The Building and Construction Industry Security of Payment Act 1999
The seasonally adjusted figures published last month by the Australian Bureau of Statistics (ABS) tell a story that most people in the construction industry are already familiar with: the total value of building work being carried out is continuing to decline.
In the current economic environment maintaining your cash flow becomes of paramount importance, particularly for those sub-contractors who find themselves further down the contractual chain.
With a few exceptions (e.g. contracts for the extraction of oil, natural gas or minerals), the Building and Construction Industry Security of Payment Act 1999 (Act) applies to almost all types of construction contracts and provides contractors and subcontractors with additional statutory levers to help ensure that money keeps moving in their direction.
In these increasingly straitened times those in the building industry would do well to remind themselves about those mechanisms, how to use them and how to respond when on the receiving end.
MAKE A VALID CLAIM UNDER THE ACT
The first step towards exercising rights under the Act is to make a claim for payment that satisfies the requirements of section 13. In short, it must:
identify the construction work for which payment is claimed;
indicate the amount that is claimed; and
state that it is a claim made under the Act.
Simple as these requirements may appear, they can be (and occasionally are) overlooked. Make sure your payment claim templates and procedures are compliant and check any payment claims you receive so you know which ones are, or are not, compliant.
SERVE A PAYMENT SCHEDULE
The Act clearly spells out what the recipient of a payment claim must do. If he does not intend to pay any, or any part, of the amount claimed he must provide a payment schedule within the stipulated time periods (see below).
The payment schedule should identify the payment claim to which it relates, indicate the amount (if any) that is proposed to be paid and, if this amount is lower than the amount claimed, set out the reasons for withholding payment.
If a payment schedule is not served, the amount claimed becomes a debt due to the claimant and the recipient should expect to have to pay it in full.
Where a valid payment claim, or any part of it, remains unpaid, the claimant may suspend all further work under the construction contract upon giving 2 business day’s notice.
Those exercising the right should note that it expires 3 business days after payment is made, so you must be ready and able to recommence work within that period.
Those against whom the right is exercised should be aware that removing work from a claimant who has lawfully suspended services may lead to a further claim for any resultant loss or expense suffered by the claimant, whereas you will be unable to recover from them any loss or damage you suffer as a result of the period of suspension.
The adjudication provisions of the Act provide for a fast and relatively inexpensive way to resolve disputes over payment. They also emphasise the importance of providing a comprehensive payment schedule where there is a genuine dispute about the sum claimed.
A respondent in adjudication who has failed to provide a payment schedule on time is prohibited from lodging a response in the adjudication. He goes into the ring with his hands tied behind his back and the outcome is all but certain. Even when a payment schedule has been provided on time, the respondent may not introduce into the adjudication response any reasons for withholding payment which were not mentioned in the payment schedule.
Where an amount awarded in adjudication remains unpaid 5 business days after service of the determination on the respondent, the claimant may obtain an adjudication certificate and file it at court, whereupon it will be enforceable as a judgment debt.
A relatively recent amendment to the Act gives claimants who have made an adjudication application the right to leap frog over the respondent and serve a “payment withholding request” on the party who is due to pay the respondent in connection with the contract works (known as the “principal contractor”).
The principal contractor is required to retain, out of the money owed to the respondent, the amount of the payment claim submitted to adjudication. The principle contractor is not required to pay the money withheld to the claimant (unless the claimant makes a successful application for payment under section 6 of the Contractors Debts Act 1997). If nothing else, however, it serves as a useful tool to apply pressure on the respondent who is dragging his feet.
All too often the rights and protections set out above are lost because of a delay in implementing them. There are various time limits to be observed (too numerous to list here), and many of them can be extended or shortened by the terms of the contract.
The Act provides an effective combination of mechanisms to encourage timely payment. The key to implementing them successfully (and resisting attempts to implement them) is in acting diligently be aware of the relevant time limits for taking action, diarise them and act upon them.