We previously provided guidance on the Building and Construction Industry Security of Payment Act and the process by which a party can issue a Payment Claim. Below, we set out when a contractor should issue a payment claim. Although this seems straightforward, claimants can and do trip up. Please note that this article refers to the NSW Security of Payment Act.
What is a Payment Claim?
The Act applies to any contract or arrangement to perform construction work. A claimant (i.e. a party who requires payment) can issue a payment claim for work carried out which sets out the following:
- Identify the work that the claimant has carried out; and
- Quantify the amount of the progress payment that is claimed.
How is the Reference Date Determined?
You can only issue a payment claim on or after the reference date. Section 4 of the Act defines the reference date as follows:
- A date contained in the contract on which a party can make a claim for a progress payment (e.g. the 15th day of each month); or
- If the contract is silent on this point, the last day of the named month in which the construction work was first carried out (e.g. if the contractor started construction work in March, the reference date is the last date of March, and the last date of each subsequent month).
After determining the reference date, a claimant can then prepare and serve a payment claim. Below, we set out some common questions relating to payment claims and reference dates.
What About Progress Payments?
It is not uncommon for construction contracts to have progress claims made at different intervals (also known as milestone payments). If your construction contract includes progress or milestone payments, you should review the contract carefully and ensure it identifies the relevant reference dates.
Can I Issue a Payment Claim After the Reference Date?
The Act provides that a claimant can serve a payment claim (and therefore the responsible person under the construction contract can pay) on and from each reference date.
Can a Construction Contract Exclude the Act’s Operation?
In short, no – the Act includes a specific provision that renders any agreement or clause in an agreement void if it seeks to exclude the Act’s operation.
Can You Submit a Payment Claim Late?
The Act imposes limits on how late you can submit your payment claim, namely whichever occurs later of the following:
- Up to 6 months after the construction work which the payment claim relates to was last carried out; or
- The period set by the terms of the construction contract
The maximum time you then have is six months but note this varies from state to state and you should seek specific advice regarding your circumstances.
Can you submit multiple payment claims regarding the same reference date?
The Act permits a claimant to serve only one payment claim in respect of one reference date.
Guidance on Reference Dates
The Court of Appeal recently provided some guidance on ‘reference dates’ in Lewence Constructions Pty Ltd v Southern Han Breakfast Point Pty Ltd  NSWCA 288. In that case, the principal issued a notice indicating they would take further work under the contract out of the contractor’s hands. The contractor regarded this as a repudiation and subsequently made a payment claim (in the sum of $3.2 million) for work already done. The matter went to adjudication where they received a determination for the amount of $1.2 million.
The principal then took the matter to the Supreme Court, arguing that the adjudicator had wrongly determined that a reference date had arisen in respect of the work done. At first instance, the principal succeeded, and the Court overturned the adjudication determination. The contractor appealed the matter to the NSW Court of Appeal who unanimously held that the Court could not simply quash an adjudication determination if the adjudicator had made an error on whether a reference date occurred. The Court then went on to say that having a reference date is not an ‘essential pre-condition’ to making a valid payment claim.
Essentially, a respondent does not necessarily have a right to apply to the Supreme Court if they are dissatisfied with an adjudication determination relating to the reference date.
As you can see, there are a number of points to consider when issuing a payment claim, of which the reference date is one. If you have any questions or need assistance drafting your construction contracts and payment claims, get in touch with our specialist building and construction lawyers on 1300 544 755.