In most standard form construction contracts, there are clauses that outline when and how payments can be made, and what to do if you do not get paid. Although breaches of these contract terms can be remedied through the courts, this process can be slow, formal, expensive, and does not guarantee that you will get paid. This is where security of payment legislation steps in.
Each State and Territory in Australia has an equivalent security of payment statute that regulates payment disputes under most construction contracts. This legislation provides a streamlined process with the objective of contractors, subcontractors, and suppliers receiving regular and timely payments to improve cash flow, where those who have the benefit of the work can “pay now, argue later”. The process allows for swift, but interim, outcomes, that are often relatively cheaper and faster than taking the issue to court.
Security of payment legislation creates this process through provisions outlining payment claims, payment schedules and adjudication. This process is outlined visually on Adjudicate Today’s flowchart.
A payment claim is essentially an invoice that the entitled party (Claimant) issues to the party liable to make the payment (Respondent).
There are certain formalities set out in the security of payment Legislation that must be complied with in order to enforce a payment claim. For example, the payment claim must:
These payments are payable either on the day the progress payment becomes payable under the construction contract (Contract), or if the Contract is silent on this, in the ACT,10 business days after a payment claim is made under the Building and Construction Industry (Security of Payment) Act 2009 (Act) unless the Respondent provides a payment schedule.
Only one payment claim can be submitted for each reference date specified under the Contract. However, a payment claim can include work that was the subject of a previous claim but remains unpaid. If the Contract is silent on reference dates, the reference date will be the last day of the month.
Payment schedules are issued by the Respondent in response to a payment claim if all or part of a claim is disputed.
As set out in the security of payment legislation, the payment schedule must:
The payment schedule must be provided to the Claimant within the earlier of the time specified in the Contract for responding to a claim for payment and 10 business days after the payment claim is given to the Respondent.
Respondents cannot rely on a reason for non-payment if that reason was not in the payment schedule. Therefore, it is essential that payment schedules are provided in circumstances where the payment claim is disputed, and that all reasons on which the Respondent intends to rely on are presented.
Further, where a Respondent fails to pay the whole or any part of the scheduled amount to the Claimant before the due date for the payment to which the payment relates then the Claimant may recover the unpaid portion of the claimed amount from the Respondent as a debt due in any court of competent jurisdiction and make an adjudication application.
Adjudication is a dispute resolution process only available to Claimants’ seeking payment for construction works or related goods and services performed under a construction contract. There are strict timeframes and deadlines surrounding adjudication application for both the Claimant and Respondent For more information on this, please see our article “The Process of Adjudication Under the Building and Construction Industry (Security for Payment) Act 2009.”
If you have any questions around payment claims, payment schedules, or adjudication, please do not hesitate to contact our Litigation and Dispute Resolution team for further advice on 02 6274 0999.