The Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act) provides a ‘fast track’ for the determination of issues and disputes concerning payments for construction work carried out, and/or goods and services supplied, under construction contracts. It does so by prescribing a statutory process by which a party to a construction contract is entitled to claim for, and is able to recover, progress payments in relation to the carrying out of that work and/or the supply of those goods and services.

The process is usually much faster and cheaper than seeking to commence proceedings to recover unpaid monies in a Court or Tribunal, however a number of matters need to be considered in order to take advantage of the process (not just by those wishing to make claims, but also by those on the receiving end of claims).

Five of those critical matters are outlined here.


1. Is there a ‘Construction Contract’ to which the SOP Act applies?

Generally speaking, the SOP Act gives a person who has undertaken to carry out construction work or to supply related goods and services under a construction contract an entitlement to receive progress payments.[1]

No construction contract means there is no entitlement to rely upon the SOP Act.

The SOP Act defines ‘construction contract’ to mean a:

“contract or other arrangement under which one party undertakes to carry out construction work, or to supply related goods and services, for another party.”

Construction work includes:

a. the construction, alteration, repair, restoration, maintenance, extension, demolition or dismantling of:
i. buildings or structures forming, or to form, part of land (whether permanent or not), or
ii. any works forming, or to form, part of land,[2]
b. the installation in any building, structure or works of fittings forming, or to form, part of land,[3]
c. the external or internal cleaning of buildings, structures and works, so far as it is carried out in the course of their construction, alteration, repair, restoration, maintenance or extension,
d. any operation which forms an integral part of, or is preparatory to or is for rendering complete, work of the kind referred to in paragraph (a), (b) or (c) above,[4] and
e. the painting or decorating of the internal or external surfaces of any building, structure or works.


Construction work
does not include:

a.
the drilling for, or extraction of, oil or natural gas, or
b.
the extraction of minerals (whether by underground or surface working), or tunnelling or boring or constructing underground works for that purpose.


Related goods and services
includes:

a.
materials and components to form part of any building, structure or work arising from construction work,
b.
plant or materials (whether supplied by sale, hire or otherwise) for use in connection with the carrying out of construction work,
c. the provision of labour to carry out construction work,
d. architectural, design, surveying or quantity surveying services in relation to construction work, and
e. building, engineering, interior or exterior decoration or landscape advisory services in relation to construction work.

2. Does the Construction Contract pre-date 21 October 2019?

Significant changes to the SOP Act came into effect on 21 October 2019 by virtue of the Building and Construction Industry Security of Payment Amendment Act 2018 (NSW) (Amendment Act), but the SOP Act provides that (except to the extent provided by the regulations to the SOP Act), the changes do not apply to any construction contract entered into before the commencement of the Amendment Act.

The regulations do not currently give any retrospection operation to the changes, which means that there are currently two different sets of provisions that apply; the first to contracts entered into before 21 October 2019 and the second to contracts entered into on or after that date.


3. Payment Claim

A person who is or who claims to be entitled to a progress payment under the SOP Act (Claimant) may serve a payment claim on a person who, under the applicable construction contract, is or may be liable to make the payment (Respondent).

A payment claim must:

a.
identify the construction work (or related goods and services) to which it relates, and
b.
indicate the amount of the progress payment that the claimant claims to be due, and
c. state that it is made under the SOP Act (for contracts from 21 October 2019).


A payment claim may be served by a Claimant:

a. either:
i. on and from the last day of the month in which the construction work or the related goods and services were first carried out or supplied, and the last day of each subsequent named month, or
ii. if the construction contract concerned makes provision for an earlier date for the serving of a payment claim in any particular month, on and from that date (instead of on and from the last day of that month), and
b. in the case of a construction contract that has been terminated, on and from the date of termination.

Except as otherwise provided for in the construction contract, a Claimant may only serve one payment claim in any particular named month for construction work carried out or undertaken to be carried out (or for related goods and services supplied or undertaken to be supplied) in that month.

Having said that, a Claimant may:

a.
serve a single payment claim in respect of more than one progress payment,
b.
include in a payment claim an amount that has been the subject of a previous claim, or
c. serve a payment claim in a particular named month for construction work carried out or undertaken to be carried out (or for related goods and services supplied or undertaken to be supplied) in a previous named month.

