Government has recognised that prompt payment on account is vital to the stability and efficiency of the building and construction industry. Too often the party liable to pay for construction work or related goods or services (the respondent), has manufactured a dispute to deny, or try to delay, payment. In other situations, respondents have tried to string out the time for payment with promises of future work if only the claimant just waited a bit longer.
The objective of the NSW Building and Construction Industry Security of Payment Act 1999 (often called the Security of Payment Act) is to ensure that any party that contracts to carry out construction work, or supply related goods or services, on projects for the private and public sectors in NSW is entitled to promptly receive and recover all progress payments that are due, including final payments and retention monies.
The Act creates a dispute resolution process (adjudication) that allows parties alleging they are owed monies under a construction contract (the claimant) to promptly obtain payment on an interim basis, based on an assessment of the merits of the claim by an appropriately qualified and independent adjudicator.
The Act also permits claimants access to compulsory rapid adjudication when the construction contract has no provision for progress payments and/or the contract is for a single supply at a fixed price.
To take advantage of the Act, a claimant must ensure that a payment claim includes the notice: “This is a payment claim made under the Building and Construction Industry Security of Payment Act 1999 NSW” or words to that effect. Where the notice has not been included and the claimant wishes to benefit from the rights created by the Act, a payment claim with the notice included must be submitted in accordance with the timeframes of the Act.
The adjudication process is not only rapid (the adjudicator must make the decision within 10 business days unless the parties agree to extend the time) but if the respondent’s reasons for not paying are spurious, the respondent is generally liable for all adjudication fees and interest. The process is usually entirely in writing and is so simple that, for most claims, a lawyer should not be necessary. After adjudication, the claimant may obtain an adjudication certificate for lodgment at the appropriate court which registers it as a judgment debt.
Unlike litigation or arbitration, compulsory rapid adjudication cannot result in the claimant being liable to the respondent. The respondent cannot initiate adjudication or obtain a determination that the claimant must pay the respondent money. The maximum liability of the unsuccessful claimant is the amount of the adjudication fees. Even then, the fees are shared equally by the parties unless the adjudicator determines otherwise.
Construction work and the supply of related goods and services includes:
- building work;
- civil engineering;
- demolition;
- electrical;
- hire of plant or equipment;
- landscaping;
- maintenance;
- professional services such as architectural design, surveying and soil testing;
- supply of building materials.
The Act broadly defines those persons who may make progress claims under the Act, including:
- contractors against clients (eg. principals, developers, owner-builders);
- subcontractors against contractors;
- suppliers of building components against purchasers;
- architects, engineers, and others (eg. consultants) providing advice against clients;
- plant and equipment hirers against clients.
A claimant can make a payment claim on a respondent for:
- construction work done;
- construction materials or plant provided;
- consulting services provided;
- interest on overdue progress payments;
- losses and additional expenses due to work being deleted from the contract while work was suspended under the protection of the Act
- cash security and retention monies.
At the end of a contract, a claim under the Act can be made for the final payment. 
The Act does not apply to:
- Homeowners if the homeowner is party to the contract, to the extent the contract relates to a building or part of a building where the homeowner resides or intends to reside. These contracts remain controlled by the Home Building Act 1989 and its consumer protection provisions. But if a contract includes work other than on the respondent’s residence, then that work is subject to the Act. The Act applies to contracts involving residential investment properties, landlords, strata title bodies corporate, developers, builders, contractors, sub-contractors, consultants and suppliers.
- A construction contract between parties to the extent it deals with construction work carried on outside NSW or related goods and services supplied for construction work carried on outside NSW.
- A construction contract between parties to the extent that it forms part of a loan agreement, a contract of guarantee or a contract of insurance under which a recognised financial institution undertakes to lend or repay an amount lent; guarantee payment of an amount owing or repayment of an amount lent; or provide an indemnity relating to construction work carried out or related goods and services supplied.
- Contracts in which the consideration payable for construction work carried out or related goods and services supplied under the contract, is calculated other than by reference to the value of the work or goods and services supplied.
The Act ensures that the party providing work, goods or services can force the respondent to make payment on account.
When an adjudicator has determined the amount due, the Act provides an expedited means of obtaining a court judgment for payment of the amount due. The claimant only has to obtain an Adjudication Certificate from Adjudicate Today and lodge that with a court, together with an affidavit of the amount still unpaid. Judgment is granted automatically by the court, that is, without the need for a summons or a hearing.
If the process has been carried out in accordance with the Act, the respondent cannot challenge the adjudicator’s determination in court. Adjudication is an expedited determination based on unsworn submissions, not a determination based upon sworn testimony. The respondent who is dissatisfied with the adjudicator's decision has the option of suing separately for repayment of any alleged overpayment.
The Act includes other protections for claimants such as a right to suspend work and be paid for any losses and expenses if sacked because of the suspension. Respondents cannot claim or sue for liquidated damages because of a suspension of work under the Act. All forms of contracts are covered - written and oral. It also provides a minimum rate of interest on late progress payments. The claimant and the respondent share equally the fees payable to Adjudicate Today and the adjudicator, unless the adjudicator decides otherwise. Generally adjudicators award all fees and apply interest against respondents if the claimant has been successful in the adjudication application.
The Act voids certain contract provisions:
- any provisions that are inconsistent with the Act;
- “pay if paid” and “pay when paid” clauses, even if they are included in the contract;
- clauses that attempt to “contract out” of the Act;
- clauses aimed to deter a person from taking action under the Act;
- any provision which would limit interest on late progress payments to an amount less than the rate of interest on judgments of the Supreme Court.
Let's get startedThe Act also provides that a claimant may take a lien or charge over unfixed plant or materials supplied by the claimant to the respondent for or in connection with the carrying out of the construction work.
A lien is the right to seize and sell goods in order to obtain payment. If the goods are sold for more than the amount owed under the Act then the balance must be paid to the respondent. The lien granted by the Act does not give the claimant preference over a lien or charge existing before the date upon which the progress payment became due. It does not give the claimant any rights where a third party owns the items. Generally speaking, when a principal pays a contractor for items, they become the property of the principal.
Before exercising a lien, legal advice should be obtained to ensure that there is no trespass upon the rights of others and thereby incur a liability to a third party.
Another Act, the Contractors Debts Act 1997 (NSW), albeit seldom used, is available to provide a mechanism whereby a subcontractor (or supplier of building materials) who has not been paid by a contractor can sometimes obtain payment directly from the principal (the owner).