The Security of Payment Act is meant to be critical for builders to get paid for construction works that they do.
It is designed so that building contractors are paid far quicker and more efficiently and effectively than they otherwise would be. The Act is also meant to prevent a party to a construction contract from saying “I haven’t been paid, so I am not paying you.”
The Act has been described as “pay now and argue later.”
It applies Australia wide to construction work as defined broadly. Whether it is in fact used – and used correctly when builders are submitting invoices for payment – is somewhat another thing.
The regime, it must be remembered, is one that applies to progress payments throughout the job rather than one where the final payment claim is made.
Of fundamental importance is the fact that once a contractor has done construction work (and/or done the supply of related goods and services) and serves a valid payment claim, within 10 business days the recipient (hereafter to be called the respondent) must either pay it in full or respond to it with a payment schedule.
There are plenty of cases where the Act applies or would potentially apply to a situation if the builder was minded to use it. However, for whatever reason, whether that be ignorance as to how it operates or that it even exists or for some other reason, the builder does not use it.
Cash flow is the lifeblood of the industry. The Act was set up with that fundamental fact in mind. Construction contractors ought to be using the system, or they face the peril of sums of money – possibly large sums of money – not being paid.
All that is required is that the contractor wanting to be paid, once the work is done, submits a payment claim. That claim does not have to be in any particular form, but it does have to identify the construction work done (or supply of related goods or services) and the amount that is being claimed and say that it is a claim made under the Act (with the exact wording of the title of the Act).
The respondent to the claim has to respond with a payment schedule (again which does not have in any prescribed form) within 10 business days (or time specified as to same in the contract). If they do not, massive consequences may follow. That is, it is then deemed that the amount claimed is all due and payable and the respondent loses basically all rights to challenge the claim and/or its amount. They also lose any right to, for example, say that in fact the respondent has a claim against the claimant. When the claimant does respond, if such response is that not all of the amount being claimed is to be paid, reasons for this must be given.
Summary judgment in a court may ensue, which means a respondent’s credit record can be adversely affected and the claimant has the right then to issue various civil debt enforcement options, such as issuing a creditor’s statutory demand (if the respondent is a company) which if not satisfied, can lead to a winding up the company. Now if that is not a massive consequence, I do not know what is! Further, however, the claimant, if unpaid, may have the right to suspend work on the job. In addition, interest applies to the debt.
So it is of critical importance that the respondent responds with a payment schedule. If they do, the claimant can apply for the matter to be adjudicated. This is not a court determination, but one done to what is known as an authorised nominating authority or to one that was previously agreed between the parties. The adjudicator essentially makes a final determination of the payment claim and response, that is, they will decide how much if any is to be paid and by when. They have to do so within 10 days after receiving the application for the adjudication by the claimant. This is in line with the aim of the regime: swiftness. All of the steps in the process have short time frames.
The Act’s regime is easy to use in theory, but there are complexities and there are as mentioned, very tight time frames applicable to the steps in the process. Professional advice is crucial in cases of uncertainty, as if one misses a deadline (such as not responding with a payment schedule in time – and there is not an avenue to ‘extend time’ like there is any many other forums) one be ‘locked out’ of doing nay further than be subject to the resultant consequences.
Some of the states of Australia do have slightly different Acts in their respective jurisdictions which may need to be taken into account. The legal effect of variations (which are common in a given project) are important to consider but that discussion ought to be raised with your professional advisor.