Payment Schedules – 6 Steps for Responding to Claims

With the construction boom underway across NSW it is more crucial than ever that parties to construction contracts are familiar with their rights and obligations in responding to Payment Claims under the Building and Construction Industry (Security of Payment) Act 1999 (NSW) (SOP Act)[1].

Morrissey Law & Advisory’s previous article on Payment Claims under the Act is available here.

Our six Steps for ensuring obligations are met and rights to dispute claims are exercised to their fullest will provide you with the know-how to accurately and effectively respond to Payment Claims which are not accepted and justify your response.

Step 1: Understand your contract

While the clock is ticking, it is critical that you read and understand the contractual relationship that exists between you (as the Respondent) and the Claimant.

This involves reading the contract in conjunction with the SOP Act, in order to identify exactly what the obligations of each party are and the ramifications of non-compliance with these obligations.  These range from applicable reference dates right through to the what claims are allowed under the legislation and the contract.

Step 2: Timing is everything

The Act is a cruel and strict beast. If timeframes are not strictly complied with, the rights to respond to a Payment Claim may be strictly limited, or nominal.

Under the Act, respondents have 10 Business Days to dispute a Payment Claim by way of serving a Payment Schedule.  This means that the party that made the Payment Claim (Claimant) must receive the Payment Schedule within that period.

If a claim is not responded to, the Claimant has the right to seek summary judgment in accordance with s15(2)(a)(i)[2].  This essentially means the Claimant can seek judgment and the amount claimed will become a debt due to the claimant as at the due date for the progress payment to which the payment claim relates.

Claimants may also provide the respondent with notice of their intention to suspend carrying out construction work under the construction contract, and proceed to suspend the work 2 business days after this provision of notice of intention, if a claim is not responded to.

If a payment schedule is not provided, within 20 business days after the due date for payment, the Claimant will also have a right to elect to refer the matter to adjudication in accordance with s 17(2).  If served with a notice under s 17(2), the payment schedule must be provided within 5 business days.

Step 3: Give all the reasons

Under section 14(3) of the SOP Act, a valid payment schedule must identify the reasons why the scheduled amount (the amount you as the respondent consider you are liable to pay) differs from the claimed amount.

Usually, there are two broad categories of reasons for why a Payment Claim is disputed: jurisdictional issues and substantive issues.

Jurisdictional issues are problems that may be raised regarding the Payment Claim under the Act.  These can include issues such as:

  • yhe party against whom the claim is made is not the party that is or may be liable;
  • there is no reference date or the applicable reference date has not been adhered to;
  • the claim has not been made within 12 months of the work to which the claim relates last being carried out; or
  • a head contractor has served a claim on the Principal without the requisite supporting statements under s13(7).

Substantive issues relate to the nature of the works or services claimed.  These can include:

  • the work hasn’t been performed;
  • the work is defective;
  • there is no entitlement to claim for those works under the contract; orf
  • the pricing applied to the work was inaccurate or not what was agreed upon.

The best way to do satisfy the reasoning requirements of s14(3) is to provide detailed particulars as to the reasons the full claimed amount is not accepted. This includes, for example, why the works are considered defective, or there is no entitlement to the claim.

Step 4: Serve it right

Once you have received a payment claim, ensure you read it thoroughly and identify what the claimant is alleging to have resulted in an amount owing to them.

The Payment Schedule must identify the claim to which it relates and must also indicate the amount of the payment (if any) that you propose is a more accurate representation of the amount owed.

If the amount you are proposing is less than the amount claimed, you are required to provide reasons (refer to Step 3).

Make sure the party whose Payment Claim you are disputing actually receives your Payment Schedule, this is a simple procedure but one that is often poorly executed. To avoid confusion and delays ensure you serve the Payment Schedule in one of the manners found in section 31 of the SOP Act:

  • delivery in person;
  • lodging the schedule during normal office hours at the persons ordinary place of business;
  • sending it by post addressed to the person’s ordinary place of business;
  • by email to an email address specified by the person for the service of payment schedules; and
  • by any other manner that may be provided under the construction contract between you and the claimant.

It must be served within 10 business days of receipt of the payment claim – that means the claimant needs to have received it within the 10 business days.

Step 5: Start preparing for adjudication

Once a Payment Schedule has been properly served, there is a very real chance that the claim is barrelling towards a dispute.  Noting the nature of the SOP Act, the dispute may be addressed through adjudication.

Under the SOP Act Claimants have 10 business days to serve you with an adjudication notice following their receipt of the Payment Schedule (that states a lower proposed amount than that which is claimed).

You must then lodge a response to the adjudication application within either:

  • 5 days from the date on which you receive notice of the adjudication application; or
  • 2 days from the date on which an adjudicator appoints (whichever expires later).

Take care to accurately portray your side of the story, as this is your opportunity to make submissions as to why you are proposing a different amount to that of the Payment Claim.

Step 6 Along the way: Advice and assistance throughout the process

Both the complexity of the provisions and the short timeframe in which the SOP Act operates to resolve payment disputes can make this process of responding to Payment Claims seem like a difficult series of hurdles to jump through.

As such, we recommend you obtain proper advice when met with a Payment Claim, to ensure you are accurately informed and positioned to respond effectively before your rights are restricted.

If you receive a Payment Claim, or simply have any questions regarding the security of payment legislation or responding to Payment Claims, contact at Morrissey Law & Advisory for up to date knowledge and assistance.

This article was prepared by Michael Morrissey and Patrick Ireland.

[1] It’s also important to remember that the security of payment legislation is different in each jurisdiction. Make sure you know what requirements are applicable to the state or territory in which the work has been done.

[2] Subject, of course, to providing a valid claim under the SOP Act.

Disclaimer: This publication by Morrissey Law & Advisory is for general information and commentary only and should not be considered or relied upon as legal advice. Formal legal advice should be sought in relation to any matters or transactions that may arise in relation with communication.