New South Wales Security of Payment Legislation – A User Friendly Guide
Authored by Lovegrove & Cotton – Construction and Planning Lawyers
Subcontractors and contractors alike can submit payment claims upon a principal/owner or a head contractor under the Building and Construction Security of Payment Act 1999 (“the Act”).
The rationale for such issuing is to quicken and facilitate payment. A criticism of the system is that it is oppressive for respondents and principals as they have a frighteningly narrow window of time to respond.
The Mechanics of Security of Payment
A claimant can only lodge a claim for payment if the claim relates to building work carried out within the gamut of a construction contract.
In a recent case where Lovegrove & Cotton – Construction and Planning Lawyers acted for the respondent in the County Court of Victoria, the firm was successful in countering the claim for payment by arguing that the agreement governing the carrying out of the building works was not a “construction contract” pursuant to the Act. Rather, the agreement was in the form of a joint venture/profit sharing arrangement. Thus, his Honour Judge Anderson found that the agreement did not fit the “construction contract” permutation. The opinion is a worthwhile read and can be found by clicking on Fulconstruction Pty Ltd v. ABP Consultants Pty Ltd  VCC 1732.
The time for processing and responding to a payment claim is as follows:
- Response with a payment schedule, which includes details such as date/payment claim number and states the amount owed, if any;
- The relationship is generally either that of a head contractor and subcontractor, or contractor and developer or principal, and the respondent has to respond to the payment claim by submitting a payment schedule within the time required by the construction contract or within ten (10) business days (whichever time expires earlier);
- Although the claimant may take many weeks to prepare the payment claim, the respondent is in an invidious position with a tight timeframe to provide a response.
If the respondent fails to respond to the payment claim, the ‘guillotine’ comes down and the respondent’s ability to contest the claim is “severed”. Hence, as soon as respondents receive a payment claim, they must act with alacrity, and would typically be well advised (if the matter is not “garden variety”) to instruct a construction law firm to protect its interests.
When Does A Matter Go To Adjudication?
If the claimant wishes to exercise its rights to obtain payment, it will have one of two options:
- Make an application to a Court or Tribunal in the relevant list; or
- Alternatively, there is the option of appointing an adjudicator to adjudicate and provide a written decision, especially when there is a dispute over the amount in a payment schedule.
- You must issue a written application to an Authorised Nominating Authority (ANA) and then the ANA will appoint an adjudicator.
- Then the adjudicator will ask the parties to provide the payment claim, the payment schedule (if any) and any germane information, including submissions.
- The adjudicator has a strict timeframe to write and publish its determination and will not ordinarily release the determination without the adjudicator’s fees paid in full.
Appointing an adjudicator:
Appeal rights reside with the Supreme Court of New South Wales and the Supreme Court will only be receptive to the appellant’s position if there is an error of law.
Adjudication is a system that is claimant (plaintiff) friendly and respondent (defendant) unfriendly. The time periods are strict and uncompromising, and are set in statute. Respondents and principals cannot afford to be ‘asleep at the wheel’ when the claim is lodged.
Respondents and principals should ensure that they have within their fold a preeminent construction law firm to protect their interests for when the Act is utilised – www.lclawyers.com.au.