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Security of Payment – Construction Contracts
When entering into a contract for building and construction work it is important for all parties to understand what the process is if a dispute arises over payment of money under the contract.
Regardless of whether the contract is written or oral, if a dispute arises about payment there is a legislated process to resolve the dispute provided by the Building and Construction Industry Payment Act 2004. This process does not apply to construction contracts involving domestic building work if one of the parties to the contract is a resident owner.
When can a contractor make a payment claim?
A contractor can make a claim for monies owed, either while still under contract or when the job has finished, by delivering a progress payment claim to the person or company that owes the money, within the later of:
- the period worked out under the construction contract; or
- six months after the construction work or related goods and services to which the claim relates were last carried out or supplied;
A final payment claim under the contract may be made within the later of:
- the period worked out under the construction contract;
- 28 days after the end of the last defects liability period under the contract; or
- six months after the completion of all construction work or supply of related goods and services.
Making a payment claim
A payment claim must include the following information:
- the address of the person or company who owes the money;
- identify the construction work or related goods and services;
- specify the amount of the payment claimed; and
- state that it is made using these words
"This is a payment claim made under the Building and Construction Industry Payments Act 2004".
There must be a ‘reference date’ under the contract to support the payment claim.
Responding to the payment claim
The person who is served with the payment claim, must reply to it within strict time limits set out in the legislation. The timing depends on whether it is for a standard claim (up to $750,000) or a complex claim (over $750,000) – both amounts are ex GST.
The recipient of a payment claim must provide a payment schedule, a written response to the payment claim, if they are not going to pay the claim in full or intend disputing the validity of the claim. A payment schedule must state all reasons that the Respondent has for withholding payment from the Claimant and must be delivered within 10 business days of receiving a standard claim or 15 business days of receiving a complex claim.
Adjudication
Adjudication is a dispute resolution system designed to help resolve disagreements over progress payments. It's quick, cost effective and an alternative to going to Court.
If the Respondent fails to respond to the payment claim, the Claimant may proceed to Adjudication or recover the payment claim in Court as a debt after giving the Respondent notice. The Respondent is not allowed to raise any defence under the construction contract or make any counterclaim in those proceedings.
If the Respondent does respond to the payment claim, the Claimant can still proceed to Adjudication (without notifying the Respondent) if:
- the Respondent has delivered a payment schedule and the Claimant is not satisfied with their response or how much they are willing to pay; or
- if the Respondent has agreed to pay some of the money in a payment schedule but does not do so by the due date under the contract.
The response to the Adjudication Application
The Respondent may lodge a response to the Adjudication:
- for a standard claim, within 10 business days of receiving a copy of the Adjudication or 7 business days after receiving notice of an Adjudicator's acceptance of the Adjudication, whichever is later; or
- for a complex claim, within 15 business days of receiving a copy of the Adjudication or 12 business days after receiving notice of an Adjudicator's acceptance of the Adjudication, whichever is later.
The response must be in writing, identify the Adjudication to which it relates and may contain submissions in support of the response.
The Respondent may give the response to the Adjudicator only if the Respondent has served a payment schedule on the Claimant within the allowable timeframes.
The Adjudication process
An Adjudicator must decide an Adjudication as quickly as possible and in any case for a standard claim within 10 business days and for a complex claim within 15 business days after:
- the date on which the Adjudicator receives the response; or
- the date on which the Adjudicator should have received the response; or
- within the further time that the parties have agree.
Adjudicators may seek the consent of the parties to an extension to these timeframes.
The Adjudicator’s decision must be in writing and include the reasons for the decision, unless the parties have both asked the Adjudicator not to include the reasons in the decision.
Once an Adjudicator has made a decision as to the amount payable, the Respondent is required to pay that amount on or before 5 business days after the date on which the Adjudicator’s decision is served on the Respondent or a later date decided by the Adjudicator.
After the Adjudicator's determination
The determination is final and cannot be appealed … except for a jurisdictional error.
Where a party is not satisfied, that party can continue to use the dispute resolution processes in the contract or the Courts to pursue the dispute.
Conclusion
If you are unsure about making or responding to a claim or what you need to do, you should seek advice from a lawyer or a construction industry expert. The process can be quite complex and it is important to adhere to the procedures and comply with the relevant time limits.
If you need more information or if you need assistance or advice on how to proceed please call us:
Brendan Bathersby
Partner
(07) 5443 4866