Articles

Security of Payment: s17(2) notices and the path toward adjudication

Morrissey Law + Advisory have previously highlighted the important role the security of payment legislative regime plays in protecting contractors’ rights to progress payments, now we take a more in depth look at adjudication application notices under section 17(2) of the Building and Construction Industry (Security of Payment) Act 1999 (NSW) (Act)[1].

Read our tips around payment claims here, and payment schedules here.

What is an adjudication application notice?

Where a claimant has issued a payment claim, and the respondent does not provide a payment schedule within 10 business days, or provides a payment schedule proposing to pay a lesser amount but fails to pay the scheduled amount, the claimant may elect to apply for adjudication.

In these instances, an adjudication application may only be made where the claimant has given the respondent a second chance to respond to the payment claim, in the form of a section 17(2) adjudication application notice.

A section 17(2) adjudication application notice provides the respondent with a further 5 business days in which to issue a payment schedule detailing the amount they propose to pay and why.[2]

When to serve an adjudication application notice?

Notice of a claimant’s intention to apply for adjudication under s17(2) must be issued within the period of 20 business days following the due date for payment.

In order to determine the due date for payment, a claimant must first look to the contract governing the relationship between the parties, and properly understand the relevant reference date for that claim. Under section 11 of the Act, the following time periods apply in the event that the construction contract does not specifically state a due date for payment:

  • Where a payment claim is issued by a head contractor to a principal – payment becomes due and payable on the date occurring 15 business days after the payment claim is served;
  • Where a payment claim is issued by a subcontractor – payment becomes due and payable on the date occurring 30 business days after the payment claim is served;
  • Where a progress payment is to be made under a construction contract that is considered an exempt residential construction contract – payment becomes due and payable on the date occurring 10 business days after the payment claim is issued.

It is important to understand that periods for payment may be shorter under some contracts, but cannot be longer.

Form of the notice

For the avoidance of ambiguity and doubt, ensure your section 17(2) adjudication application notice:

  • Specifically references the payment claim issued, including date and the amount claimed;
  • Identifies the company (or business) that served the payment claim and the company (or business) that it applies to. Be sure to reference the correct ACN or ABN in order to avoid any argument that the incorrect entity is being served;
  • Mentions that the respondent failed to:
    • issue a payment claim within the time allowed under section 14(4), that being the time required by the construction contract, or 10 business days (if there is no reference to the timeframe for payment schedules in the construction contract); or
    • pay the proposed amount in accordance with the payment schedule;
  • Stipulates the due date for payment based either on the construction contract or the relevant timeframe under section 11 of the Act (where applicable);
  • Notes the 5 day timeframe in which the respondent must serve a payment schedule under clause section 17(2)(b), or make payment of the claimed amount;
  • Notes the effect of section 20(2A) of the Act; that the respondent will lose the right to lodge an adjudication response if it fails to issue a payment schedule in the 5 business day time period.

Importantly, ensure the notice is signed and dated with the correct date.

Service

It is essential that the claimant serves the section 17(2) notice correctly. And once again, the first place to look for guidance is the construction contract. Where the construction contract dictates the methods by which notices may be served, and the provision are not adhered to, the service may be invalidated.

It is also important that the claimant keep records of the time, date and manner of service, including:

  • Email correspondence;
  • Postage receipts, such as tracking information which shows the document has been received; and
  • Fax journal reports,

This type of evidence regarding service could prove crucial in adjudication proceedings where the timing of service is in question.

If you have any questions regarding the security of payment, or adjudication process, please do not hesitate to contact Morrissey Law + Advisory.

This article was prepared by Michael Morrissey and Pat Ireland.

[1] Building and Construction industry (Security of Payment) Act 1999 (NSW)

[2] Building and Construction industry (Security of Payment) Act 1999 (NSW), section 17(2).

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.