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A guide to Security of Payment legislation

Security of Payment legislation means unpaid subcontractors, contractors and suppliers can recover overdue payments from builders.

The Building and Construction Industry Security of Payment Act 2009 (TAS) establishes a Security of Payment system for unpaid subcontractors, contractors and suppliers to recover overdue payments from builders. The Security of Payment system also provides builders the opportunity to get a legally enforceable order for payment against a non-paying owner. The system aims to provide a quick and inexpensive way of dealing with unpaid invoices on building projects.

The Security of Payment Act

Court action is not eliminated by the Building and Construction Industry Security of Payment Act 2009 (TAS) (the ‘Act’) as the purpose of the system is simply to get money flowing quickly. A determination under the Act is only an interim decision that can subsequently be undone in court. 

The system also does not override written contracts. Rather, it seeks to give an effective way of enforcing contracts (although there are provisions that operate where there is no contract or there are gaps in the contract). Therefore, it is still important for builders to ensure that they have well-drafted, written contracts and subcontracts. 
The following guide seeks to clarify and assist with some matters covered by the system under the Act. Further information, including sample forms and flow charts, can be accessed on the Department of Justice website.

What is security of payment?

Most of the time, the parties to a building contract or subcontract do their work and pay what they owe without trouble and any disputes are resolved without the need for external assistance. However, it is not uncommon for payment to be withheld despite work having been done. Usually, for house builders, the payment in question is the final payment. 

Traditionally, a party not paid under a construction contract had to resort to formal court proceedings to enforce their right to payment. 

An alternative way of dealing with payment claims is provided under the Act. A builder, subcontractor or supplier who has not been paid monies due can apply for a ‘rapid adjudication’. The adjudicator will make a fast decision, based only on limited written statements. The Claimant can then enforce payment of the amount awarded by the adjudicator through a court, without the need for a full court hearing. The person from whom payment is claimed must reply to the Claimant’s claim within specific timeframes, otherwise their ability to respond to the claim is lost.

What works and who does the Act apply to?

The Act applies to all building work, including domestic building work, supply of building materials and services, road construction and other infrastructure as well as mechanical and other services.

Anyone who performs work under a building or construction contract can make use of the system against the person for whom they perform work. Subcontractors, contractors, suppliers and builders are covered. 

How does the process work?

Payment claim to be issue in prescribed form
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If a progress claim is not paid, the person claiming payment (the Claimant) can give the person for whom the work is being done (the Respondent) a payment claim. A payment claim must satisfy various requirements stated in the Act. Importantly, it must state that the claim is being made under the Building and Construction Industry Security of Payment Act 2009.
Responding to the payment claim
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The Respondent has two choices in dealing with a payment claim under the Act. The options are to either:

  • pay the claim, or
  • give the Claimant a ‘Payment Schedule’ if the Respondent disagrees with the claim.

The Payment Schedule must state the amount, if any, that the Respondent believes is owed to the claimant and state their reasons for disputing the amount claimed, including any complaints about defective work.

If the Respondent fails to include in the Payment Schedule any reasons why payment is being withheld or reduced, the Respondent is unable to raise those matters in adjudication that may occur in relation that claim under the Act.

If no payment schedule is given
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If the Respondent fails to make payment or issue a payment schedule within the required time (20 days if a domestic building owner, 10 days otherwise), the Claimant can go to court and enforce payment as if a judgment had already been given, and the Respondent has no right to defend the action.

If payment schedule is issued
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If the Claimant disagrees with the amount stated by the Respondent in a payment Schedule, the Claimant can apply to a Government approved ‘Nominating Authority’ for an adjudication of the dispute. The adjudicator is to be a suitably qualified person. The Act does not state what qualifications are required, although it is likely that experienced people such as builders, consultants or lawyers with building industry experience might be appointed. 
Adjudication
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The adjudicator must consider written statements from both parties and give a decision about the amount of money due within 10 days of the Respondent giving the Adjudicator their written statement. Note that the adjudicator’s fees must be paid by the parties, who will generally be required to pay half each. Adjudicators’ fees are not controlled by the Act. The Nominating Authority is also permitted to charge a fee. 
Effect of adjudicator's decision
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If the Adjudicator decides that money is due from the Respondent to the Claimant, the Respondent must pay that money within the time stated in the decision. If the Respondent fails to do so, the Claimant can enforce the decision in the court, in the same way as the claim is enforced where the Respondent has not delivered a payment schedule. 

Subsequent court action not affected 

As the adjudication process is ‘short and sharp’, the Act allows either party to start again via traditional court action. However, any money due under the Act must be paid in the meantime. If the court decides that the result should be different from the adjudicated result (or the payment claim, if no schedule was delivered), the court can order that money be repaid.

Strict timeframes under the Act

The Act aims to assist those who do building work or supply materials in receiving prompt payment. Strict timeframes are legislated and rights may be lost if timeframes are not adhered to.

Specific time frames are:

  • A party, if a home owner, has 20 days, or if a builder or principal contractor, has 10 days to respond to the payment claim either by making payment or issuing a payment schedule 
  • An adjudication application must be made within 10 days after the Claimant receives the Payment Schedule or if no payment schedule received, 20 days after payment was due
  • Respondent’s Response to adjudication application: 10 business days after Respondent receives the adjudication application
  • Adjudicator’s decision must be delivered 10 days after receiving the Respondent’s response.

Suspension

In addition to recovering money due, an unpaid party may suspend carrying out works if money is not paid in accordance with a payment claim. 

Making a claim against an owner 

The Act applies at all levels meaning the builder could be caught in ‘the middle’. For example, a builder can make a claim against an owner. However, the builder is also exposed to claims from subcontractors and suppliers. 

As such, the Act allows for joint conferences to be convened by an adjudicator involving all relevant people – i.e. where a builder’s failure to pay a subcontractor may have resulted from the owner’s failure to pay the builder. A conference involving owner, builder and subcontractor could be called in an attempt to resolve the matter. However, the Act does not allow joint adjudications between all three parties: separate adjudications would be required. This may leave the builder facing an order to pay the subcontractor without a corresponding order against the owner, or with a time lag between the two decisions. 

The effect of a contract

The Act operates by enforcing the payment of progress payments. If the contract outlines progress payment details (i.e. amount and date payable), the terms of the contract will be applied. Where there is no contract or the contract is silent on these points, the Act gives a right to a monthly progress payment, calculated on the basis of the value of the work done to the date of the claim. This default timeframe will apply regardless of whether it is suitable for the flow of work, or the builder’s (or owner’s) cashflow. 

Therefore, it is important that contracts state when progress claims are due and how the amount due is to be calculated. Standard form contracts are useful in this respect as they provide a framework for the necessary contract provisions to be made.

To find out more, contact HIA's Workplace Services team

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