Security of Payment in the Act

What is the building and Construction Industry (Security of Payment) ACT 2009 and How does it work?

The Building and Construction Industry (Security of Payment) Act 2009 is an Act based on a NSW Act, the Building and Construction Industry Security of Payment Act 1999 (NSW) ("the NSW Act"). The NSW Act was passed to ensure stability in the building industry by ensuring that contractors and subcontractors get paid for the work that they do.

Because of this history, it has been held that the NSW decisions on the NSW Act are of utility in interpreting the ACT legislation by Master Mossop in Pines Living Pty Ltd v O'Brien and Walton Construction Pty Ltd [2013] ACTSC 156 (8 August 2013)

18. Consistently with the Minister’s statement, the SOP Act is very similar to the New South Wales Building and Construction Industry Security of Payment Act 1999 ("NSW SOP Act"). As is made clear in the Presentation Speech, the existence of a "tried and tested legislative framework" was one of the reasons that the legislature copied the New South Wales model. Clearly, given the similarities between the SOP Act and the NSW SOP Act, and the fact that the NSW SOP Act has been in force for a substantial period of time and the subject of very detailed consideration in the NSW Supreme Court and Court of Appeal, the decisions of those courts will be of significant utility in interpreting the SOP Act: see also Gett v Tabet [2009] 254 ALR 504 at [289].

The Reason You Should Know Something About The SOP Act:
Since 2003, When The Current Version Of The Nsw Act Came Into Force, And The End Of Last Year, There Have Been Some 6,427 Adjudications In Nsw In Which Some $3.1 Billion Has Been Claimed And Almost $1 Billion (actually $954,616,182.00) Has Been Awarded With The Average Award Being $148,532.00.

The intention of the Building and Construction Industry (Security of Payment) Act 2009 ("the Act") is to ensure that any person does construction work or who supplies goods and services related to construction work under a construction contract ("a claimant") is able to claim and recover progress payments for that work or for the supply of those goods and services. (Section 6)

The Act does not apply to a resident owner who intends to live in the premises after they are built. (Section 9(2) (b) and Chan v Wood and Kai Design & Construction Pty Ltd [2013] ACTSC 228 (14 November 2013) )

The Act ensures that a claimant is able to claim a progress payment by granting the claimant a statutory entitlement to a progress payment whether the construction contract provides for progress payments or not. (Section 10)

The Act ensures that a person is able to recover a progress payment by establishing a procedure that involves:

  1. the making of a payment claim by the person claiming payment (Section 15), and
  2. the provision of a payment schedule by the person by whom the payment is payable ("the respondent" (Section 16), and
  3. the referral of any disputed claim to an adjudicator for determination (Section 19), and,the respondent fails to pay the adjudicator’s award,
  4. the entry of the adjudicator’s determination as a judgment in a court of competent jurisdiction to enable the claimant to take immediate action to obtain payment of the progress payment so determined. (Section 27)

The Act, however, does not limit:

  1. any other entitlement that a claimant may have under a construction contract, or
  2. any other remedy that a claimant may have for recovering any such other entitlement (Section 38)

The Act also does not prevent the respondent from having his or her rights finally decided by a court but only after payment of the adjudicated amount has been made.

How does the Security of Payment Scheme work?
General Outline

The procedure involves:

  1. the serving of a payment claim by the claimant, and
  2. the provision of a payment schedule by the respondent, and
  3. the referral of any disputed claim to an adjudicator for determination, and
  4. the registration of that determination as a judgment of a court
  5. the recovery of the judgment debt using the normal enforcement procedures of the courts.

NB. It appears that it was intended that the payment claims, payment schedules and adjudication applications and adjudication responses would be on prescribed forms but no forms have been actually prescribed. The ACT government has however provided a suite of “Sample Forms” which have the advantage of being both a guide and a checklist as to what the legislation requires. I would reccommend their adoption wherever possible.

