of the work carried out;
- parties purporting to supply works as an employee;
- works undertaken outside of New South Wales (i.e. each state has its own legislative regime); or
- as prescribed by regulations.
Making a claim
When?
A claimant is entitled to a progress payment on or from:
- the last day of the named month in which the works were first carried out under the contract, and the last day of each subsequent month; or
- a date on which a progress payment may be made according to the contract.
If payment has not been made, a claimant may serve a Payment Claim.
How?
Payment Claims must:
- identify the works to which it relates;
- indicate what the claimed amount is; and
- state that the Claim is made according to the Act.
A claimant cannot serve more than one payment claim in respect to the same reference date. However, a claimant can include amounts that have already been claimed if the amount was not paid.
Facing a claim
A respondent may dispute a payment claim by serving a Payment Schedule within the time specified in the contract, or 10 business days- whichever expires earlier. Payment Schedules must:
- identify to which Payment Claim it relates;
- indicate the amount of the payment that the respondent proposes to make; and
- state the reason that any amount should not be paid.
If the respondent fails to serve a Payment Schedule within the above time frame, the respondent becomes liable to pay the amount claimed in the Payment Claim. Payment includes interest, either at the rate prescribed by the Civil Procedure Act 2005 (NSW), or under the contract – whichever is greater.
The respondent must pay the amount specified in the Payment Schedule, or the full amount if it fails to provide one, within the following time framework:
- if the payment is to a head contractor, payment is due 15 days after service of the claim, or any earlier date that is stated in the contract; or
- if the payment is to a subcontractor, payment is due 20 days after service of the claim, or any earlier date that is stated in the contract. However, payments to a subcontractor in regard to construction where the owner intends to live in the house (which is subject to the Home Building Act 1989 (NSW)) becomes due 10 days after service of the claim or any earlier or later date stated in the contract.
Failure to Pay
If the respondent fails to pay, the claimant may:
- suspend work;
- recover this amount as a debt in court; or
- make an Adjudication Application.
Adjudication
Adjudication Application
If no Payment Schedule is served:
- The claimant has 20 days from due date for payment to notify the respondent of an intention to apply for adjudication.
- The respondent then has 5 business days to serve a Payment Schedule.
- If no Payment Schedule is served after 5 days, the claimant has 10 business days to serve an Adjudication Application.
- The application may contain submissions.
- The respondent has no right to serve an Adjudication Response if they did not serve a Payment Schedule.
If a Payment Schedule is served:
- The claimant has 10 business days to serve an Adjudication Application after the receipt of the payment schedule if the scheduled amount indicated in the payment schedule is less than the claimed amount indicated in the payment claim.
- The claimant has 20 business days after the due date for payment if the respondent fails to pay the whole or any part of the scheduled amount indicated in the payment schedule.
Adjudication Response
The respondent may then respond with an Adjudication Response containing relevant submissions, however, cannot include reasons for withholding payment that were not included in the Payment Schedule.
The respondent may lodge an Adjudication Response at any time 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 (whichever expires later).
Process of Adjudication
The adjudicator has 10 business days to make a determination from the receipt of the application. However, if the claimant agrees, the adjudicator can make a determination within any further period of time.
The adjudicator may request further submissions, call a conference between the parties and/or carry out an inspection of any matter to which the claim relates.
Determination of Adjudication
The determination relates to the amount of the progress payment that is to be paid by the respondent and any interest. The adjudicator must give reasons for the determination and must nominate when the amount is to be paid.
If the respondent still does not pay, the claimant can suspend work, obtain an Adjudication Certificate from the ANA and enforce the adjudication in court. An adjudicator’s determination cannot be reviewed by a court unless there has been a jurisdictional error, a clerical mistake, an error arising from an accidental slip or omission, a material miscalculation of figures or a defect of form.
Claimant’s Rights Against Principal Contractor
A principal contractor for a claim is a person by whom money is or becomes payable to the respondent for works carried out by the respondent to the person as part of or incidental to the works that the respondent engaged the claimant to carry out.
A claimant who has made an adjudication application for a payment claim can serve a payment withholding request. This requires a principal contractor to retain sufficient money to cover the claim out of money that is or becomes payable to the respondent. A person who is served with a payment withholding request must, within 10 business days after receiving the request, notify the claimant if the person is not a principal contractor for the claim.
The payment withholding request must include a statutory declaration declaring that the claimant genuinely believes that the amount of money claimed is owed by the respondent to the claimant. The claimant must serve a copy of the adjudicator’s determination on the principal contractor within 5 business days of the determination being served on the claimant.
The principal contractor must retain the money until:
- the respondent pays;
- the adjudication application is withdrawn;
- the claimant serves a notice of claim on the principal contractor under the Contractors Debts Act 1997 attempting to claim directly from the principal contractor; or
- 20 business days have elapsed after the adjudicator’s determination is served upon the principal contractor.
