Security of Payment Act (NSW)

The Building and Construction Industry Security of Payment Act 1999 provides a debt-recovery process for contractors, sub-contractors, suppliers and consultants in the construction industry in New South Wales. In the industry, the Act is commonly called the “Security of Payment Act”, where security of payment refers to a service provider’s right to receive payment as it falls due under a contract. All states and territories have security of payment legislation.

The object of this Act is to ensure that anyone involved in construction work under a contract is “entitled to receive, and is able to recover, progress payments”. The Act applies to any construction contract, written or oral, that does not form part of an agreement with a financial institution. It establishes a process that involves a payment claim, a payment schedule, and the referral of any disputed claim to an adjudicator.

“Construction work” involves “the construction, alteration, repair, restoration, maintenance, extension, demolition or dismantling” of buildings and infrastructure, and work by associated tradespeople.

Main protections

The main protections for contractors under the Security of Payment Act include:

• a statutory mechanism to recover payment that is fast, cost-effective and impartial;
• maximum time periods for payment;
• a right to suspend work following non-payment;
• minimum interest rates on late payments.

Making a claim

Arguably the most important right afforded under the Security of Payment Act is for a contractor to have a disputed claim determined fairly by a government-authorised adjudicator.

A valid payment claim must be made within 12 months of carrying out construction work or supplying related goods and services. The claim must identify the work or related goods and services, and that a contract exists between the parties; indicate the amount of the payment that is due; and state that the claim is made under the Act.

If a payment schedule is not received from the debtor within 10 business days, the Act requires the claimant to serve a second notice. This must be done within 20 days of the payment due date. This notifies the debtor that the claimant is applying for adjudication. The debtor then has another 5 business days to supply a payment schedule. The claimant can also give notice to the debtor that construction work or the supply of related goods and services will be suspended under the contract.

Adjudication

If a payment schedule is received but pledges to pay less than the amount claimed, an adjudication application must be made within 10 business days of the claimant receiving the schedule. If no payment or payment schedule is received, an adjudication application must be made within 20 business days of the payment due date. The debtor can respond to the application within 5 days of receiving a copy of it or within 2 days of receiving notice of an adjudicator’s acceptance of the application. An adjudicator must determine an application within 10 business days of a response or the end of the response period, or within a time agreed by the parties.

Under the Security of Payment Act, the adjudicator can:

• request further information from either party and a response to the information from the other party;
• set deadlines for the supply of further information and comment;
• call an informal conference of the parties;
• inspect any matter related to the claim.

An adjudicator can then determine the amount of the payment, if any, the date the amount became or becomes payable, and the rate of interest payable on the amount. The determination must include the reasons for the decision, unless instructed by both the claimant and debtor. If the debtor is ordered to pay an amount, it must be paid within 5 days. If it is not paid, the claimant can apply to the adjudicator for an adjudication certificate which they can file in a court as an enforceable judgement for a debt.

An adjudicator can be chosen from a list of Authorised Nominating Authorities, which includes the Master Builders Association of New South Wales and the Australian Building and Construction Dispute Resolution Service. Parties to an adjudication bear their own costs initially, but a successful party will normally be allowed to recover costs from the other party.

The Security of Payment Act provides an avenue for payment if a debtor is insolvent. Subcontractors are permitted to issue a “payment withholding request” to a principal contractor asking them to retain the adjudicated amount of money while adjudication proceeds. If the adjudication is successful, the subcontractor can then seek to recover the amount.

An adjudication can be set aside only when some form of jurisdictional error is proved, such as when a claimant had no right to make an application or failed to consider the contract terms.

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