Owners Beware - Building and Construction Industry Security of Payment Act 1999 (NSW) - Now expanded and applies to Building Contracts for Home Owners who intend to occupy the home once completed

25/08/2021

From 1 March 2021 the law has changed and the Building and Construction Industry Security of Payment Act 1999 (“Security of Payment Act” or “SOP Act”) now applies to enable a Builder to claim payment against a Home Owner who is building a home to occupy pursuant to the provisions of the Security of Payment Act.  This is additional to the existing construction work to which the Security of Payment Act applies.

The Security of Payment Act provides a time driven procedure whereby a person such as Builder seeking money from another such as an Owner, will have a quick determination by the Adjudication process by an Adjudicator who will determine the amount payable. 

Since 1999 the Building and Construction Security of Payment Act has applied to Contracts in relation to construction work or related goods and services being undertaken within New South Wales.  There are similar Acts that apply to other States and Territories in Australia. 

The Security of Payment Act is a process driven method for a person engaged in the construction industry to receive payment for work undertaken.  For example, a Sub-Contractor can utilise the provisions of the Security of Payment Act to make a claim against a Contractor; similarly a Contractor can utilise the provisions of the Security of Payment Act to make a claim against the Principal/Owner who contracted with the Contractor. 

Previously the Builder who was undertaking residential building work for a Home Owner who intended to occupy the residential building did not have the benefit of the Security of Payment Act.  Now the exemption does not apply and the provisions of the Security of Payment Act now apply in those circumstances.

This significant change which will affect the right of a Builder and the obligations of an Owner who is building a home in which the Owner intends to reside. 

In this article we will refer to the Builder who is a Claimant, claiming money from the Owner who is the Respondent in any Application. 

The Builder is entitled to proceed with an Adjudication Application if the Builder complies with the requirements of the Security of Payment Act.

There are strict time limits that apply and there are strict restrictions as to what can be raised in the Adjudication process.

The Adjudication process is almost always limited to written documentation which is provided to the Adjudicator namely:

(a)      An Application together with statements, evidence and submissions on behalf of the Builder; and

(b)      A Response together with statements, evidence and submissions on behalf of the Owner.

There are strict limitations as to what submissions and evidence can be provided to the Adjudicator.  This is limited having regard to the original Payment Claim and the original Payment Schedule.  Accordingly you as an Owner must ensure that the appropriate response is made to the Payment Claim so that you as an Owner can make an appropriate response to an Adjudication Application, if one is made by the Builder. 

At the conclusion of the Adjudication process, the appointed Adjudicator will make a decision and determine an amount that will be payable by the Owner to the Builder.  The Adjudication process does not determine what (if any) would be owed by the Builder to the Owner.

The Security of Payment Act provides for strict time limits which must be adhered to by each of the Builder and the Owner. 

A typical process may include:

1.       A claim (Payment Claim) being made by the Builder against the Owner for a sum said to be owed by the Owner.  The Builder can seek a progress payment to which the Builder is entitled for an amount calculated in accordance with the terms of the Contract, or if the Contract makes no express provision with respect to the matter the amount calculated on the basis of the value of construction work undertaken by the Builder.  The Builder in making the Payment Claim is required to submit appropriate particulars of the claim.

2.       The Owner has an opportunity to respond to the Builder’s claim within
10 business days of receiving the Payment Claim.  The Owner is required to serve on the Builder what is referred to as a Payment Schedule.  The Payment Schedule should set out the appropriate circumstances and reasons (in accordance with the applicable law) as to why the amount claimed by the Builder is not the amount payable.

3.       If the Owner fails to respond to the Builder’s Payment Claim, the Builder has 2 separate alternatives available, namely:

3.1     Firstly to serve a further Notice (as required by the SOP Act) and thereafter apply for Adjudication; or

3.2     Secondly to proceed by way of Court action to enforce payment of the amount claimed. 

4.       If the Builder makes an Adjudication Application there are limitations as to what matters can be raised by the Builder in the Adjudication Application.  Similarly, there are limitations as to what matters the Owner can raise in the Response to the claim.

5.       Once an Adjudicator has been appointed and the process proceeds, then there is a determination in accordance with the provisions of the SOP Act.  The determination is a determination of the amount payable by the Owner to the Builder.  It does not determine what, if any, amount is payable by the Builder to the Owner. 

6.       If the Owner does not make the payment to the Builder of the amount as determined by the Adjudicator, the Builder can then enforce the payment of the amount determined. There are limited defences available to the Owner to any such claim by the Builder.

If the Owner does not wish to accept the Adjudication Determination there are two possible avenues available to the Owner namely:

1.       Firstly to consider whether there are grounds for an appeal against the Adjudication Determination.  There are very limited rights in this regard which primarily relate to procedural matters.

2.       Secondly in the event that the Adjudicator found the amount due on an incorrect basis, the Owner is required to make the payment of the adjudicated amount.  However the Owner has a right to re-litigate by separate proceedings what should have been the appropriate amount taking into consideration of the contractual and other rights of the parties having regard to the relationship between the Builder and the Owner. 

This can be expensive and secondly, there is no certainty that even if a Judgment is given in favour of the Owner that the Builder will be able to meet that Judgment. 

As we have indicated, the Builder was not prior to 1 March 2021 been able to utilise the provisions of the Security of Payment Act when the Builder was undertaking building work for an Owner who intended to reside in the residential building.

We expect that Builders will issue invoices which on the face of them are a Payment Claim in accordance with the provisions of the Security of Payment Act.  If the Owner does not respond with a Payment Schedule, the Owner could be subject to an Adjudication Application (with limited rights) or Court proceedings (with limited rights) to enforce the payment.

In the construction industry these processes under the Security of Payment Act have been available for many years.  The Sub-Contractors and Contractors usually endorse the invoices appropriately to enliven the provisions of the Security of Payment Act.  However not all such invoices even if unpaid results in the person seeking payment pursuing the remedies available under the Security of Payment Act.  However if the relationship breaks down, claims under the Security of Payment Act are more likely to be utilised. 

Owners need to be aware of the surrounding circumstances which may give rise to a claim by the Builder and available remedies to the Owner.  We suggest that you become aware of your rights and obligations so that you are able to appropriately respond to any such claim.

Generally the Subcontractors, Builders, Developers and other Principals are well versed in their rights and issues that arise under the Building and Construction Security of Payment Act.  However Home Owners who have not been involved in the building industry need to be aware as to the circumstances that an Owner can find himself or herself in.

At Watson & Watson Lawyers we have acted for Owners, Subcontractors and Builders involved in building and construction matters utilising the provisions of the Security of Payment Act for many years.  Watson & Watson are well versed in the particular procedural matters required to either successfully make a claim or to defend a claim. 

It is appropriate that the Home Owner obtain advice as to how the system works and how best to protect yourself.  If you are a Home Owner having work undertaken for you or are building a home, please contact the experienced building and construction Lawyers at Watson & Watson.  Please contact Richard Watson, Accredited Specialist Commercial Litigation specialising in Building and Construction or his Personal Assistant Shereen Da Gloria to discuss your matter and seek appropriate expert advice.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 9221 6011