Is your business at risk due to non-payment for services?
Businesses which engage contractors to design or perform building work, or who deliver services or goods must be alert to dangers and benefits of the Building Industry Security of Payments Act (“the Act”).
The Act regulates the recovery of money including progress and final payments.
We can assist businesses who owe, or who are owed, money for building/construction works or supply of related goods and services (eg. engineering or design costs).
This is a technical area where strict time limitations apply and any business engaged in the building and construction industry should have a clear understanding as to how the legislation operates.
We can assist you with advice in the following five areas:
How the act works – the areas to keep in mind
What to do if you receive a claim
What happens if the payment schedule is not served
What if there is a dispute over the claim
Planning when defending or proceeding a claim
Getting Paid for Work in the Building Industry – the five steps for success
How the Act works – the areas to keep in mind.
Who can use the Act to recover money?
If you are an architect, engineer, tradesman, subcontractor, labour provider or you supply related goods and services for the private and public sectors in New South Wales you are entitled to promptly receive not only progress payments that are due also final payments and retention money.
Applies to any written or oral contract for building and construction works or the supply of “related goods and services” within New South Wales.
Forbids the classic scenario of “I’ll pay you when I get paid”. Even if this arrangement is in writing.
Imposes default provisions into agreements, which may otherwise be silent on payment terms. This means for example that payments will be deemed to be sue and payable at certain times.
The Act does not extend to home owners, certain financial institutions or where payment is not calculated by reference to the value of the work.
How to make a claim?
Commonly claims are sent in the form of a tax invoice. The tax invoice must bear an endorsement stating “this claim is made under the Building and Construction Industry Security of Payments Act 1999”. In addition the claim must set out the following: –
a) A description of the work, goods or services provided for which the progress or final payment is claimed.
b) The amount claimed.
The claim must be delivered during normal working hours, faxed or posted to the Respondent in person or to the Respondent’s ordinary place of business.
The Next Step
If you receive a claim: immediately check that it includes all necessary information, and if it does you only have 10 days from the date of receipt (not including weekends and public holdings) to dispute the claim by serving a payment schedule.
A payment schedule must be served within 10 days of receiving the claim and it must set out all relevant information regarding why a particular progress claim or final payment claim is rejected. You do an item by item analysis identifying the item, the amount claimed, and provide detailed reasons why you will not pay. Example: a progress claim is sought but the Claimant has not reached the stage of work required to trigger the claim or there has been overcharging.
Defective Workmanship: Almost every construction contract has a staged program of works and progress payments; generally there is no right to withhold payment even if there is defective work unless it is expressly provided for in the documents. Most contracts have a defect rectification period or some other mechanism dealing with rectification of works. If this scenario arises and there is a material breach then advice may be required.
What happens if Schedule is not served?
A Respondent is liable to pay the claim if the Respondent does not serve a payment schedule within 10 days of service of the claim. There are deeming provisions in the legislation which will determine when a progress payment is due.
Once an amount is deemed to be due and payable it can be recovered as a debt. Recovery can be expedited at this stage by utilising ALG’s Specialist Litigation and Insolvency Services.
What if there is a dispute over the claim?
If there is a genuine dispute regarding the claim and payment schedule is served by the Respondent (within the 10 day period) then the matter will proceed to adjudication. The Claimant has the responsibility of appointing the adjudicator. The application must be made within 10 business days of receipt of the payment schedule. The Respondent has 5 business days after receiving a copy of the adjudication application from the Claimant or 2 business days after the receipt of adjudicator’s acceptance of the application (which ever expires last) to provide the adjudicator with a response. The adjudicator can not extend the period. Failing to comply may result in the adjudicator deciding the application on Claimant’s submissions alone. This means that if you are served with an adjudicator’s application then you must act urgently.
If a response is made in time the adjudicator will consider the application of the Act, the wording of the contract, the content of the claim and payment schedule and in some circumstances may conduct an inspection. The Respondent normally lodges a response to the adjudication application. A party can however elect to go to the Courts rather than use the adjudication process, but if it does it will have to pay security pending the resolution of the dispute. The costs associated with adjudication are born equally between the parties and if the party does not pay, these can be collected as part of the amount due or as a debt.
Planning is the Key
The key to defending or proceeding with any claim under the Act is planning. From a Claimant’s perspective this means that if you enter into an agreement or an arrangement which is covered by the Act then, it should be reduced to writing so that the obligations for payment are clearly expressed. This means that the contract provides that the claims for payment will be specified against the progress of works (if relevant) or upon a certain stage of works being completed, Secondly, when a payment claim is made a Claimant should ensure that all the relevant information, including the endorsement described in paragraph 2 above is included. Often payment claims are not made directly and the claim can be set aside if it is not in the proper form. If you’re a Respondent you must be prepared to prepare a response and serve it in the required time.
We are able to provide specialised expertise in assisting parties in the preparation of construction contracts which take into account the function of the Act together with assisting in the preparation of payment claims, payment schedules and assisting through the adjudication process.
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