Security of Payment Act

The Building & Construction Industry Security of Payment Act ensures that the party who has provided work, goods or services can enforce prompt payment from the company receiving those goods or services.

Claimants can use the Act to secure payment on account inexpensively and speedily without the need for extensive use of lawyers, court hearings, witnesses, cross examinations and all that is usually involved in arbitration or litigation. Within a matter of weeks, a claimant can now have a judgment for a progress payment on account, which compels the respondent to pay.

Previously, obtaining judgment in a building dispute was often a drawn out, costly process that sometimes drove the claimant into insolvency or gave time for respondents to become insolvent to avoid their payment obligations.

Some respondents had been trying to delay paying by placing the amount owing into trust accounts after an adjudication. This was forcing claimants into protracted arbitration and litigation to receive payment. The new amendments that came into operation on 3 March 2003 stopped this practice and with the Act no longer permitting respondents to use trust accounts in this way.

Active use of the Act will result in a considerable reduction in the number of disputes going to arbitration or court. A claimant can use the Act to obtain judgment for a payment on account before, or even during, arbitration or court proceedings over the claim irrespective of who initiated the proceedings.

Security of Payment Act - Objective

The objective of the Act is to ensure that any party that contracts to carry out construction work, or supply related goods or services, on projects for the private and public sectors in NSW is entitled to promptly receive all progress payments that are due, including final payments and retention monies.

The Act gives the claimant a statutory right to make progress payment claims and receive payment, even where the contract has no provision for progress payments. If the respondent claims to have reasons for not paying a claim, the respondent must set out the reasons in a payment schedule.

If, after 10 business days of being served with a payment claim, the respondent hasn’t provided the claimant with a payment schedule, the respondent becomes liable to pay the full amount claimed. The claimant is also entitled under the Act to recover in any court of competent jurisdiction, the unpaid portion of the amount claimed. The unpaid portion is a statutory debt, which the claimant is entitled to recover independently of and irrespective of the terms of the construction contract.

If the claimant disputes the reasons for withholding payment, as given by the respondent in the payment schedule, or if the respondent fails to pay the amount due by the due date, the claimant can apply to an Adjudicate Today for an independent adjudication of the amount to be paid.

Where the claimant disputes the payment schedule the claimant must apply for adjudication within 10 business days of receiving such a payment schedule.

Where the respondent has failed to pay the amount stated in the payment schedule by the due date, the claimant has 20 business days to apply for adjudication.

In the event of no payment schedule being provided and the respondent has failed to pay the full claimed amount by the due date, the claimant must advise the respondent that they will be proceeding to adjudication within 20 business days of the due date for payment. The respondent then only has 5 business days to respond with a payment schedule before the claimant is entitled to pursue an adjudication.

Within 10 business days of accepting an adjudication application, an adjudicator has to provide a written decision on the amount due, unless both the claimant and the respondent agree to a different timeframe.

When an adjudicator has determined the amount due, the Act provides an expedited means of obtaining a court judgment for payment of the amount due. The claimant only has to obtain an Adjudication Certificate from Adjudicate Today and lodge that with a court, together with an affidavit of the amount still unpaid. Judgment is granted automatically by the court, that is, without the need for a summons or a hearing.

The respondent cannot challenge the adjudicator’s determination in court, if the process has been carried out in accordance with the provisions of the Act. Adjudication is an expedited determination based on unsworn submissions, not a determination based upon sworn testimony. Inevitably, some adjudicators will make mistakes, but there is no appeal from an adjudicator's determination. A mistaken decision, as distinct from a decision that is made without jurisdiction, is still enforceable. The respondent who is dissatisfied with the adjudicator's decision has the option of suing separately for repayment of any alleged overpayment.

The Act clearly specifies that the courts must strike out any cross-claim for damages for breach of contract or any other cross-claim. To join a claim for the statutory debt with a cross-claim is similar to chalk and cheese - they are totally different matters. The first claim is for an interim payment. The cross claim is for a final determination of liability. Proceedings for payment of the statutory debt are separate proceedings and must not be joined with proceedings for final determination of issues. Similarly, claims for payment of the statutory debt cannot be stayed pending a final determination of issues between the parties.

Claimants also no longer have to initiate separate action under the Contractors Debt Act 1997 to secure a debt from their respondent’s principal. All debts under the enhanced Act are also debts under the Contractors Debt Act 1997, providing quick and direct recourse to respondents’ principals to secure payment of the debt.

Further Protection and Updates

The Act includes other protection to claimants such as a right to suspend work and be paid for any losses and expenses if sacked because of the suspension, and to claim a lien over unfixed plant and materials to settle any debts established under the Act. Respondents also cannot claim or sue for liquidated damages because of a suspension of work under the Act. The Act bars “pay when paid” and “paid if paid” clauses and overturns them even if they are included in the contract. All forms of contracts are covered - written and oral. It also provides a minimum rate of interest on late progress payments. The claimant and the respondent share equally the fees payable to the Adjudicate Today and the adjudicator, unless the adjudicator decides otherwise.

To take advantage of the Act, a claimant will have to ensure that their payment claims include the words: “This is a payment claim made under the Building and Construction Industry Security of Payment Act 1999 NSW” or words to that effect. On consideration of their situation, all claimants may want to include these words on all their invoices for payment to ensure all their claims are covered by the Act. If you make a claim for payment and you have not included these words, you can submit a new invoice with the words included and make use of the rights the Act extends to you.

The Act will again be reviewed by early 2004 to ensure that the Act is working the way the Government intended it should.


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