If you have entered into a contract or other arrangement for construction work or goods/services related to construction, you should be aware of the application of the Building and Construction Industry Security of Payments Legislation. There are statutory schemes in every state and territory in Australia, but for our purposes, we’re looking at the NSW version of the legislation (the Building and Construction Industry Security of Payment Act 1999 (NSW)). You can read our FAQs for a general overview of the security of payments legislation. In this article, we are focusing on what constitutes a payment claim under the security of payment legislation and why it is so important to know what can constitute a payment claim.
What Constitutes a Payment Claim?
Our FAQs make the point that under the NSW legislation, the bar for what constitutes a payment claim is set pretty low. This means that it can sometimes be important to err on the side of caution when making a judgment about whether or not a contractor has made a payment claim. The legislation stipulates that a payment claim needs to:
- Identify the work that has been carried out; and
- Quantify the progress payment amount that is being claimed.
If the payment claim is coming from the head contractor, it also needs to include a statement in agreement with the regulations saying that all subcontractors have been paid.
Importantly, for contracts entered into after 21 April 2014, a payment claim doesn’t need to expressly state that it is a payment claim made under the relevant security of payments legislation unless it is a contract for the carrying out of residential building work under the Home Building Act 1989.
Finally, it is important to note that the legislation allows a person who claims to be entitled to a progress payment to serve a payment claim on the person who, under the relevant contract, “is or may be liable to make the payment”. So depending on the terms of a contract, a sub-contractor may be entitled to serve a payment claim on the principal directly.
What all of this means is that you may receive a payment claim that technically complies with the requirements of the legislation, but which doesn’t otherwise look like a payment claim. The language used in the legislation is broad enough to encompass things that don’t look like invoices in the traditional sense. For example, a payment claim from a sub-contractor could come in the form of an email that sets out very simply the work performed, and the amount claimed. It is important to be on the look-out for payment claims like this, as the implications of failing to answer a payment claim (even an informal one) can be very severe.
What Do I Have to Do if I Receive a Payment Schedule?
Let’s say you have received an email from a subcontractor relating to construction work that they have been carrying out for a project. If the email has identified particular work completed and then specifies the amount claimed, this is potentially a payment claim! Assuming it is, you now have ten business days (or a shorter period if specified in the contract) to prepare a payment claim which sets out how much you propose to pay.
A payment schedule needs to identify the payment claim that has been made, set out how much you propose to pay, and set out any reasons you have for not paying the full amount claimed.
It may be a chore to respond to every email or that could constitute a payment claim under the Act. However, failing to set out a payment schedule within the time required will lead to the full amount claimed being owed to the contractor who has made the claim. If this amount goes unpaid, a contractor can seek to enforce its rights by applying to the Court for a summary judgment for the amount owed.
The Bottom Line
When you have entered into a contract relating to construction work or related goods and services, it pays to be vigilant. A few helpful points to remember when you’ve entered into an agreement for construction work or are otherwise having building works done:
- The contract you have entered may be relatively informal. It may even have been an oral agreement only – payment claims can still be made under such contracts;
- What constitutes a contract for construction or related goods and services can be very wide – the building of temporary structures can be construction that falls under the legislation, as can agreements for goods necessary for/incidental to construction projects;
- Payment claims can come in many shapes and sizes. Some payment claims can be formal (such as an invoice on the letterhead of the company you have contracted with). Some payment claims can be informal (such as an email).
- Serving a payment schedule on time and in the required form is crucial if you want to avoid payment of the entire amount claimed – in NSW you only have ten days to serve the payment schedule. Sticking your head in the sand is not an option!
- Talk to a lawyer if you are in doubt about what to do, and make sure you do it as soon as possible.
If you have received what you think to be a payment claim and need assistance responding or if you have any questions, get in touch with our building and construction lawyers on 1300 544 755.