Getting paid as a construction business
Getting paid on time is considered one of the biggest challenges and risks in the construction sector. Delays in payments can risk the success of projects and often your entire business. Whether you are a head-contractor, sub-contractor, or even a consultant, you need to be aware of and understand your rights and appropriate course of action in accordance with the payment claims laws in NSW. In this article, we will shed light on how to get paid and what your options are in the event that your payments are delayed.
A great place to start is understanding the Security of Payment Act 1999 (NSW) (‘the Act’)
Security of Payment Act 1999 (NSW) Overview
In NSW, the Building and Construction Industry Security of Payment Act 1999 is the law that oversees and dictates payment claims and arbitration claims related to construction work and related goods and services.
The Act is applicable whenever you have an agreement with another party on construction-related work and payment for particular works is owed. A binding or contractual agreement does not necessarily have to be written. A verbal or a mixture of verbal and written is acceptable. But it must be in relation to construction work taking place in NSW. Now, let’s assume you are having challenges with collecting payments, there are a couple of options to consider.
Options for getting paid
Option #1 – Payment claim
The first option is to make a payment claim in which you will need to identify and state the following:
- Work you have carried out
- Amount of the progress payment you wish to claim
In addition, you can only issue a payment claim on or after the date referred to as the “reference date”. The reference date has to be a date mentioned in the contract on which you as a business will make a claim for a progress payment. If the contract does not specify the reference date, the last day of the named month where the construction work was first carried out becomes the reference date.
Once you identify the above information, your lawyer can then process a payment claim. The payment claim will need to be in writing and served to the person liable to pay you (the respondent) as specified in your contract. In addition, each payment claim you make for that specific respondent can only be for a specific reference date and should not be made after twelve months from when the work was completed.
What happens next? The respondent must provide a payment schedule to you within ten business days of receiving your payment claim unless your contract specifies otherwise. In the event the respondent does respond back with a schedule, they are liable for the full amount claimed.
Option #2 –Adjudication process
Should the first option fail to result in getting your customer to arrange your progress payment, there is an adjudication process in which an adjudicator is appointed by the Authorised Nominating Authorities (“ANA”). The function of adjudicators is to hear and make decisions on applications under the Act.
When to pursue an Adjudication Application?
- In some cases, the respondent will provide you with a payment schedule that you may not agree with or deem acceptable under your contract terms.
- In other cases, they might pay less than the claimed amount and fails to pay the claimed amount twenty business days after the due date for payment.
- If the respondent did not provide you with a payment schedule.
When you lodge your adjudication application to one of the Authorised Nominating Authorities, the application will be forwarded to the appropriate adjudicator to oversee your claim.
Your application must follow the below guidelines:
- The application must be in writing;
- Clearly identify the claim;
- Specify the payment schedule;
- Accompany previous submissions (if any); and
- Pay the application fee required by ANA.
Recent changes in the NSW Security of Payment Laws
Commencing from 1 September 2020, the regulations of the Act cover three new areas:
- Adjudication requirements;
- Trust account management; and
- Supporting statements provided by head contractors.
Some further changes were made on March 1st 2021. The new amendments made included owner occupier contracts into the Act. Now residential builders can resort to the Security of Payment regime to recover progress payments from homeowners. Important to note, the change functions retrospectively – meaning that all owner-occupier construction agreements entered from 21 October 2019 onwards will be applicable under this new amendment.
The benefit of these changes for builders is undoubtedly positive as they will be able to recover payments under the Act for both residential and commercial developments. We encourage builders to learn more about how it can help them minimise their building projects’ risk and maximise their cash flow and revenue.
At Lazarus Legal, we specialise and help several construction businesses in the building sector with various legal services. If you need help with a payment claim or any other legal matter, reach out to us, and one of our lawyers will assist you throughout the entire process.