The idea of skipping your debtor and going to the principal to get paid is nothing new.
But this is mostly done informally. Sometimes the head contractor will openly agree for payment to be made directly from the Principal. Many contracts have clauses that provide for these kinds of direct payments that skip a rung on the contractual chain.
What most contractors don’t realise is that the Security of Payment Act allows you three formal ways to skip up the chain to get paid. These are:
A Payment Withholding Request: This only exist under the NSW Act. It allows a Claimant to send a notice to the upline contractor/principal to withhold the claimed amount from future payments to the Respondent. Only monies that are due and payable to the Respondent can be withheld. That Request must be complied with, and the money withheld for a period of up to 20 business days after the determination is released.
If the adjudicator determines that you are owed a payment, then the Respondent will have 5 business days to pay. If there is no payment, then the Claimant can request the payment directly from the Respondent. As the money cannot be paid to the Respondent anyway often it will not contest the release of this payment to the Claimant.
Garnishee Order: If neither the principal or Respondent are being helpful, you can in most states garnish the Respondent’s bank account. If the adjudicated amount is not paid within 5 business days, then you can register the determination in court as a judgment, and off the back of that have a garnishee order issued by the Court. You then send that Order to the Respondent’s bank. If there are funds in the account, they will be sent directly to you as a bank cheque.
It is also possible to send a garnishee order to the upline contractor or principal and it has the same effect as the Payment Withholding Request. The party that is served with the Order must pay you from funds payable to your debtor.
Debt Certificate: In both NSW and Victoria a Claimant that has had an amount determined as payable can ask the Court to issue a Debt Certificate. In Victoria that is provided under the Security of Payment Act. In NSW it falls under the Contractors Debts Act. You can ask for this Certificate after you have registered the judgment. You then send that Certificate to the principal and it must be paid on from amounts payable to the Respondent.
These strategies are highly effective, but little used and understood. The key thing to understand is that they are only available to you if you have your matter adjudicated first. It is yet another case of the great advantages that the Security of Payment Act delivers to those who use it. It allows you to break out of the circle of chasing money with emails and phone calls, and elevates you to a position of power in the dispute. It gives you options of ways forward to get your money that were totally out of reach beforehand.
Recently we got a decision of about $80,000.00 for our client on some work at a school. We served the school with a Payment Withholding Request, and after advice from their lawyers they held back the PC retention from the Respondent. Upon issue of the decision the school told the Respondent that it was preparing t pay the Claimant directly. The Respondent then stepped in and made the full payment of the adjudicated amount.
This is what I mean when I talk about leverage, power, and options. It’s a part of the Security of Payment process that is well worth understanding and using.
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By Anthony Igra, Contractors Debt Recovery
Anthony Igra has recovered over $60 million dollars for contractors using the Security of Payment Act across Australia.He has conducted seminars for many construction industry associations around Australia, and provides their memberships with an invaluable service in relation to payment problems and debt recovery.Anthony is a regular contributor in the construction press both in Australia and the US, and his views on payment issues have been sought by both government, and industry bodies.