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$vuetify.icons.faPhone1300 650 620

Serving a payment claim on a home owner

If you are a builder or contractor performing residential building work for a home owner in NSW (or providing related goods and services, such as supply of materials or consultancy services), and are having trouble getting paid, the Security of Payment legislation (SOPA) may be of assistance.

SOPA can provide a quicker and cheaper alternative to going to court or tribunal.

There are however various requirements and strict timeframes to be complied with in order to have a payment dispute resolved under SOPA.

When can I use SOPA?

If you have entered into a residential building contract with an owner after 1 March 2021 you may be able to issue a claim seeking payment under SOPA.

What information needs to be provided to a homeowner about SOPA?

Home building contracts for works of more than $20,000 must contain the Security of Payment Guide published by NSW Fair Trading.

The Consumer Checklist in the contract also makes the homeowner aware of SOPA with an item asking if the contractor has provided the guide. 

The checklist and the SOPA Guide are included in HIA contracts.

What is a payment claim?

The first step to getting paid under SOPA is to issue a payment claim which is a short statement that details the payment owed for building and construction works.

A valid payment claim must:

  • be in writing and clearly addressed to the respondent (the owner);
  • clearly describe the construction works or related goods or services to which it relates;
  • state the amount being claimed (incl. GST, interest and/or retentions, if applicable); and
  • include a statement that it is a payment claim under the Act.

An invoice or progress claim under the contract that is ordinarily issued upon completion of a stage of works could become a payment claim under SOPA by adding the words: “This is a payment claim made under the Building and Construction Industry Security of Payment Act 1999’’.

To claim payment under SOPA you must do so within 12 months of performing the work, or supplying the goods and services.

Do I need to provide anything else with the payment claim?

Yes, if you are the builder and have subcontractors, you are regarded as the “head contractor” and the payment claim must be accompanied by a supporting statement.

This is a declaration that you have paid your subcontractors (this includes suppliers) what is due and payable to them in relation to the works carried out in the payment claim issued to the owner.

A supporting statement should be signed by a company director; or a person authorised to sign on behalf of the head contractor.

The supporting statement for use with an owner is available from the Fair Trading website.

Note: if you are issuing a payment claim and the owner is not an owner-occupier (they are not residing in or intending to reside in the property, for example, a developer or investor), a different supporting statement is required. Do not use the statement in the above link.

Failure to provide the statement with a claim or providing false or misleading information is an offence under the Act and carries significant penalties of up to $110,000 in the case of a corporation or $22,000 in the case of an individual.

If you are a contractor performing works for the owner (for example, trade works like carpentry) or supplying other related goods and services AND have not subcontracted any of those works, then you are not regarded as a head contractor and do not have to provide the statement.

I have served a payment claim on the owner, what happens next?

Once a payment claim is served, the owner is required to provide a written response to you if they dispute the amount and do not intend to pay it in full. This is called a payment schedule and needs to be provided within 10 business days of receiving the claim.

What if the owner does not provide a payment schedule or make payment?

Failure to provide a payment schedule within time will make the owner liable to pay the full amount claimed and may provide you rights such as suspending the works.

You should however also consider your rights under the building contract in relation to breach of contract and suspension.

If they do not pay by the due date, you should monitor the situation closely, and look out for a payment schedule (whether one is provided or not will guide the next steps). Note that if your contract does not identify the due date for progress payments, SOPA provides that it is 10 business days.

What is adjudication?

Adjudication is a form of alternative dispute resolution that allows a qualified individual (an adjudicator) to decide a dispute between parties without the need to involve the court system.

If the owner fails to serve a payment schedule, or serves a payment schedule but fails to make payment of the amount nominated, you may be able to lodge an adjudication application with an Authorised Nominating Authority (ANA).

An ANA is an organisation registered under SOPA to receive adjudication applications and nominate adjudicators to decide the applications.

The time frames to apply for adjudication of a claim vary depending on whether a payment schedule was served or not (10 business days when a payment schedule was served, or 20 business days from the due date for payment where a payment schedule was not served).

The selected ANA will give you an adjudication application form to complete, which is to be returned with the application fee and any other supporting documents.

A copy of the application and all attachments must also be served on the owner who may lodge a response to the application if they served a valid payment schedule within the timeframe under SOPA.

An adjudicator must make a decision within 10 business days of receiving the adjudication response.

Should I make all my invoices a payment claim under the Act?

Whether you automatically make all your claims for payment under your building contract a payment claim under SOPA is a business decision for you to make.

When deciding whether to make a claim under SOPA you should consider:

  • That you will need a supporting statement with each invoice

    If a supporting statement is required with the claim, then you are disclosing information to the owner that ordinarily would not have been made available to them. It may also be a timely process to prepare such documentation.
    Significant penalties of up to $110,000 for corporation or $22,000 or 3 months imprisonment (or both) in the case of an individual apply for intentionally making false statements. Therefore, you want to be certain that you have paid your subcontractors before you make such declaration.

  • Whether you are on top of your business administration

    Once a payment claim is issued, strict timeframes apply to take the matter to adjudication. If you do not follow up on the claim issued and responses from the owner you might jeopardise your ability to proceed with rapid adjudication.

  • That SOPA should only be used as an alternative debt recovery when needed

    It is important to note that a payment claim can be issued independently of an invoice (if the invoice itself is not a claim under the Act). Where the owner has not made payment of a progress claim by the due date under the contract, you might then choose to use SOPA by issuing a payment claim to try to recover unpaid amounts quicker.

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

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