Residential Building Owners Risk Adjudication Determination against them if not prepared to respond to Payment Claim and Adjudication Application under the Building and Construction Industry Security of Payment Act 1999 (NSW) – A recent example

27/09/2023

Watson & Watson have for many years advised in relation to building and construction disputes including disputes under the Building and Construction Industry Security of Payment Act (SOP Act).  As indicated in previous articles, the Security of Payment Act is an Act that initially was introduced in particular, to enable Sub-Contractors to be paid by Contract for building work undertaken for Builders and also for Builders to make a claim against Owners for whom building work had been undertaken.  There were exemptions including an exception in that the SOP Act did not apply to claims by the Residential Builder undertaking residential building work for an Owner who either lived or intended to live in the residential building being constructed.  This has all changed since 2021. 

Watson & Watson are now seeing many cases involving such potential claims and actual claims by Builders against Owners pursuant to the Building and Construction Industry Security of Payment Act 1999.

One recent claim relates to building extensions for the sum of $500,000. Briefly:

1.         In November 2021 the Builder and Owner entered into a Residential Building Contract for an extension to the Owner’s existing home for a fixed sum of approximately $500,000.  The works commenced shortly thereafter. 

2.         The Owner paid each of the progress claims during the progress of the works. There was a variation in relation to a roof re-design in May 2022 which was paid by the Owner.

3.       However the Owner withheld approximately $60,000 relating to part of the second last claim being the “full fit out completed” and the final stage claim “completion of entire job” as the works the subject of those two claims, had not been completed as required under the Contract. 

Thereafter the Builder asserted that the works were completed as at October 2022 and the Builder issued the final claim for payment.  The Owner disputed that the works were completed and withheld the final claim as referred to above.

4.       Further after the Builder claimed the works were completed, the Builder issued an Invoice for claimed variations for approximately $70,000 for which no claim had previously been made and the Builder had not complied with either the Contract or the Home Building Act relating to claims for variations of works.  Some of the claimed items were undertaken however as to many of which, there was a dispute as to whether the work was in fact in the original Scope of Works or were in fact undertaken by the Builder .  

5.       In 2022 the Builder commenced proceedings issued out of New South Wales Civil and Administrative Tribunal (NCAT) claiming approximately $130,000 plus costs.

          This was a significant amount having regard to the Contract Sum and the work undertaken by the Builder.  On behalf of the Owner, we wrote to the Builder setting out the issues and factual matters and denied the Builder’s claim.  The Builder did not proceed with the NCAT proceedings.

6.       We advised the Owner of the prospects of the Builder making an Application under the Building and Construction Industry Security of Payment Act and advised of:

6.1     The strict time limits that may apply in relation to a claim by the Builder under the SOP Act.

6.2     The requirement for a Payment Schedule and thereafter Adjudication Response if the Builder proceeded with an Adjudication Application under the SOP Act.

6.3     That some preparation should be commenced in case the Builder proceeded with the claim.

6.4     The evidence required firstly as to the history from the Owner and the evidence in relation to each of the matters relating to the various claims by the Builder for variations.

6.5     The consequences of not responding to the Payment Claim or the Adjudication Application.

7.       We reviewed the Building Contract and various other documents in relation to the building works and Builder’s claims and advised as to the necessary evidence to be in a position to respond to any Payment Claim.

8.       It is important to know that a Payment Claim is a simple document from the Builder to the Owner and is often simply an Invoice with different varying degrees of supporting documents.  Many Invoices or claims by the Builder are in fact a Payment Claim under the Building and Construction Industry Security of Payment Act and should not be ignored.  In this particular case, the Payment Schedule was required within 5 days of the Payment Claim. 

We assisted the Owner to prepare the necessary outline in readiness for a claim.

9.       In May 2023 the Builder served a claim which we considered was a Payment Claim under the Building and Construction Industry Security of Payment Act and prepared a Payment Schedule within the 5 working days which was served on the Builder indicating that the appropriate amount payable to the Builder was $Nil.  The Builder did not respond with an Adjudication Application. 

10.     As is the Builder’s right as long as it is issued within the relevant period, the Builder in August 2023 issued a Payment Claim which had been prepared professionally over the period of months which lapsed following the May 2023 Payment Claim.

11.     The Owner had 5 working days to provide a Payment Schedule.  Having regard to the previous preparation, we completed for the Owner and served a Payment Schedule within the 5 days. 

12.     As anticipated by us and advised to the Owner, the Builder then proceeded with an Adjudication Application.

13.     The necessary Adjudication Response including a report from an appropriate Building Consultant as to the necessary matters including evidence as to the Contract documents and valuation of various items of work claimed.

14.     The Builder’s claim was in excess of $125,000 and the Adjudication Determination was approximately $35,000.

If the Owner had not properly prepared for the Payment Claim, it is highly likely that the Builder would have been successful in the Adjudication Application for close to the amount claimed and that amount would have been required to be paid by the Owner to the Builder.  The preparation resulted in a saving for the Owner of $90,000 which would have been payable with serious consequences if not paid.

The Owner and the Builder each have a right to dispute the outcome of the Adjudication Application in Court proceedings, however there are significant costs and significant and often unknown risks of Court or NCAT proceedings and recovery of money due by or to either the Builder or the Owner.

The above case is one of numerous cases we have been involved in and in particular, in 2022 and 2023 since the change to the requirements of the SOP Act which now applies to homeowners in relation to claims by Builders where the Building Contract has been entered into since 1 March 2021.

If you as an Owner have entered into a Building Contract since 1 March 2021, please contact Richard Watson of Watson & Watson experienced Building, Construction and Strata Lawyers in relation to rights of Builders and of Owners in relation to such claims and steps that can be taken to protect your interests.  The earlier you are aware of the issues that you may face, the more preparation you can undertake in a timely manner rather than at the time of an Application by the Builder.  Please contact Richard Watson Accredited Specialist in Building and Construction by contacting his Personal Assistant Shereen Da Gloria 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.