Questions and Answers
What is a payment claim?

A payment claim is a claim for payment for building and construction work and /or related goods and services for building and construction work which contains an endorsement to the effect that it is a payment claim under the Act. You must have that endorsement to make it a valid payment claim. See Section 15 of the Act.

What do you do with a payment claim?

A payment claim is to be given to a respondent.

When can you give a payment claim?

On and from each reference date

What is a reference date?

A reference date is a date fixed by the construction contract or by the Act at the end of a period in which building and construction work has been done or building and construction goods and service s have been supplied. Only one payment claim can be given in respect of each reference date. This means that, after the works are complete there can only be one further payment claim unless the contract provides for a final payment such as at the end of the defects liability period.

What is a business day?

Legislation Act 2001

business day means a day that is not--

  1. a Saturday or Sunday; or
  2. a public holiday or bank holiday in the ACT.

Also Building and Construction Industry (Security of Payment) Act 2009 "business day" does not include 27, 28, 29, 30 or 31 December.

Who is a respondent?

A respondent is any company or person who is or may be, under the construction contract concerned, liable to make payment for the construction work or the related goods and services. (Section 15(1)

What is a payment schedule?

A payment schedule is a notice in writing to the claimant in response to that payment claim setting out the amount that the respondent is prepared to pay and, if that is less than the claimed amount, the reasons for the difference. (Section 16)

When must a payment schedule be given?

The payment schedule must be provided to the claimant within ten business days of service of the payment claim.(Section 16(4)

What happens if a payment schedule is given?

The claimant must decide if he or she is satisfied with the scheduled amount.

What happens if the claimant is satisfied with the scheduled amount but the respondent does not pay it?

If the respondent provides a payment schedule within ten business days which admits that a certain sum ("the scheduled amount") is due, and does not pay the scheduled amount by the due date, the whole of the scheduled amount becomes due and payable and recoverable as a debt in a court of competent jurisdiction and, in addition, the claimant may serve a notice under the Act suspending work. The claimant may simply commence action in a court to recover the scheduled amount by way of statement of liquidated claim or may, within 20 business days of the respondent's failure to pay the scheduled amount, choose to have the matter adjudicated and refer the matter to adjudication. The second course, adjudication, is obviously quicker.(Section 18)

What happens if the claimant is not satisfied with the scheduled amount?

The claimant may refer the matter to adjudication within 10 business days by lodging an adjudication application with an authorised nominating authority.(Section 19(1)

What are the consequences if no payment schedule is provided?

If the respondent does not provide a payment schedule within ten business days, and does not pay the claimed amount, the whole of the claimed amount becomes due and payable and recoverable as a debt in a court of competent jurisdiction and the claimant may serve a notice under the Act suspending work until payment of the claimed amount has been made (Section 17)

What are the claimant's options if no payment schedule is provided?

If the respondent does not provide a payment schedule within ten business days, the claimant may:

  1. choose to commence action in a court to recover the claimed amount (Section 17 (2) (a) . If the claimant does that, the respondent may not raise a defence or counter claim based on the contract (Section 17 (3) (b) or
  2. choose to have the matter adjudicated (Section 17 (2) (a) . Having the matter adjudicated is obviously quicker and therefore preferable, but if the time to lodge an adjudication application has expired, you can still go to court.
What if no payment schedule is provided and the claimant chooses to have the matter adjudicated?

If the claimant chooses to have the matter adjudicated, the claimant may, within 20 business days of the respondent's failure to provide a payment schedule, serve the respondent with a notice under section 19(2) of the Act giving the respondent a further five business days to provide a payment schedule, after which the matter may be referred to adjudication, whether or not a payment schedule has been given. (Section 19(2)

What happens if the respondent provides a payment schedule in response to the section 19(2) notice?

If the respondent does provide a payment schedule then it just goes ahead as an ordinary adjudication.

What happens if the respondent does not provide a payment schedule in response to the section 19(2) notice?

