As with any business or profession, the ability of architectural firms to practise their profession depends upon their ability not only to charge rates and fees which are commensurate with the value of their work but also to receive full payment in a prompt and timely manner.
Yet within the property sector, non-payment, late payment and underpayment of amounts due are all too common. When these things happen, many architects are unaware of important rights they hold under an area of law known as security of payment.
First introduced in New South Wales in 1999, security of payment laws are now in place throughout every state and territory and generally apply to all building projects other than those for which the principal is a home owner and the project relates to work on the person’s private place of residence.
Whilst specifics vary according to different states, the legislation allows designers, contractors, subcontractors and suppliers to commence adjudication proceedings where claims for payment are either not met in full, paid late or not met at all. Design professionals such as architects and engineers are included as they are considered to have performed ‘related goods and services’ for the project.
The legislation also:
- prohibits ‘pay when paid’ type arrangements whereby a developer or principal contractor’s obligations to pay the architect is contingent upon the principal or contractor themselves receiving a specified form of payment
- voids any contractual terms which seek to exclude, modify or limit rights to payment under the Act
- provides a right for architects to suspend work without penalty until payment is received (where such a suspension is made in accordance with the Act)
- includes a right to be paid within any reasonable time stated under the contract and specifies default payment dates where no such time is specified.
According to Contractors Debt Recovery managing director Anthony Igra, architects are by and large failing to take advantage of this. Many architects, Igra says, are either unaware that SOP legislation exists at all or operate under a mistaken belief that the legislation applies only to contractors. In addition, many also see SOP as a form of last resort which in effect will put an end to the relationship between architect and client – a phenomenon he says makes many reluctant to use SOP as architects are involved from the beginning of projects and often form close relationships with their clients.
He says much of the responsibility for lack of understanding in this area lies with professional associations, whom he says have largely shown disinterest with regard to promoting awareness about these types of matters.
“Number one, most people would have no idea what it was and wouldn’t know that it existed,” Igra said, asked about areas of misconception surrounding SOP amongst architects. “(In addition,) many of those who have heard of it think that it is only for subcontractors. They actually have no idea a) that it applies to them, or b) that the Act specifically applies to ‘related goods and services.
“All architects and engineers who are providing consulting work to a project are covered by the Act. Yet many think that it’s something that does not apply to them or their work at all, that it’s something that might apply to a subcontractor and a builder.
“So many would not know about it and a number of those who do may not consider that it applies to them.”
In terms of the strategies for success when using Security of Payment law, Igra says it is important to be able to demonstrate the value of work on a given project to-date and to have clear methodology in the contract which sets out how work is going to be valued along with adequate substantiation of work performed to date and/or hours spent on the job. In cases where, for instance, an architect has achieved two project milestones and has expended considerable levels of effort toward a third but has been unable to meet that third milestone at the time of payment, for instance, they will find it difficult to claim for progress work done thus far on the third milestone unless they have a clear and agreed mechanism by which this value will be determined.
It is also important, he says, that architects insist on (and follow up upon) prompt payment of invoices as and where they are due and to avoid the trap of either continuing to work without receipt of payment or accepting ‘drip feed’ style payments – a phenomenon which Igra says stems largely from the closeness of their relationship with the client.
Architects who have used the process say the benefits have been significant. In an article published recently on the Association of Consulting Architects website, Robert Macindoe, who at the time was a principal of dwp|suters said his firm had been able to recover debts outstanding for more than 365 days with regard to which the firm had been essentially getting no response.
Architects in Australia typically have not been making full use of Security of Payment legislation.
Should this change, cash flow throughout the sector should indeed improve.