One of the biggest challenges within the construction industry is how to get paid. What do you do when the other party delays payment? What if the party refuses to pay you at all? If you’re a head contractor, sub-contractor, supplier or consultant for construction work, then this article will help you navigate payment claims and the adjudication process in NSW.
What Building Contracts Does the Building and Construction Industry Security of Payment Act 1999 (NSW) Cover?
The Building and Construction Industry Security of Payment Act 1999 (NSW) (‘the Act’) is the law that regulates payment claims and adjudication claims for construction work and related goods and services in NSW. The contract itself can be verbal, written or a mixture of both. It does not have to state that it uses NSW law. However, it does have to relate to construction work occurring within NSW or the supply of goods services for construction work in NSW.
At the outset, it is important to indicate what construction contracts the Act does not cover. It does not cover:
- Residential construction work under the Home Building Act 1989 (NSW);
- Construction contracts forming part of loan agreements with recognised financial institutions (this includes lending, guarantees and indemnities); and
- Contracts where the payment is for something other than the value of construction work or the supply of construction goods.
The Act has a very broad definition of ‘construction work’. A good rule of thumb is to assume the Act covers the construction contract, so long as it is not exempted (as above), or relates to mining for minerals, gas or oil.
What falls into the category of ‘related goods or services’ is also very broad. It includes:
- The hire or sale of plant and materials;
- Landscaping; and
- Building design work.
What Are Your Options for Getting Paid?
You have two legal options to getting paid in the construction industry. The first is to make a payment claim. Alternatively, the Act also provides for an adjudication process. Here, the Minister appoints bodies known as Authorised Nominating Authorities (‘ANA’). These are the bodies that then appoint adjudicators to hear and determine applications under the Act should a payment claim fail.
Making the Payment Claim
Your contract will specify the date you can claim payment. This date is known as the reference date. Your payment claim can only be made on or after this date.
You’ll need to make the payment claim in writing and serve this on the person liable to pay you (the respondent). The contract will specify who the respondent is. Each payment claim you serve on the respondent can only be for a separate reference date, and you must make it within 12 months of when you did the work.
Your payment claim should detail what work was carried out and the amount the respondent owes you on the reference date. If you’re a head contractor, you’ll also need to include the prescribed supporting statement contained in Schedule 1 to the Building and Construction Industry Security of Payment Regulation 2008.
Awaiting the Response
The respondent must serve a payment schedule to you within ten business days of receiving your payment claim. The contract may specify a shorter period. If the respondent does not provide you with a schedule, they are liable for the full amount claimed.
The payment schedule must include:
- The amount the respondent must pay;
- A reference to the payment claim; and
- An explanation, if the respondent is paying an amount less than the amount claimed.
The Act also sets out timelines for when progress payments become due. These deadlines depend on circumstances such as:
- If the respondent is a principal, they have 15 business days after service of the payment claim;
- If the respondent is a head contractor, they have 30 business days after service of the payment claim; and
- If the contract is silent on the date for payment, the respondent has ten business days after service of the payment claim; or
- A shorter period as disclosed in the contract.
Making the Application
If the respondent provides you with a payment schedule which you do not necessarily agree with, you can apply for adjudication in two circumstances:
- If the respondent pays less than the claimed amount, ten business days after receiving the payment schedule; or
- If the respondent has failed to pay all or part of payment schedule, 20 business days after the due date for payment.
If the respondent did not provide you with a payment schedule, you can still apply for adjudication. In this case, you should:
- Serve a notice to the respondent indicating that you intend to apply for adjudication. You should do this 20 business days after the due date for payment;
- Allow five business days for the respondent to respond; and
- Make your application within ten business days following this five day period.
You can lodge your application to an ANA that forwards it to an adjudicator appropriate to your claim. Fair Trading NSW has published a list of ANAs to simplify this process.
The application to the ANA must:
- Be in writing;
- Identify the claim;
- Include any payment schedules;
- Include any submissions (if any); and
- Provide the fee that the ANA requires.
Lastly, you must also serve a copy of this application to the other side.
Should the other side fail to pay the adjudication amount within five business days of the respondent receiving the determination, you can request an Adjudication Certificate from the ANA. You can file the Adjudication Certificate in court to obtain a judgment debt. You can then use this judgment debt to obtain civil remedies to attempt to recover the debt.
Navigating the Securities of Payment legislation in NSW can be tricky. If you have any further questions, get in touch with our construction lawyers on 1300 544 755.