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Security of Payment –  Morrissey Law + Advisory’s Guide to Adjudication

What is adjudication?

Adjudication is a dispute resolution process set up specifically to resolve disputes around payments in the construction industry. It was designed with an intention to facilitate cash flow in the construction industry and to protect smaller contractors and suppliers from insolvency resulting from non-payment.

The Building and Construction Industry (Security of Payment) Act 1999 (NSW) (Act) (or relevant state or territory act) governs the process of applying for adjudication. This article functions as a guide to the process as particular to NSW, and the Act should be consulted for detailed timeframes and obligations surrounding the Security of Payment regime. See the legislation here.

If you are acting outside of NSW, it is important you consult the relevant legislation for that jurisdiction.

Payment claims and payment schedules

As part of our ongoing security of payment series, Morrissey Law & Advisory has already outlined how to make a claim here and how to respond to a claim when it is not accepted here.

Applying for adjudication

Under section 17 of the Act, a claimant may apply for adjudication of a payment claim if:

  • The respondent provides a payment schedule in accordance with the Act that:
  • (i) indicates a scheduled amount that is less than the claimed amount, or
  • (ii) the Respondent fails to pay the whole or any part of the scheduled amount to the claimant by the due date for payment, or
  • 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 for payment.

(Note: the due date for payment varies depending on the position of the parties in the contractual chain, consult section 11 of the Act for more information. We have also prepared an article around reference dates, which is available here).

If no payment schedule has been provided, the Act requires the claimant to notify the respondent, within 20 business days of the due date for payment, of its intention to apply for adjudication of the payment claim.

This is done by serving what is known as a section 17(2) adjudication application notice, which typically includes:

  • A timeline of the payment claim being issued and the respondent’s response to the payment claim;
  • The way in which the respondent has failed to abide by the obligations on them under the security of payment regime; and
  • A reference to the obligation on the respondent to either serve a payment schedule or pay the amount claimed within 5 business days of receipt of the notice.[1]

(For more information see our article here).

Any application must be made within 10 business days of receipt of the payment schedule or the failure to respond to the section 17(2) notice.

The application is submitted through an Authorised Nominating Authority (ANA).  ANAs are independent bodies set up to receive adjudication applications, nominate adjudicators and issue adjudication certificates. Some examples of ANAs in NSW include Adjudicate Today, Australian Solutions Centre, the Resolution Institute and the Master Builders Association of New South Wales.

What you will need to present to have your payment claim adjudicated

While each adjudication should be looked at on a case by case basis, we provide a general oversight on what you might need to include to be successful in any adjudication application.

In order to present a strong case for your payment claim being awarded, there are some crucial elements of your application to present to the adjudicator.

Submissions in support of your claim

Your submissions should cover:

  • The adjudicator’s determination – the aspects of the dispute that you wish the adjudicator to determine. Such as the amount of the progress payment to be paid by the respondent to the claimant, the date on which such an amount becomes payable, and the rate of interest applicable to the amount;
  • A background of the dispute –who the parties are, any contract negotiations and details (including where a signed contract was not executed), the works undertaken and any previous payment made during the course of the works;
  • The basis on which payment is sought, including the evidence relied upon in pressing the claim;
  • The payment claim – when it was served, the amount claimed and the due date for payment as per the contract or invoice (be sure to provide a copy of the payment claim document);
  • The respondent’s response to the payment claim – when it was served, what form it took, the scheduled amount and whether you consider it to be a valid payment schedule under section 14 of the Act (and your reasons for such a view);
  • The section 17(2) adjudication application notice (when applicable) – when it was served and whether the respondent responded to the notice;
  • The adjudicated amount – the amount you are submitting is due and payable to you as the claimant;
  • Interest – include a breakdown of how the contractual rate of interest on late payment has increased the amount owing and the interest that is payable as a result of non-payment;
  • Adjudicator’s fees – in every adjudication, someone has to pay for the adjudicator’s time and expertise. It is usual for the claimant to submit that the respondent pay the adjudicator’s fees as a result of them withholding payment without justification.
  • The total amount to be determined, inclusive of the above.

Statement of relevant person/s

In order to substantiate the points raised in your submissions, it is important that you also submit to the adjudicator documentary evidence in support of the payment claim.  This is often in the form a signed statement of a person that is highly relevant to the project and the payment claim.  For some projects and larger claims, there may be multiple people.

Such people could include the director of the company, the contractor or project manager in charge of the works, or the person responsible for issuing the payment claim.

Similarly to your submissions, the statement should include details of:

  • The person’s position in relation to: the claimant, the works undertaken and the payment claim issued;
  • The contract, including the contract negotiation stages and the works undertaken;
  • The payment claim, including when it was issued and for what amount;
  • Any response received from the respondent;
  • Written evidence substantiating the claim, for example diary notes, work order forms etc…;
  • Any correspondence between the claimant and the respondent which supports your claim that the amount is due and payable; and
  • The section 17(2) adjudication application notice.

In order to paint the picture for the adjudicator, it is important that you include any relevant verbal conversations and written correspondence regarding the payment claim and the dispute.

All relevant evidence

As a starting point, it is critical that you provide the adjudicator with the following:

  • The construction contract, or if no written contract exists, the terms and conditions under which the works were undertaken;
  • The payment claim issued, including all invoices and/or variation requests that are included in the payment claim;
  • The payment schedule received (where applicable);
  • The section 17(2) notice issued;
  • All correspondence regarding the contract, the works, the payment claim and schedule; and
  • Subject to the payment schedule, potentially expert evidence in support of the claim – including in response to any alleged defects or liquidated damages offsets claimed by the respondent.

Determination

Once the adjudicator has determined your payment claim you will be issued with a determination document which sets out:

  • the issues in dispute;
  • the amount payable;
  • the adjudicator’s reasons for arriving at such a determination;
  • the due date for payment;
  • the interest payable; and
  • who is to pay the adjudication fees.

Under section 23 of the Act, the respondent is required to pay the adjudicated amount within 5 business days of the adjudicator’s determination being served on the respondent. As such, in order to get the clock ticking, ensure you obtain and serve a copy of the adjudicator’s determination as soon as possible, being certain to mention the timeframe.

If the respondent fails to pay the adjudicated amount within 5 business days of the determination, the claimant may:

  • Request an adjudication certificate from the ANA; and
  • Serve notice on the respondent of the claimant’s intention to suspend carrying out the works under the contract.

If you request an adjudication certificate, be sure to also request that the ANA include the amount of interest owing on the adjudicated amount.

Final Steps

If after you have served a copy of the adjudication determination on the respondent and obtained an adjudication certificate, the respondent still refuses to pay the adjudicated amount, you will be required to file the adjudication certificate as a judgment for a debt in a court.

An adjudication certificate may only be filed with the Court if it is accompanied by an affidavit by the claimant stating that the whole or any part of the adjudicated amount has not been paid at the time the certificate is filed.

This article was prepared by Michael Morrissey and Pat Ireland.

[1] Building and Construction Industry (Security of Payments) Act 1999 (NSW) section 17(2)(b).

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.