If, after a section 19(2) notice, a respondent does not provide a payment schedule the respondent is precluded from lodging an adjudication response as an adjudication response must be in support of a payment schedule.

How does a claimant refer a matter to adjudication?

A claimant refers a matter to adjudication by lodging an adjudication application with an authorised nominating authority, and serving a copy of the adjudication application on the respondent. (Section 19(2)

What has to be in an adjudication application?

An adjudication application must be in writing and identify the payment claim and payment schedule (if there is one) and must include any submissions (including documentary evidence of all kinds), in support of the payment claim, which the claimant wants the adjudicator to consider. (Section 19(3)

What should not be included in an adjudication application?

The adjudication application must not address any new matters not already raised by the payment claim or the payment schedule.

What is an authorised nominating authority?

An authorised nominating authority is a body which refers an adjudication application to an adjudicator. There are currently five such bodies in the ACT:

  • Able Adjudication Pty Ltd
  • Adjudicate Today Pty Ltd
  • Australian Solutions Centre Pty Ltd
  • Institute of Arbitrators and Mediators Australia
  • RICS Dispute Resolution Service
The Adjudication Response
What is an adjudication response?

An adjudication response is the reply which the respondent may make to the adjudication application. (Section 22)

What should an adjudication response contain?

The adjudication response should contain any submissions (including documentary evidence of all kinds) in support of the payment schedule that the claimant wants the adjudicator to consider.(Section 22(2)

What should not be included in an adjudication response?

The adjudication response must not address any matters not already raised by the payment schedule. Where, however, the matter could not have been raised in those documents, such as where the issue raised is that the claimant has lodged the adjudication application after the last day for doing so, adjudicators customarily allow such submissions. (Section 22(4)

When must an adjudication response be lodged?

The respondent's adjudication response must be lodged within seven business days from service of the adjudication application, or two business days after notification of the adjudicator's acceptance of the adjudication, whichever comes later. (Section 22(1)

The Adjudication Determination
What is an adjudication determination?

An adjudication determination is the adjudicator's decision.

When must the adjudicator give his determination?

Unless both parties have agreed to an extension of time, the adjudicator must determine the adjudication:

  1. where the respondent may lodge an adjudication response, ten business days from the earlier of the date the adjudicator is provided with the adjudication response or the date such a response is due. (Section 23(3)(a)
  2. where no response may be lodged, the adjudicator must determine the adjudication within ten business days of the adjudicator's acceptance of nomination. (Section 23(3)(b)
When do the parties get a copy of the determination?

When the adjudicator's fees are paid. The determination is withheld by the authorised nominating authority until the adjudicator's fees are paid and is then released to both parties.

What should an adjudication determination contain? (Section 24(1)

An adjudication determination should contain:

  1. the amount of the progress payment (if any) to be paid by the respondent to the claimant (the "adjudicated amount"), and
  2. the date on which any such amount became or becomes payable, and
  3. the rate of interest payable on any such amount
  4. whether claimant, the respondent, or both are to pay the fees of the adjudicator, and the proportions in which they are to pay.
When is the adjudicated amount due for payment?

The adjudicated amount, that is, the amount the adjudicator has determined to be payable, is then due within 5 business days of service of the determination on both parties, or by such later date as is determined by the adjudicator. (Section 25)

What happens if an adjudicated amount is not paid?

If payment is not made within 5 business days, or by such later date as is nominated by the adjudicator, the claimant is entitled to obtain an adjudication certificate from the authorised nominating authority which certificate is able to be filed as a judgment in a court and the ordinary enforcement procedures available to a judgment creditor then apply. (Section 26(3)

Can a respondent delay enforcement by seeking a stay of judgment and filing a cross claim?

Because the scheme was designed to ensure prompt payments of progress claims to claimants, except when the claimant is actually insolvent or there is an issue arising under a Commonwealth Act such as the Trade Practices Act 1974, no cross claim can be used to obtain a stay of judgment and delay payment. (Section 27(4)

Do you keep your right to go to Court?

