THE BUILDING AND CONSTRUCTION INDUSTRY SECURITY OF PAYMENT ACT 1999 (as amended)

Building and Construction Law

The Building and Construction Industry Security of Payment Amendment Act (as amended) began on 26 March 2000 and was amended in March 2003.

The Act affects every contract entered into between a contractor and commercial client, sub-contractor or supplier.

The purpose of the Act is to provide a sub-contractor with a quick means of enforcing progress payments to improve the cash flow of all parties in the contract chain.

The Act fills in the gaps where a “contract” between two parties where the contract does not make provision for payment claims and also provides for a dispute resolution process known as “adjudication”.

The key is time

The Act provides time limits that are critical and which cannot be extended. Critical time periods apply at each stage of the process.

There is little doubt that the Act forces contractors and builders to invest more time and effort in administration and document management given the compressions of the recovery mechanism provided by the Act.

How does the Act work?

There are five basic steps to the Act:

Step 1. The Payment Claim Request for payment

Under the Act, the person who has undertaken to carry out construction work or supply related goods and services is entitled to a progress payment and to make a Payment Claim.

The Payment Claim must:

• identify the construction work/ related goods and services
• indicate claimed amount
• state the claim is made under the Act

The Payment Claim must be made in accordance with the Contract or if the Contract is silent, a Payment Claim can be made under the Act every four weeks.

Step 2. The Payment Schedule

The Payment Schedule is the Builders or principal’s response to a Payment Claim. The Payment Schedule is to set out whether the party who has received the Payment Claim either admits or denies liability for the Payment Claim.

The Payment Schedule must:

• relate specifically to the Payment Claim
• identify the amount which will be paid
• if less than the amount claimed, identify the reasons for choosing to pay the total amount

Step 3. The Adjudication

Application

If the Builder or principal fails to provide a Payment Schedule, the Claimant is entitled to payment of the amount claimed and can apply to the Court for summary judgment to enforce that payment.

Alternatively, the Claimant can proceed with Adjudication provided the Claimant complies with Notices which are prescribed under the Act.

If a Claimant receives a Payment Schedule, then the Claimant must within 10 business days lodge an Adjudication Application with an Authorised Nominating Authority (“ANA”). The Respondent has a limited time to reply.

In any case, whether a Payment Schedule has been provided by the Builder or principal or not, the Claimant must act quickly in order to protect its rights under the Act.

Step 4. The Adjudicator determining the dispute

The Adjudicator’s function is to determine the amount of the Progress Payment to be made by the Respondent to the Claimant, the date on which any such payment became or becomes payable and the rate of interest payable on any such amount.

In determining an Adjudication Application, the Adjudicator can only consider the following:

• the Act
• the Construction Contract
• the Payment Claim and Payment Schedule
• the result of any inspection

If a Respondent has provided a Payment Schedule, the Respondent may lodge a response to the Adjudication Application but the response cannot include reasons not already included in the Payment Schedule.

The determination of the Adjudication is an interim determination which must be complied with by the parties unless modified by agreement or overturned by the Court.

If an aggrieved party wishes to proceed independently of the Act to Court, arbitration or other dispute resolution process, money has to be paid by the aggrieved party as security pending the resolution of the dispute;

• 5 business days or as Adjudicator’s determination for Respondent to pay amount determined
• 2 business days Notice of Intention to suspend works

Option to proceed to Adjudication or Court

If a Respondent fails to serve a Payment Schedule or pay all of part of the Payment Claim in the prescribed time, a Claimant is entitled to then proceed either by way of court action to recover the amount due as a statutory debt or proceed with adjudication having regard to the following additional time periods:

• within 20 business days after the due date for payment, the Claimant notifies the Respondent of its intention to refer to Adjudication
• within 5 days of receiving the notice, a Respondent may provide a Payment Schedule
• within 10 business days after expiry of the 5 business day period, the Claimant applies to the ANA for adjudication and copy to Respondent.

Step 5. Enforcement of determination

Once an Adjudicator has given a determination, the Respondent must pay any amount determined by the Adjudicator to be due within 5 days or as determined by the Adjudicator.

If the Respondent fails to pay the amount in that time, then the Claimant can obtain an Adjudication Certificate from the Authorised Nominating Authority which can then be filed in a Court as a judgment.

If a Respondent commences proceedings to have the judgment set aside, the Respondent is not entitled to bring any cross claim, or raise any defence arising under the Construction contract or challenge the Adjudicator’s determination and it is also required to pay into Court security of the unpaid portion of the adjudicated amount pending final determination of the proceedings.

Summary of critical time frames

The time frame under the Act can be summarised as follows:

• 10 business days for the Respondent to serve a Payment Schedule or pay all or part of the Payment Claim
• 10 business days for Claimant to respond with Adjudication Application
• 4 business days in which the Adjudicator must accept an adjudication application
• Respondent to serve response on Adjudicator within 5 business days after receiving Adjudication Application or two business days after receiving Notice of Acceptance, whichever expires later
• 10 business days after acceptance or as agreed for Adjudicator to make determination

Impact of the Act

The impact that the Act can have upon the recovery of Progress Claims is significant.

In particular in Walter Constructions Ltd –v– CPL, the Supreme Court entered summary judgment for $13.96 million to a Claimant where a Respondent had failed to serve the Payment Schedule in accordance with the Act.

Numerous Court decisions have also revealed that serious consequences flow to the parties who do not comply with the requirements of the legislation.

Once the Act has been triggered, failure to comply with the time requirements at each step can have serious consequences for the principal as claims will be deemed payable.

The Claimant may also serve a Notice to the Respondent of the Claimant’s intention to suspend construction works.

Default under the Act may give the Claimant statutory rights independent of the Contract, such as a right to suspend work until monies are paid and a statutory debt.

It is important for all principals, contractors, subcontractors and consultants to understand the legislation and ensure that strict compliance with the Act’s requirements.