Security of Payment Act | Construction Law

Applications and Responses

Our Sydney Security of Payment Lawyers will enforce your rights

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 (NSW). 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. Our Security of Payment lawyers assist contractors and property owners where claims for payment are made under the Act.

In addition to the information on this page, we recommend our Security of Payments Act Essentials Guide, a more detailed guide to these laws and the procedures for enforcing or disputing claims for progress payments.

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The Security of Payment Laws

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

the requirement for service of valid payment claims,
strict time limits for the service of ‘payment schedules’ disputing payment claims,
the right to suspend work in certain circumstances involving non-payment,
prompt, affordable and enforceable determinations of payment disputes by independent adjudicators,
recovery of payment claims as indisputable statutory debts through NSW courts where a payment schedule is not served in time, and
the right to obtain payment directly from a principal contractor (further up the contractual chain) for progress payments owed by a head contractor.

These important statutory rights provide protection to otherwise vulnerable subcontractors and cannot be excluded by the terms of a construction contract.

Valid payment claims

Crucially, most rights under the Act arise from the service of a valid payment claim and it is important that those seeking payment understand this requirement. Our Security of Payment lawyers ensure that payment claims meet the requirements of the Act.

To make a valid payment claim, the claimant must:

provide the payment claim in writing, stating the amount due and describing the construction work and/or related goods or services being claimed,
state the following in the payment claim: “This is a payment claim made under the Building and Construction Industry Security of Payment Act 1999 NSW”, and
serve the payment claim at the time specified in the contract or on or after the last day of the month.

In addition to the above, payment claims served by head contractors on principal contractors must be accompanied by a ‘Supporting Statement’ in the prescribed form that indicates that it relates to that payment claim.

Service of a valid payment claim creates the following due dates for payment:

For payment by a principal contractor to a head contractor (non-residential building work), 15 business days after the claim is served or an earlier date as provided in the contract.
For payment by a head contractor to a subcontractor (non-residential building work), 20 days after the claim is served or an earlier date as provided in the contract.
For payment by a head contractor to a subcontractor (residential building work), 10 days after the claim is served.

Payment schedules

Where the recipient of a payment claim (the “respondent”) does not intend to pay some or all of the claimed amount, they must serve a ‘payment schedule’ in response to the claim. The payment schedule must:

be in writing, addressed to the claimant and identifying the payment claim to which it relates,
state the scheduled amount of the payment, if any, that the respondent proposes to make (including the amount of “Nil” if no payment is proposed),
state all the reasons why the proposed payment is less that the amount claimed, and
be served on the claimant so that it reaches them within the following timeframes:
- If the payment due date has not expired, within 10 business days after service of the payment claim or within the time required by the contract (whichever is earlier).
- If the payment due date has expired, within 5 business days after receiving a notice of intention to apply for adjudication.

When preparing a payment schedule disputing a payment claim, respondents must be aware that they will be confined to the reasons in the payment schedule should the payment claim become the subject of an adjudication. It is, therefore, very important that respondents who dispute a payment claim include every reason for doing so in their payment schedule as they will not be permitted to put any reasons to an adjudicator that are not included in the payment schedule.

The consequences of failing to provide a payment schedule or make payment

There are very serious consequences for failing to provide a payment schedule within the time allowed and/or failing to make payment by the due date. Where a respondent fails to serve a payment schedule prior to the expiry of the due date for payment and fails to pay the amount claimed by the due date, or provides a payment schedule but fails to pay the amount in the schedule by the due date, the claimant may commence debt recovery proceedings in any court of competent jurisdiction to recover the unpaid portion of the claimed amount as an indisputable statutory debt. Alternatively, the claimant may seek to have the matter determined by adjudication (see below).

Unlawful non-payment by a respondent also entitles the claimant to suspend work without liability for losses caused by the suspension, regardless of whether there is a right to suspend in the contract. This is an important right which protects subcontractors from ongoing losses, particularly where a head contractor is approaching insolvency (or insolvent).

Adjudication applications

Disputed payment claims, breaches of the rules relating to payment schedules and non-payment entitle the claimant to apply for adjudication of a payment claim by an independent adjudicator (an “adjudication application”).

Adjudication is generally the preferred choice for claimants where there is no statutory right to payment because the respondent has provided a valid payment schedule disputing the claim.

The following strict timelines apply to the making of an adjudication application:

Where a payment schedule has been served but the scheduled amount is less than the amount in the payment claim, the adjudication application must be made within 10 business days after the payment schedule has been received by the claimant.
Where a payment schedule has been served but the respondent fails to pay the whole or any part of the amount in the payment schedule by the due date for payment, the adjudication application must be made within 20 business days after the due date.
Where the respondent fails to provide a payment schedule and fails to pay the whole or any part of the claimed amount by the due date:
- the respondent is to be notified within 20 business days of the payment due date of the claimant’s intention to apply for adjudication (the “notice of intention”),
- the respondent must be given 5 business days to provide a payment schedule after receiving the notice of intention, and
- the adjudication application must be made within 10 business days of the 5-day payment schedule period referred to above.

The adjudication application must contain certain documents and information including copies of the contract, payment claim and payment schedule (if any) together with all information in support of the application that the claimant wants the adjudicator to consider.

In some circumstances, a claimant who has made an adjudication application will be entitled to serve a ‘payment withholding request’ on a principal contractor. A valid payment withholding request requires a principal contractor to keep money that is or will be payable by the principal contractor to the respondent, to cover the amount claimed in the adjudication application.

Adjudication responses

Respondents who have provided a payment schedule within the time allowed may lodge a response to the adjudication application (an ”adjudication response”). It is a strict requirement that an adjudication response is made:

five business days after the respondent received a copy of the adjudication application, or
two business days after the respondent received notice of the adjudicator’s acceptance of the application.

The adjudication response must not include any reasons for withholding payment unless those reasons were included in the payment schedule. The response should, however, include full details of the reasons given in the payment schedule and it may also respond to issues raised in the adjudication application.

The adjudicator’s decision is due within 10 days of the adjudicator’s acceptance of the adjudication application and payment of any adjudication amount is due within 5 days after the release of the adjudicator’s decision.

Our Security of Payment Act lawyers provide services including:

drafting and reviews of payment claims and payment schedules,
drafting and submitting adjudication applications and adjudication responses,
court proceedings for enforcement of adjudication determinations and statutory debts, and
advice in relation to:
- the statutory rules, and
- the strengths and/or weaknesses of your case.

When to seek advice from our Security of Payment lawyers

If you are seeking to enforce payment of a construction contract progress claim, have been served with a payment claim and wish to dispute the amount claimed or are involved in an adjudication, you should seek immediate legal advice from our Security of Payment lawyers to avoid breaching the rules for validity of documents and the strict timelines for service and lodgment of documents.

Disclaimer

The information provided above is not to be taken or relied upon as legal advice and Jason Francis Commercial and Construction Lawyer will not be responsible for decisions made or acts or omissions undertaken in reliance on this information. It is information intended as a guide only. You should obtain independent legal advice in respect of any issue or query you may have after reading this information.

Liability limited by a scheme approved under Professional Standards Legislation.

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