Yes. An adjudication determination is not a final determination of rights between the parties. Far from it. It is merely a temporary expedient and where, either as a result of failure to provide a payment schedule or as a consequence of an adjudication, an excessive amount becomes due and payable, there is no prohibition on the respondent, from arguing in other legal proceedings or by any dispute resolution process detailed in the contract that the final amount payable is more or less. The respondent must however, pay up first and argue later. (Section 38)

What if the adjudicator gets it wrong?

This is where the ACT Act and the NSW Act part company. In NSW so long as the jurisdictional requirements of the NSW Act and of fairness are met, the courts cannot interfere with an adjudicator's decision even if he or she is wrong in both fact and law.

The ACT Act gives the Supreme Court a much greater role than that. (Section 43(4)

The ACT Act provides that the ACT Supreme Court may give leave to a party to appeal if there is a substantial matter of law involved and there is a manifest error of law on the face of the adjudication decision; or strong evidence that the adjudicator made an error of law and that the determination of the question may add, or may be likely to add, substantially to the certainty of the law. That is, in the ACT you may seek leave to have any error of law reviewed, not just a jurisdictional error.

What if a very difficult question of law arises in an adjudication?

In the ACT also the Act provides a referral role to the ACT Supreme Court. Where an adjudicator wishes to refer a question of law to the Supreme Court or where the parties both wish to do so, then the ACT Supreme Court can consider the matter if it is satisfied that there would be considerable cost savings in doing so and the issue of law is of sufficient importance. (Section 44)

Do you keep your right to go to Court?

Yes. An adjudication determination is not a final determination of rights between the parties. Far from it. It is merely a temporary expedient and where, either as a result of failure to provide a payment schedule or as a consequence of an adjudication, an excessive amount becomes due and payable, there is no prohibition on the respondent, from arguing in other legal proceedings or by any dispute resolution process detailed in the contract that the final amount payable is more or less. The respondent must however, pay up first and argue later. (Section 38)

Critical Timings

The Act imposes absolutely unforgiving time limits. Mostly you get in trouble because you have served documents too late, but in some cases you can get into trouble for serving them too early.

Let us look at some of the most important:

  1. A payment claim must be served within 12 months of the last building and construction work being performed.
  2. A payment schedule must be provided within 10 business days of the service of the payment claim.
  3. An adjudication application must be lodged with the authorised nominating authority within 10 business days of the provision of the payment schedule.
  4. If no payment schedule is provided the claimant has 20 business days to serve a section 19(2) notice. NOTE: The section 19(2) notice is invalid if it is served before the end of the 10 days the respondent has to serve the payment schedule.
  5. If a section 19(2) notice has been served the respondent has only 5 business days to provide a payment schedule.
  6. If a section 19(2) notice has been served the claimant must lodge the adjudication application within 10 business days after the end of that five day period or within 10 business days after the day the claimant receives the payment schedule, whichever is the earlier. It must be within this variable window of opportunity or it is invalid.
  7. An adjudication response must be lodged by the respondent within the later of 7 business days after the respondent receives a copy of the application or 5 business days after receiving notice of the adjudicator’s acceptance of the application.
  8. The adjudicator must determine the adjudication, where the respondent may lodge an adjudication response, 10 business days from the earlier of the date the adjudicator is provided with the adjudication response or the date a response is due and, where no response may be lodged, the adjudicator must determine the adjudication within 10 business days of the adjudicator's acceptance of nomination.
  9. The adjudicated amount is due within 5 business days of service of the determination on both parties, or by such later date as is determined by the adjudicator.
Service of Documents

Because of the strict time limits imposed by the Security of Payment Acts, the date and time of effective service is often critical. The NSW Act has a provision, section 31, which deals with the service of notices under the Act. The ACT Act however, provides that service is to be governed by the Legislation Act 2001. This means that much of the case law as to service of NSW and the other States with Security of Payment Acts is inapplicable, in particular, much of the case law dealing with whether service occurred within normal business hours is inapplicable. Fortunately the Legislation Act 2001. deals with the issue of date and time of service very effectively.