A payment claim cannot be served more than 12 months after the construction work to which the claim relates was last carried out or the related goods and services to which the claim relates were last supplied (or such later period determined by or in accordance with the terms of the construction contract).


4. Payment Schedule

A Respondent who has received a payment claim can respond by serving a payment schedule.

A payment schedule must:

a.
be served within the earlier of the time required by the relevant construction contract or within 10 business days after the payment claim is served, and
b.
identify the payment claim to which it relates, and
c. indicate the amount of the payment (if any) that the respondent proposes to make (Scheduled Amount), and
d. if the Scheduled Amount is less than the amount claimed by the Claimant, indicate why it is less and explain any reason that the respondent relies upon for withholding payment.

If a Claimant serves a valid payment claim, and the Respondent does not provide a payment schedule to the Claimant within the time limit set out in the SOP Act, the Respondent becomes liable to pay the claimed amount to the Claimant on the due date for the progress payment to which the payment claim relates.


5. Adjudication Application

A Claimant may apply for adjudication of a payment claim and have an Adjudicator determine its entitlement (if any) to payment of the amount claimed (Adjudication Application) if:

a.
a Respondent serves a payment schedule but the scheduled amount indicated in the payment schedule is less than the claimed amount indicated in the payment claim,
b.
a Respondent serves a payment schedule but fails to pay the whole or any part of the scheduled amount to the Claimant by the due date for payment of the amount, or
c. a 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 of the amount (provided that the Claimant first serves a written notice on the respondent within the period of 20 business days following the due date for payment of the claimant’s intention to do so, and the respondent has been given a further opportunity to provide a payment schedule to the Claimant within 5 business days after receiving that written notice).

 

An adjudication application must be made no later than:

a.
in the case of point (a) above, within 10 business days after the claimant receives the payment schedule,
b.
in the case of point (b) above, within 20 business days after the due date for payment, or
c. in the case of point (c) above, within 10 business days after the end of the 5-day period in which the respondent may provide a payment schedule.in the case of point (a) above, within 10 business days after the claimant receives the payment schedule,

 

If the Respondent has provided a payment schedule to the Claimant it can submit a response to the Claimant’s Adjudication Application within the later of 5 business days after receiving a copy of the application or 2 business days after receiving notice of an adjudicator’s acceptance of the application.

Importantly, any such response cannot contain any reasons for withholding payment unless those reasons have already been included in a valid payment schedule.

An Adjudicator will generally be required to determine an Adjudication Application within 10 business days after the Respondent lodges a response (or, if a response is not lodged, the end of the period within which the respondent was entitled to lodge a response).

Any amount determined by the Adjudicator as being due and payable must be paid by the Respondent within 5 business days after the date on which the Adjudicator’s Determination is served by the adjudicator on the Respondent (or such later date determined by the Adjudicator).

If you have any questions around the application of the SOP Act to your project or around the preparation of claims, payment schedules, adjudications or adjudication responses please reach out to us at Morrissey Law + Advisory.

 


[1] Section 7 of the SOP Act specifically provides that certain types of arrangements do not fall within the ambit of the SOP Act.
[2] Including walls, roadworks, power-lines, telecommunication apparatus, aircraft runways, docks and harbours, railways, inland waterways, pipelines, reservoirs, water mains, wells, sewers, industrial plant and installations for purposes of land drainage or coast protection.
[3] Including heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply, fire protection, security and communications systems.
[4] Including (i) site clearance, earth-moving, excavation, tunnelling and boring, and (ii)  the laying of foundations, and (iii)  the erection, maintenance or dismantling of scaffolding, and (iv)  the prefabrication of components to form part of any building, structure or works, whether carried out on-site or off-site, and (v)  site restoration, landscaping and the provision of roadways and other access works.

 

Morrissey Law + Advisory communications are only intended to provide commentary and general information as at the date of publication. They are for reference purposes only, do not constitute legal advice and should not be relied upon as such. Formal legal advice should always be obtained about particular transactions, contracts or matters of interest before taking any action based on this communication. Authors and contributors may not be admitted in all State and Territories.