Securing payment in the construction industry
15 Sep 2016
- Commercial Disputes
As a building contractor or supplier of goods to the ACT construction industry, you have a legitimate expectation of being paid and one cost-effective method is via the security of payment legislation as set out in the Building and Construction Industry (Security of Payment) Act 2009 (Act).
When does the Act apply?
The ACT Act applies to construction contracts entered into after 1 July 2010.
The object of the Act is to provide a mechanism for claiming payments in relation to construction contracts or service arrangements. The contract or arrangement need not be in writing; it can be written or oral, or a combination of both. The claim can be for progress payments (including final payments) as well as goods supplied.
The Act applies to contracts or arrangements that relate to building construction and civil works as well as finishing works such as painting and cleaning. The Act also applies to material and equipment whether supplied or hired.
There are, however, a number of construction contracts the Act does not apply to. Of note is a contract:
- for residential building work if the owner lives or intends to live in the building.
- that includes a ‘pay when paid’ provision, ie the Principal pays the contractor when the Principal is paid.
When can contractors make a claim?
A claim for a payment (Payment Claim), whether it be a progress payment or another payment can only be made after the due date (Reference Date). The Reference Date is the date specified in the contract or if there is no Reference Date listed or there is no contract, then 10 days after the Payment Claim is made. The contractor can only serve one Payment Claim for each Reference Date.
A Payment Claim cannot be made 12 months after the completion of the construction work the supply of the goods and services to which the claim, unless the contract or agreement provides otherwise. Such a change should be in writing.
How does a contractor make a Payment Claim?
The contractor makes a Payment Claim by serving the Payment Claim on the person responsible for making the payment under the contract (Principal).
The Payment Claim must:
- identify the work or goods and services;
- specify the amount claimed (Claimed Amount); and
- state that the Payment Claim is made under the Act.
What must a Principal do when served with a Payment Claim?
When a Principal is served with a Payment Claim it must, within 10 business days of receiving the Payment Claim or any shorter time that is stated in the contract (Time Limit), respond by serving the contractor with a Payment Schedule setting out:
- details of the Payment Claim;
- how much the Principal proposes to pay (Scheduled Amount); and
- if the Scheduled Amount is less than the claimed amount, explain why and the reasons for not making the Payment Claim in full.
If the Principal provides a Payment Schedule, it must pay the Scheduled Amount at the time it provides the Payment Schedule. However, if a Payment Schedule is not provided within the Time Limit, the Principal must pay the full amount of the payment claim.
How does a contractor enforce its rights if not paid?
The contractor may apply to the court for a judgment or seek to have the dispute adjudicated:
- if the Principal fails to serve a:
- Payment Schedule; or
- Payment Schedule in time; or
- Payment Schedule in the amount of the Payment Claim, or
- for the Scheduled Amount which remains unpaid on the due date.
A contractor may exercise a lien over any unfixed plant or materials which the contractor has supplied.
With at least 3 business days’ notice, a contractor may cease work being carried out or suspend the supply of goods or services.
The Act is an effective way of pressing for payment without the need to take action through Courts. There are strict time limits that apply so prompt action is required.
Contact our Commercial Disputes team today for assistance enforcing your rights.