The relevant provisions of the Legislation Act 2001are sections 245 to 252. The critical ones, sections 247 to 250 provide:

LEGISLATION ACT 2001 - SECT 247

Service of documents on individuals

  1. A document may be served on an individual--
    1. by giving it to the individual; or
    2. by sending it by prepaid post, addressed to the individual, to a home or business address of the individual; or
    3. by faxing it to a fax number of the individual; or
    4. by emailing it to an email address of the individual; or
    5. by leaving it, addressed to the individual, at a home or business address of the individual with someone who appears to be at least 16 years old and to live or be employed at the address.
    Note See s 251 for service of documents under other laws.
  2. This section applies to service of a document outside the ACT in the same way as it applies to service of the document in the ACT.

LEGISLATION ACT 2001 - SECT 248

Service of documents on corporations

  1. A document may be served on a corporation--
    1. by giving it to an executive officer of the corporation; or
    2. by sending it by prepaid post, addressed to the corporation (or an executive officer of the corporation), to the address of any of its registered offices or any other business address of the corporation; or
    3. by faxing it to a fax number of the corporation; or
    4. by emailing it to an email address of the corporation; or
    5. by leaving it, addressed to the corporation (or an executive officer of the corporation), at the address of any of the corporation's registered offices, or any other business address of the corporation, with someone who appears to be at least 16 years old and to be employed at the address.
    Note See s 251 for service of documents under other laws.
  2. This section applies to service of a document outside the ACT in the same way as it applies to service of the document in the ACT.

LEGISLATION ACT 2001 - SECT 249

Service of documents on agencies

A document may be served on an agency--

  1. by giving it to an executive officer of the agency; or
  2. by sending it by prepaid post, addressed to the agency (or an executive officer of the agency), to the address of any office of the agency or any other business address of the agency; or
  3. by faxing it to a fax number of the agency; or
  4. by emailing it to an email address of the agency; or
  5. by leaving it, addressed to the agency (or an executive officer of the agency), at the address of any of the agency's offices or any other business address of the agency with someone who appears to be employed at the agency.

Note See s 251 for service of documents under other laws.

LEGISLATION ACT 2001 - SECT 250

When document taken to be served

  1. A document served by post under this part is taken to be served when the document would have been delivered in the ordinary course of post.

  2. However, subsection (1) does not affect the operation of the section 160 Evidence Act 2011 (Postal articles). Note The Evidence Act 2011, s 160 provides a rebuttable presumption that a postal article sent by prepaid post addressed to a person at an address in Australia or an external territory was received on the 4th working day after posting.

  3. If the sender has no reason to suspect that a document served by fax or email under this part was not received by the recipient when sent, the document is presumed to be served when sent unless evidence sufficient to raise doubt about the presumption is given.

  4. For subsection (3), the sender has reason to suspect that a document served by fax or email under this part was not received by the recipient when sent only if, on the day the document was sent or on the next working day, the equipment the sender used to send the document indicated by way of a signal or other message that--
    1. the equipment did not send the document when the equipment was used to send the document; or
    2. for a fax—the number to which the fax was sent to the recipient was not a fax number of the recipient; or
    3. for an email—the address to which the email was sent was not an email address of the recipient.
  5. A document addressed to the recipient, and left for the recipient as mentioned in section 247 (e), section 248 (e) or section 249 (e), is taken to be served when it was left.

  6. In this section:

    "recipient", for a document, means the individual, corporation or agency on whom the document is intended to be served.

    "sender", for a document served, or to be served, by fax or email, means the person sending, or seeking to send, the document.