In limited circumstances, a party can suspend work under a construction contract. All Australian States and Territories have legislation in place to facilitate more efficient payments to contractors and subcontractors. In this article, we primarily refer to the NSW Act. However, there are corresponding sections in other State and Territory Acts. This article discusses the circumstances where you can suspend work under a construction contract and also provides further guidance on this issue.
When Does the Act Apply?
The Building And Construction Industry Security of Payment Act 1999 (NSW) (the Act) is based on the performance of ‘construction work’ and applies to any contract or arrangement to perform construction work. The agreement does not have to be in writing and can apply to oral agreements as well. Before setting out the circumstances where a contractor/claimant can suspend construction work, we will briefly summarise how a payment claim works.
A claimant needs to serve a payment claim on the responsible entity, setting out the following:
- what construction work the claimant has carried out; and
- quantify the amount of the progress payment that the contractor is claiming.
A respondent must then respond with a payment schedule either within the time specified in the contract or ten business days after the payment claim was served (whichever is earlier).
A valid payment schedule must include the following:
- the payment claim to which it is responding;
- what amount (if any) the respondent is proposing to pay (known as the scheduled amount); and
- where the scheduled amount is less than the amount set out in the payment claim, the reason why they do not intend to pay the full amount.
An option available to a claimant is to make an adjudication application under the Act. An adjudication is where an appointed arbiter reviews evidence and documentation and provides a binding decision. Application for adjudication can be made either:
- 10 business days after the claimant receives the respondent’s payment schedule, if the scheduled amount is less than the claimed amount; or
- 20 business days after the payment was due.
When Can You Suspend Work?
The Act also sets out the three circumstances where a claimant can suspend work. All circumstances involve the respondent (i.e. the principal) failing to pay and are set out below:
- A valid payment schedule has been served, but the respondent does not pay the scheduled amount (i.e. the amount they intend to pay) by the due date.
- The respondent does not actually serve a valid payment schedule within the period allowed (see above). The entire amount becomes due and owing, and the respondent fails to pay this by the due date.
- The matter proceeds to adjudication, and the adjudicated amount is not paid within five business days after the determination.
The right to suspend work lasts for three business days from the day after the day the claimant receives payment. If the respondent fails to pay, you can seek to recover the amount in court.
Continue reading this article below the formWhat Notice Must the Claimant Provide?
Under the Act, the claimant needs to provide written notice to the principal of at least two business days of its intention to suspend the work. The notice should reference the Act, the payment claim and the fact that the claimant intends to suspend the work in two business days.
If the claimant receives payment, then they must cease their suspension of work within three business days.
Damages Payable as a Result of Suspension
Only the respondent will be liable to pay damages as a consequence of the suspension of work where there is loss or damages arising from the claimant’s suspension of work. If the claimant incurs any loss or expenses because the respondent removes part of the work or supply, the respondent must pay the amount of such losses. Where a claimant rightly suspends work, they will not be liable for any loss or damage suffered by the respondent for the duration of the suspension.
This guide will help you to understand your corporate governance responsibilities, including the decision-making processes.
Key Takeaways
The Building and Construction Industry Security of Payment Act provides clear guidance about when a contractor can suspend work. If you need help understanding when you can suspend work under a construction contract, contact our experienced construction lawyers as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
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