Claims under the Building and Construction Industry Security of Payment Act 1999 (NSW) – General Process relating to Claims in particular relating to the Adjudication Process – Knowledge and Preparation is Critical

04/05/2023

There have been numerous changes to the Building and Construction Industry Security of Payment Act 1999 (NSW) (“the Security of Payment Act”).  The purpose of the Security of Payment Act is to enable a person to claim under the Act for moneys owing for building work undertaken.

One of the changes made on 21 October 2019 relates to the process and requirements of the Adjudication Process, which applies to Contracts made after 21 October 2019. 

Another recent change is that The Building and Construction Industry Security of Payment Act now applies to Builders and Home Owners for residential Building Works under the Home Building Act for Contracts after 1 March 2021.

The date of the Contract is critical in determining who has the obligations and benefits of the Security of Payment Act and the procedures, process and time limits that apply. 

A person or company who is owed money for example, a Head Contractor, Builder, a Subcontractor should consider the operation of the Security of Payment Act.

A person who is having building work undertaken for example, an Owner, Principal, Head Contractor, should also be aware of the provisions and circumstances of the Building and Construction Industry Security of Payment Act as they operate to give to the person owed the money (in the appropriate circumstances), a right for payment on account of money due without the rigors (and associated costs and time delays) of a Court case to make such claim. 

The default process occurs when the person against whom the claim is made, does not appropriately and does not within the strict time limits, respond to a Progress Claim under the Security of Payment Act.

The claim commences with an appropriate Payment Claim under Section 13 of the Building and Construction Industry Security of Payment Act 1999 (nsw) (SOP Act).  The claimant must ensure that the Payment Claim is valid by complying with the requirements set out in the Security of Payment Act.

Once the Payment Claim is validly served, the Respondent whom against the claim is made, usually has 10 business days (but not always) (of which time is of the essence) to respond to the Payment Claim with a written Payment Schedule, if the Respondent wishes to resist the payment.

The Respondent is required to comply with the provisions of the SOP Act including Section 14 of the SOP Act which sets out the requirements which are required to be included in the Payment Schedule in response to the Payment Claim.  Care must be taken to comply with those requirements.

The Payment Claim identifies the basis of the claim. 

The Payment Schedule is essential to identify and specify the Respondent’s basis for not paying the amount claimed.  Failure to appropriately respond to each claim in the time as required (which sometimes is less than 10 business days) results in a default order that the Respondent must pay the amount claimed.  If the Claimant wishes to dispute the Payment Schedule, the Claimant may utilise the Adjudication process under the Building and Construction Industry Security of Payment Act. 

Failure to utilise the Adjudication process does not bar the Claimant from making a further Payment Claim at a later stage, or bringing Court proceedings for recovery of moneys claimed to be due. The Security of Payment Act provides procedural matters which are critical to the success of the claim or the defence of the claim.

The Adjudication Application must be lodged with an authorised nominating authority who will appoint an Adjudicator to determine the claim.

The Adjudication process allows for evidence (which is almost all cases is a paper driven process) to be provided however it is limited to the matters that were raised in the Payment Claim and more particularly, the Respondent’s defence is limited to the matters raised in the Payment Schedule in the Payment Schedule. 

Time limits apply including the time in which the appointed Adjudicator is to provide his or her Determination. 

The Respondent is required to make payment of the Adjudicated Amount.  Failure by the Respondent to make payment of the Adjudicated Amount, gives the Claimant rights to recover the amounts determined and to suspend work if the amount is not paid.

The person who is required to make the payment of the Adjudication Amount has an opportunity to re-litigate the issues in Court proceedings.

We recommend that the persons who have the obligation to make payments are aware of the circumstances in which a claim can be made under the Building Contract and the Building and Construction Industry Security of Payment Act.

Owners should take action to prepare in an appropriate form, matters that are required to be responded to in any claim that may be made by the Builder. 

Owners have to be aware that each claim made under the SOP Act will have to be paid, if not responded to. 

Builders, Contractors and Subcontractors have to be aware as to the relationship issues and the appropriate time in which to utilise the provisions of the Security of Payment Act. 

Preparation is key in being able to manage the process. 

There are also relationship issues that apply that must be considered in relation to Payment Claims being made. 

If you are a Home Owner, Builder, Contractor or Subcontractor or other person involved in the building process or industry, be aware as to the rights and obligations of each of the parties as there are significant consequences to not responding appropriately to each of the claims. 

We note that persons who are subject to the obligations to make payments under the Security of Payment Act cannot contract out of those obligations and any attempt to contract out of the provisions to do so, is void and unenforceable.

The Security of Payment Act provides procedural matters which are critical to the success of the claim or the defence of the claim.

If you have entered into a Contract or about to enter into a Contract you should be aware of the provisions and operations of the SOP Act.  Further if you are in a situation of either not being paid or an excess claim has been made our experienced Lawyers at Watson & Watson can assist you.

Please contact Richard Watson Accredited Specialist in the stream of Building and Construction or his Personal Assistant, Shereen DaGloria to discuss your matter and seek appropriate timely 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.