Rights that the legislation confer on contractors
The Building and Construction Industry Security of Payments act 1999 (The NSW Act) applies to the contract or agreement for the purpose to carry out the work of construction of the activities related to the services and goods in New South Wales. It is not required to keep the contract in writing. The agreement or the contract can be oral or written or it can be a combination of oral and written.
The construction work is described in a broader manner and the exclusions are basically limited to the operations related to mining. It involves alteration, construction, maintenance, repair and demolition of the structures fixed to land. The NSW Act applies to the consultancy agreements and contracts of most typical construction (NSW legislation , 2014).
- which forms part of a contract of guarantee, a loan agreement or contract of indemnity;
- for the work of residential building in case the owner intends to live or lives in the building;
- when it is agreed in the contract that consideration payable will not be calculated through referring the value of work undertaken or supplies related services and goods;
- under which the party carry out the construction work or the activities related to the supply of the services and the goods as an employees;
- when the work of construction or the related services are undertaken outside NSW(Roberts, 2018).
The Building and Construction Industry Security of Payments act 1999 applies even when the contract of construction states that it is administered by another jurisdiction’s law. Contracts cannot involve the provision of ‘pay when paid’, when a contractor makes its responsibility to pay subcontractor is dependent upon payment received by the contractor from a principal. It is impossible to eliminate the operation of NSW Act in the contract of construction upon which it applies (Minter Ellison, 2018).
When the contractors have the right to make a claim: the claim of payments can be made only from or on specified date in contract. When there is no such reference date, in that case, it can be made on last date of every month. Significantly, for every reference date, one payment can be served only. The claim for the payment cannot be made if not provided in the construction contract, after 12 months of completion of the construction work or the related services and goods to which claim were last supplied.
Process followed by contractor to make a claim of payment: the applicant makes a claim of payment through serving payment claim upon the person liable to make payment under contract of construction.
The claim of payment must:
- Recognize the work of construction or related services and goods;
- State the progress payment amount claimed by the applicant or claimant to be due.
In case, the head contractor is the claimant, being a person who undertakes the work of construction for principal or for who the work of construction is undertaken in addition or as a part of the work is performed for the principal by the head contractor then the claimant have to provide with the supporting statement along with the claim of payment in the form that is required by regulations related to the NSW Act. It is important for the head contractor to state in the supporting statement that the due amounts have paid to the subcontractors.
Process followed by contractors to make a claim of payment
The claims of payment made for the construction contracts which were entered before 21 April 2014 should also specify that the claim of payment was made under NSW Act. The removal of requirement to specify that the claim of payment was made in accordance to NSW Act was brought in April 2014.
Excluded payments: No payments are expelled from being claimed. Though, the claim of payment should only include the payments related to the work of construction under the contract. In a payment claim, the claims are not claimable unless the contract makes the provision related to the payment of damages for the breach.
The Building and Construction Industry Security of Payments act 1999 was introduced in order to make sure that anyone who carries out the activities related to construction or anyone who carries out supply related services and goods under the construction contract is permitted to receive as well as able to progress, recover payments related to undertaking the supplying and work of those services and goods (Brand & Uher, 2014).
This act ensures that a person is allowed to get a progress payment on the right time under the contracts of the building. It is important for the parties that are involves in the dispute to act on tight timetable. An injunction that is granted by the court, for restraining the filing of the certificate of adjudication as a judgement not only offers the chance to prevent the enforcement of the adjudication determination that a party has, is stated as void for not complying with the requirements of the act. The party can apply for judgement in the court whose judgement has already entered pursuant (ABI, 2010).
The Building and Construction Industry Security of Payments act 1999 was intended to offer inexpensive and fast mechanism in order to getting progress payments in the contract of construction for maintaining the flow of cash among the contracting parties.
It operates in parallel to the contract of construction allowing the sub contractors and contractors to claim the payment from their head contractor or the principal by the adjudication process. It gives the ability to the subcontractors and the contractors to recover the amount that is adjudicated as debt due.
The Supreme Court may have undermined the purpose of the Act that is ‘pay now argue later’. The court granted a restriction in Principal’s favour restraining contractor from transforming an adjudication certificate into judgement for allowing Principal to seek the adjudication determination’s judicial review.
Excluded payments
In this case, court held that balance of convenience granted restriction to prevent enforcement of adjudication determination. Although, the court recognized that permitting the injunction would disturb the Act’s purposes. It was held by the court that a real issue was tried in judicial review proceedings of principal and it was argued by Principal that an error of law was there on face of adjudication determination.
A party is allowed to seek the judicial review of arbitration determination that has an error of law. It was determined that a party which seeks to the judicial review has specific time to do so. Hence, the decision of the court states that a party who wants to seek the judicial review have to do it before adjudication determination entered as a judgement (Cooke, 2016).
- The act offers a statutory rule for the progress payments’ recovery for the person who undertakes the work of construction.
