A party can, in limited circumstances, suspend work under a construction contract. Below, we set out the circumstances where suspension can occur and provide some guidance on this issue. Each Australian state and territory has enacted a Building and Construction Industry Security of Payment Act to facilitate more efficient payments to contractors and subcontractors. This article refers to the NSW Act, however, there are corresponding sections in each Act.
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 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 (which 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
- The reason why they do not intend to pay the full amount.
An option available for a claimant is to make an adjudication application under the Act. An adjudication is a where an appointed arbiter reviews evidence and documentation and provides a binding decision. Adjudication commences either:
- 10 business days after the payment schedule is served; or
- 20 business days after the payment was due.
When Can You Suspend Work?
Division 3 (section 27) of the Act sets out the three circumstances in which a claimant has a statutory right to suspend work. All involved 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.
What Notice Must the Claimant Provide?
Under section 27(1) of the Act, the claimant needs to provide written notice to the principal of at least two business days. 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 must pay damages as a consequence of the suspension of work and only if there is loss or damages arising from the claimant’s suspension of work. The claimant is not liable for any loss or damage suffered if they have validly suspended the work in accordance with the Act.
The Building and Construction Industry Security of Payment Act is prescriptive and provides clear guidance about when a contractor can suspend work. If you have any questions about your rights to suspend work or need assistance obtaining payment, get in touch with our building and construction lawyers on 1300 544 755.