Managing cash flow remains an ongoing issue in the construction industry, and contractors need to take steps to ensure that payments are made regularly and on time.
One of the best tools in the contractor’s arsenal to seek and enforce payment is the security of payment legislation. In NSW, the relevant legislation is the Building and Construction Industry Security of Payment Act 1999 (SOP Act). Although the legislation has been in effect for almost 20 years, it has undergone numerous changes and remains a technical piece of law that needs to be properly understood and managed to be effective.
At Morrissey Law & Advisory, we regularly assist clients manage their claims, often in scenarios where the relationship between the parties is already strained. Many of those issues can be addressed by good up-front management.
We outline our 6 steps for making effective payment claims under the SOP Act.
Step 1: Know your contract
It’s simple and something that we regularly repeat, but know your contract. Make sure you read it before signing and don’t just put it in the drawer after execution. The payment provisions of the contract will usually outline when claim can be made. The contract should be read in conjunction with the provision of the SOP Act.
The contract should state when claims can be made and what additional information must be included. Only one claim can be made per reference date and, given the courts strict approach to reference dates, it is absolutely vital that the contract dates be adhered to.
If there is no contract, one claim per month can be made.
Step 2: Devil is in the detail
Certain elements are required for a claim to valid.
Under the SOP Act, a claim needs to include certain elements: it needs to be made under a construction contract, it must identify the party that is or may be liable to pay the amount claimed, it must identify the works or services that have been performed, and identify the amount that is claimed.
Each piece of information required under s13 of the Act is critical.
Claims should also include the required information under the contract and all information should be in a form that is digestible for the person assessing the claim. There should be enough information that any claim assessment should be referenceable against the scope of works performed or materials and services provided.
Step 3: Supporting documentation
As with the first 2 steps – read the contract and include what the contract requires. This may include certificates of currency, the subcontractor’s statement, evidence of the works done etc… If this is not provided, payment may be validly refused, and a payment schedule served indicating an amount less that what is claimed.
In addition, head contractors are required to include supporting statements in the form prescribed by the Act.
Step 4: Service
Make sure that the party upon who you’re seeking payment actually gets the payment claim. This means the claim is properly served and served on time! It might seem simple but it is something which is regularly done poorly. Section 31 of the SOP Act prescribes how payment claims and documentation under the SOP Act can be served.
Make sure you can evidence that service has been effected. This could include transmission receipts, responses to an email, a record of attending office to deliver the claim, registered post or express post delivery receipts etc…
Step 5: $$$$ (hopefully… but if not, skip to Step 6)
If all goes to plan, payment will be made. Under the SOP Act in NSW, payment must be made within 15 Business Days for a head contractor or within 30 Business Days for subcontractors and other suppliers.
Step 6: Adjudication… maybe
If the amount claimed is not entirely accepted, a payment schedule will usually be served within 10 Business Days from receipt of the claim. A payment schedule outlines what amount it is proposed will be paid and the reasons for withholding any amounts. If this is disputed, adjudication can be considered. Any adjudication application must be made within 10 Business Days of receipt of the payment schedule. Again, timing is critical with any adjudication application.
However, it is not always as simple as charging down the gate as soon as payment isn’t made. While adjudication is an effective tool for addressing unpaid claims and one we use regularly as lawyers, it should be looked at on a case by case basis. It may be that the dispute resolution process under the contract is more appropriate or, where there is no payment schedule, summary judgment can also be sought.
Bonus Step (recommended but not always necessary): Proper advice
As outlined at the start, while an effective tool, the SOP Act is also technical and difficult to navigate. We always recommend that proper advice be obtained around seeking payment under the Act or for any adjudication.
For head contractors and principals, it is also a time to be vigilant in looking out for and properly responding to claims. The next article in our series on the security of payment legislation will be focused on how to respond to claims and craft a payment schedule.
 The legislation is not uniform across Australia. The Federal Government announced a national Review of Security of Payment Laws in the building and construction industry (the Review) on 21 December 2016. The review, being performed by John Murray AM should be completed soon and may be a step towards uniformity.
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.