The Dangers of the Building & Construction Industry Security of Payment Act 1999
Introduction
The Building & Construction Industry Security of Payment Act 1999 is designed to ensure that any person who carries out construction work (or who supplies related goods and services) under a construction contract is entitled to receive, and is able to recover, progress payments in relation to the carrying out of such work and the supplying of those goods and services.
This Act prescribes strict time frames in which the person from whom money is claimed (the “respondent”) must respond. If no response (the “payment schedule”) is made within the required time frame, the respondent is liable for the amount of the claim and must pay the claim by the due date. If the respondent fails to pay, the claimant may bring proceedings in a Court to recover the money. In such proceedings the respondent cannot bring a cross-claim or raise any defence in relation to the matters arising under the construction contract.
If the claimant instead makes an adjudication application, any submissions the respondent makes to the adjudicator are invalid and the adjudicator does not have to consider them. Once the adjudicator has made a determination, the respondent must comply or the determination can be entered and enforced as a judgment of the Court.
This article will firstly consider the scope of the Act and a person’s entitlement to progress payments before considering in more detail the procedure for recovering progress payments, the strict time frames involved and the consequences of an adjudicator’s determination. This article will also briefly consider the claimant’s right to suspend work and the effect this Act has on civil proceedings.
Scope of the Act
The Act relates to “construction work” carried out (or “related goods and services” supplied) under a construction contract whether the contract is written or oral or partly written and partly oral. The Act applies even if the contract is expressed to be governed by the law of a jurisdiction other than New South Wales, so long as the work is carried out (or the goods and services are supplied) in New South Wales. The Act also applies despite any provision to the contrary and any provision purporting to exclude, modify or restrict the operation of this Act is void. Any provision that may reasonably be construed as an attempt to deter a person from taking action under this Act is also void.
The Act extends the definition of “construction work” to include the installation of heating, lighting, air-conditioning, power supply, security and communications systems and the painting or decorating of any building, structure or works. It considers architectural, design, surveying, quantity surveying services and building, engineering, decoration or landscape advisory services in relation to construction work to be “related goods and services”.
The Act adopts a broad interpretation of “progress payments” to ensure final payments and single or one-off payments are covered.
However the Act does not cover a construction contract for residential building work on premises in which the party for whom the work is carried out, resides or proposes to reside. It also does not cover construction contracts entered into before 26 March 2000.
Entitlement to Progress Payment
The Act grants a statutory entitlement to progress payments regardless of whether the relevant construction contract makes provision for such payments. Accordingly a person is entitled to a progress payment on the dates specified in the contract, or if the contract is silent on the issue, on the last day of the month in which the work was first carried out (or the related goods and services were first supplied) and on the last day of each subsequent month (the “reference dates”).
The amount of a progress payment to which the person is entitled is the amount calculated in accordance with the terms of the contract. Otherwise, the amount is calculated on the basis of the value of the construction work carried out or undertaken to be carried out (or of related goods and services supplied or undertaken to be supplied) by the person under the contract.
The Act prescribes the following procedure for the recovery of a progress payment
- the person claiming payment (the “claimant”) must make a payment claim;
- the person from whom the payment is claimed (the “respondent”) may provide a payment schedule;
- the matter may be referred to an adjudicator for determination;
- the matter may be determined.
Payment Claim
To commence recovery of a progress payment in accordance with the procedure prescribed, the claimant must serve a payment claim on the respondent within the period determined by the terms of the contract, or within 12 months of the work to which the claim relates was last carried out (or the related goods and services to which the claim relates were last supplied), whichever is the greater.
The claim must identify the work (or related goods and services) to which the progress payment relates, must indicate the amount of the progress payment that the claimant claims to be due and must state that it is made under this Act.
Payment Schedule
On receipt of the payment claim, the respondent must reply to the claim by providing a payment schedule within the time required by the contract, or 10 business days of the claim being served, whichever is the earlier. Otherwise the respondent becomes liable to pay the claimed amount to the claimant on the date which the payment becomes due and payable according to the terms of the contract or, 10 business days after the payment claim is made (the “due date”).
If a payment schedule is provided, it must identify the payment claim to which it relates and must indicate the amount of the payment (if any) that the respondent proposes to make (the “scheduled amount”). If the scheduled amount is less than the amount claimed, the schedule must indicate why the scheduled amount is less and if it is less because the respondent is withholding payment for any reason, the schedule must include the respondent’s reasons for withholding payment.
Consequences of not paying Claimant claimed amount or scheduled amount
If the respondent fails to pay the whole or any part of the claimed amount before the due date, the claimant may recover in a Court the unpaid portion from the respondent as a debt due to the claimant. In such proceedings the respondent cannot bring any cross-claim against the claimant or raise any defence in relation to the matters arising under the construction contract.