- The Act offers a fast track mechanism for the disputes of payment’s adjudication on a temporary basis, and offering the subcontractors and the contractors with a mechanism for easing their problem related to the flow of cash and obtaining the payments on time with no involvement of the option of litigation. This assumes that the adjudicators get it right mostly which is not mandatorily a safe assumption(CBP, 2010).
- The fact is that the adjudication frequently involves the complex questions of fact as well as law with payment, as in a number of cases, millions of dollars are spend on determination of adjudicator not having required legal experience or the qualifications or enough time for ensuring that determination is consistent and reasonable and in accordance with the acceptable legal principles.
- That the problem has been composited by reluctance of Court in order to become engaged even after it is stated that the determination is flawed(CBP, 2010).
- What recent amendments have been made to the Act where a subcontractor of the builder has not been paid by the builder and in particular what rights has the subcontractor in relation to the owner of the property?
The amendment offers a subcontractor with the rights against the principal contractor for securing the payments due from contractor. The principal contractor can hold back the money from the contractor, when the subcontractor places the application of adjudication against the contractor in order to resolve the matter of pending payment. Along with this, the amendment helped in reducing the issue of timing that can help in reducing the usefulness of Contractors Debts Act 1997 (NSW) (BANNON & GILLARD, 2011). In case of contractor’s insolvency, this issue is related. Under Contractors Debts Act 1997, the responsibility of principal contractor related to payment to contractor can be allocated to the subcontractor, for the purpose to satisfy the judgement attained by sub contractor in opposition to contractor. CDA will not help the subcontractor in case when all the due money has been paid to the contractor by the principal contractor before the time, the subcontractor is able to get a judgement in opposition to contractor and provide debt certificate on principal contractor. The subcontractor has the ability to allocate money that has to be paid by principal contractor to the contractor, by the help of the amendment through serving payment withholding request on principal contractor. Although, debt certificate or judgement is important for the request of payment withholding, an adjudication application is also important for this process (BANNON & GILLARD, 2011).
The money payable by the contractor should be withheld by the principal contractor when the principal contractor gets a request of payment withholding. The exact amount that is stated in the request should be withheld by the principal contractor that is waiting in the adjudication determination. The principal contractor is liable for debt payable to subcontractor with contractor, when the principal contractor does not comply with the request. It shows that amendment may be utilized for three contracting parties – subcontractor, sub-subcontractor, head contractor (BANNON & GILLARD, 2011). It is important for the participants of the construction industry to review their contracts and identify the implications of amendment associated to matters like:
- Risks to contractor’s cash flow as a consequence of false requests of payments withholding from the subcontractors, that can affect the successful output of project;
- Ability of the principal contractor to male recovery of payments that are made to the subcontractors through project security or under the contract;
- Whether amendment might provide the ability to the subcontractor to jump in line, in case contractor is going into liquidation(BANNON & GILLARD, 2011).
In November 2013, the Building and Construction Industry Security of Payments amendment Bill 2013 was passed by NSW Parliament. These reforms are a piece of the response of NSW Government to the recommendations related to Independent enquiry into the Construction Industry Insolvency that is announced in April month of 2013. A change to the Act is removal of the section 13(2)(c) that required the contractors to specify that the claim of payment was made under the Act.
The changes in the act mean, it is important to submit the claim for the payment but, it is not necessary to include the statement describing that the claim is requested under the Act (NSW Government, 2014). Although, it is important to comply with all the requirements under the section 13(2) that are:
- Identifying the work of construction to which the claim of payment is related
- Specifying the payable and the due amount
If a claim for the payment is received, then it is important to evaluate it on its merit because it may not include the words “This claim of payment is made under The Building and Construction Industry Security of Payments act 1999” (NSW Government, 2014).
ABI, 2010. NSW Building and Construction Industry Security of Payment Act 1999 & Contractors Debts Act 1997 Discussion Paper, s.l.: ABI.
BANNON, F. & GILLARD, M., 2011. Subcontractors gain direct rights against principal contractors under NSW Security of Payment Act, s.l.: Clayton Utz.
Brand, M. C. & Uher, T. E., 2014. Review of the performance of security of payment legislation in New South Wales, s.l.: The University of New South Wales .
CBP, 2010. Legal update, s.l.: CBP.
Cooke, R., 2016. Is the Security of Payment Act truly a ‘pay now, argue later’ regime?. [Online]
Available at: https://www.rigbycooke.com.au/latest/is-the-security-of-payment-act-truly-a-pay-now-argue-later-regime
Minter Ellison, 2018. SECURITY OF PAYMENT LEGISLATION NEW SOUTH WALES. [Online]
Available at: https://www.constructionlawmadeeasy.com/SecurityofPaymentNSW
NSW Government, 2014. The Building and Construction Industry Security of Payments act 1999 , s.l.: NSW Government.
NSW legislation , 2014. The Building and Construction Industry Security of Payments Act 1999. [Online]
Available at: https://www.legislation.nsw.gov.au/#/view/act/1999/46
Roberts, S., 2018. Security of Payment Guide , s.l.: Roberts Legal.
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