March 2005

Security of Payment Act in the building and construction industry.... a refresher

On 3 November 2004 the Court of Appeal handed down a judgement (Brodyn Pty Ltd t/as Time Cost Quality v Davenport & Anor) which overturned the Supreme Court's interpretation of the Building and Construction Industry Security of Payment Act ("Act").

Prior to the Brodyn decision the Supreme Court had allowed the judicial review of determinations with the result that a determination may be quashed. The Court of Appeal said in Brodyn the relief of judicial review is limited to circumstances where:

"basic requirements of the Act are not complied with, or if a purported determination is not a bona fide attempt to exercise the power granted under the Act, or of there is a substantial denial of natural justice..."

Another of the important points to arise from Brodyn was that an adjudicator who determines a claim under the Act if required to consider issues of law, was not falling into jurisdictional error if he or she makes an error of law.

We thought it worthwhile to revisit the Act in light of the Court of Appeal's judgement.

What is the purpose of the Act?

The Act is designed to ensure that any person, partnership or company who undertakes construction work (or supplies related goods or services) is entitled to receive and is able to recover progress payments for carrying out the work.

The Act achieves this by providing a timetable for the provision of documents within a strict timeframe. If you fail to comply within the timeframe you may not be able to recover your debt under the provisions of the Act. The documents include:

A Payment Claim - the document prepared by your business and given to the business which has failed to pay under a tax invoice or progress payment.

A Payment Schedule - the document you provide to the party who gave you a Payment Claim to deny the amount claimed in part or in full.

If you have been given a payment claim and fail to respond to it within the timeframe set out in the Act you may not be able to dispute the debt.

Does the Act apply to our business?

It applies to any construction contract, whether written or verbal.

It applies to commercial, industrial and some residential work, or related goods or services where the construction work is in NSW.

The definition of construction work in the Act includes:

  • Construction, repair, maintenance and demolition of structures forming part of land.

  • Installation in a building, structure or works of fittings forming part of the land including heating, lighting, air-conditioning, electrical work, plumbing, security, and communications systems, laying of foundations, supply, erection and dismantling of scaffolding, provision of roadways, site clearance and laying of foundations.

The definition of related goods and services in the Act includes:

  • Materials and components that form part of a building.

  • The hiring of plant and materials.

  • Labour, design, architectural, quantity surveying, engineering and landscape advisory services.

The Act does not apply to:

  • Your employees making a claim upon you for payment.

  • Construction work performed outside NSW.

  • Construction of underground works, tunnelling or boring.

  • Residential Building Work where the other party to the contract will live in the premises.

  • When work or related goods and services were provided 12 months ago.

How does the Act affect our business?

The Act can affect your business in two ways:

  • You can use the Act to get payment through a quicker means than taking action through the courts.

  • You need to treat service of a Payment Claim upon your business seriously. If you have received a Payment Claim this will need to be answered with a Payment Schedule in accordance with the time for payment under the contract. If there is no stipulated time, you need to respond within 10 business days.

How does the Act work so our business can recover money?

A Payment Claim must:

  • Identify the work or related goods and services for which the progress payment relates.

  • Include the amount that is due.

  • State it is a payment claim under the "Building and Construction Industry Security of Payment Act, NSW.

Once you have completed the Payment Claim, you must ensure that it is served within the time stated in the contract, or within 12 months after the work or related goods and services were provided.

What do we do if we get served with a Payment Claim?

You need to act promptly. You should advise your accounts staff that if a tax invoice is received including the words "This is a payment claim under the Building and Construction Industry Security of Payment Act", they should immediately pay the tax invoice.

If you dispute the payment, a "Payment Schedule" needs to be drafted and faxed to the business which provided the Payment Claim.

The terms of the contract set out the time for payment. If there is no time stipulated for payment you must respond within 10 business days by faxing a Payment Schedule to the party who served the Payment Claim.

To draft a Payment Schedule you must state:

  • The details of the payment claim ? eg date, reference etc

  • The amount your business is prepared to pay.

  • If the amount is less than the amount in the Payment Claim the reasons why less is to be paid. Supporting documentation must be provided to justify the difference. For example, if the reason is because of defects full particulars of these should be provided and any report from an independent building expert provided.

What do we do if we don't receive a Payment Schedule within time?

If you do not receive a Payment Schedule as stipulated in the contract or if no time is stipulated then in 10 business days, you need to send a letter to the debtor in accordance with s.17(2) of the Act.

What do we do if we receive a Payment Schedule?

You can apply for adjudication of the dispute to an authorised adjudicator. These are referred to in the Act as "Authorised Nominating Authorities" and a number of associations can adjudicate including: The Institute of Arbitrators and Mediators; LEADR; and the Master Builders Association.

Author: David Creais