Alternatively the claimant may make an adjudication application in relation to the payment claim.
The claimant may also serve notice on the respondent of the claimant’s intention to suspend carrying out construction work (or supplying related goods and services) under the construction contract.
If the respondent fails to pay the whole or any part of the scheduled amount before the due date, the claimant may also take any of the actions outlined above.
Adjudication Application
The claimant may apply for an adjudication of the payment claim
- within 10 business days of receiving the payment schedule if the respondent has provided a payment schedule in response to the payment claim and the scheduled amount is less than the claimed amount;
- within 20 business days of the due date if the respondent has provided a payment schedule but has failed to pay the whole or any part of the scheduled amount by the due date;
if the respondent has not provided a payment schedule and has failed to pay the whole or any part of the claimed amount by the due date. In this situation the claimant must first notify the respondent, within 20 business days of the due date for payment, of the claimant’s intention to apply for adjudication of the payment claim and must give the respondent 5 business days from the receipt of the claimant’s notice to provide a payment schedule. The claimant can then make an adjudication application within 5 business days of the 5 day period.
The adjudication application may contain such submissions relevant to the application as the claimant chooses to include. A copy of the adjudication application must be served on the respondent concerned.
Adjudication Response
The respondent may only lodge an adjudication response if a payment schedule has been provided to the claimant within the time required by the contract or 10 business days of the payment claim being served, whichever is the earlier or within 5 business days of the receipt of the claimant’s notice of intention to apply for adjudication.
Such adjudication response must be lodged with the adjudicator within 5 business days of receiving a copy of the adjudication application or within 2 business days of receiving the adjudicator’s notice of acceptance of the application. If this is not complied with the adjudicator will not consider the response.
The adjudication response must identify the adjudication application to which it relates. It may contain such submissions relevant to the response as the respondent chooses to include but the response may not include any reasons for withholding payment unless those reasons have already been included in the payment schedule provided to the claimant.
A copy of the adjudication response must be served on the claimant.
Consequences of the Adjudicator’s Determination
If the adjudicator determines that the respondent is to pay the claimant, the respondent must pay by the date determined by the adjudicator or else within 5 business days of the adjudicator’s determination being served on the respondent.
If the respondent fails to pay the whole or any part of that amount by the time required, the claimant may apply for an adjudication certificate and may file such certificate as a judgment in a Court. The claimant can then enforce this judgment using the usual legal processes. If the respondent commences proceedings to have such judgment set aside, the respondent cannot, in those proceedings, bring any cross-claim against the claimant, raise any defence in relation to the matters arising under the construction contract or challenge the adjudicator’s determination and is required to pay into Court as security the unpaid portion pending final determination of those proceedings.
If the respondent fails to pay, the claimant may also serve notice of the claimant’s intention to suspend carrying out the work (or to suspend supplying related goods and services) under the contract.
Suspension of Work
Where the respondent has failed to pay the whole or part of the claimed amount, scheduled amount or amount awarded by the adjudicator, the claimant may serve a notice of the claimant’s intention to suspend carrying out the work (or supplying related goods or services). Such notice of intention should state that it is made under the Act.
The claimant may then suspend such work (or supply) 2 business days after it has been served. However once the respondent pays the unpaid amount, the claimant must continue such work (or supply) within 3 business days of payment.
The respondent is liable for any loss or expense suffered by the claimant as a result of the removal by the respondent of any part of the work (or supply) from the contract and the claimant is not liable for any loss or expense suffered by the respondent, or any person claiming through the respondent, as a consequence of the claimant not carrying out the work (or not supplying those goods and services) during the period of suspension.
Effect on Civil Proceedings
This Act does not affect any rights that a party to a construction contract may have under the contract or any civil proceedings arising under the contract except that a Court or Tribunal must take into account any money paid as a result of this Act when making an order or award in those civil proceedings.
Conclusion
Given the strict time frames prescribed by this Act and the severe consequences when the time frames have not been complied with, any person subject to a construction contract covered by this Act should ensure that prompt attention is given to any document served in relation to the construction contract.
In particular, invoices can be considered payment claims so long as the document identifies the work (or related goods and services) to which the claim relates and the amount of the claim and states that it is made under the Act, for example “This claim is submitted pursuant to the Building & Construction Industry Security of Payment Act 1999.” Accordingly, invoices should be carefully considered and treated with caution.
For more information please contact
David Beale on (02) 9957 3685 or dbeale@rbhm.com.au;
Karina Fung on (02) 9018 6415 or kfung@rbhm.com.au.
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