The Security of Payment Act 1999 (NSW): What is it? What rights and rules does it include? What types of construction work does it apply to?

In NSW, people and businesses who carry out construction work or supply related goods and services under a construction contract are entitled to receive progress payments under the Building and Construction Industry Security of Payment Act 1999 (NSW) (“the Act”) and the Building and Construction Industry Security of Payment Regulation 2020 (“the Regulations”).

These “Security of Payment laws” were introduced to decrease the risk of insolvency in the NSW building and construction industry by ensuring regular cash flow amongst members of the contractual chain.

The rights and rules created by the Security of Payment Act

The Security of Payment laws create a rapid mechanism for resolving payment disputes with a range of statutory rights and rules including:

• the right to receive progress payments
• the method for calculating the amount of a progress payment
• the requirement for service of valid payment claims
• the method for determining the due date for a progress payment
• strict time limits for the service of ‘payment schedules’ disputing payment claims
• recovery of payment claims as indisputable statutory debts through NSW courts where a payment schedule is not served in time
• the right to suspend work for non-payment
• interest payable and the exercise of liens when progress payments become due and payable
• prompt, affordable and enforceable determinations of payment disputes by independent adjudicators
• the right to obtain payment directly from a principal contractor (further up the contractual chain) for progress payments owed by a head contractor

The Security of Payment laws are important statutory rights providing crucial protection to otherwise vulnerable contractors and cannot be excluded by the terms of a construction contract (see Section 34 of the Act).

The right to progress payments exists whether a contract is verbal or written, where there is no contract, despite any “pay when paid” provision in the contract (Section 12) and even where the contract states that the contractor cannot claim progress payments.

What types of construction work are covered by the Act?

“Construction work” is defined in Section 5 of the Act as any of the following:

• the construction, alteration, repair, restoration, maintenance, extension, demolition or dismantling of:
  • buildings or structures forming, or to form, part of land (whether permanent or not), or
  • any works forming, or to form, part of land, including walls, roadworks, powerlines, telecommunication apparatus, aircraft runways, docks and harbours, railways, inland waterways, pipelines, reservoirs, water mains, wells, sewers, industrial plant and installations for purposes of land drainage or coast protection
• the installation in any building, structure or works of fittings forming, or to form, part of land, including heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply, fire protection, security and communications systems
• any operation which forms part of the preparation or completion of the works described above including:
  • site clearance, earth-moving, excavation, tunnelling and boring
  • the laying of foundations
  • the erection, maintenance or dismantling of scaffolding
  • the prefabrication of components to form part of any building, structure or works, whether carried out on-site or off-site
  • site restoration, landscaping and the provision of roadways and other access works
• the external or internal cleaning of buildings, structures and works, so far as it is carried out in the course of their construction, alteration, repair, restoration, maintenance or extension
• the painting or decorating of the internal or external surfaces of any building, structure or works

In our next article in this series, we will look at the application of the Act to related goods and services, and the rules for calculating the amount of a progress payment.

Jason Francis