Non-payment during construction is a very common issue in the building industry, BUT there are ways you can ensure you get paid on time!
The best way to deal with a payment dispute is to avoid it in the first place.
Steps 1 – 4 below detail practical measures that you can take to set up good payment practices.
Step 5 and the listed alternative options can assist when a payment claim is overdue.
A contract is a written record of the agreement between the parties. It sets out important information with regard to your right to payment including:
The law requires a written contract between a builder and an owner where the building work is valued between $7,500 and $500,000. If you don’t meet the legal requirements you may have trouble getting paid and may be subject to additional fines.
Regardless, it is strongly recommended that you ensure you have a comprehensive written contract in place.
If you have concerns about a client’s capacity to pay progress claims when they are due, you may:
In order to avoid payment disputes it is important to ensure you are carrying out the proper contract administration. This includes:
ensuring variations to the contract have been properly documented and approved by the client where required; and
any extensions of time notices have been given in accordance with the required timeframes.
If you have completed a progress stage you are entitled to make a claim for the work carried out under that stage. When you have made a genuine claim for a progress payment, the client must pay the progress payment within the timeframe set out in the contract.
For home building work valued between $7,500 and $500,000 a request for payment for work that has not yet been performed (except for a deposit) is prohibited. For all other building work, while permitted, it could be difficult to justify an entitlement to payment for work that has not yet been completed, except where the contract specifically provides for that type of arrangement.
If the client fails pay a progress claim by the due date, there are a number of steps you can take under the contract. If you are using the HBCA Lump Sum Building Contract, the options include:
First you must issue the owner with a written notice to remedy the breach i.e. a notice that the owner must make payment. If payment is not made within 10 working days after providing the notice you may terminate the contract immediately by issuing a separate notice of termination.
Termination of a contract is a serious step. If it is done without a genuine cause it will give the owner the right to terminate the contract and to seek damages from you.
The contract sets out a process under which disputes can be resolved. This may be in relation to non-payment or any other dispute.
Under the HBCA Lump Sum Contract the dispute resolution process is:
lodge a written notice of dispute; then
Yes. These options are separate from your options under the contract. The advantages and disadvantages of each option should be considered in relation to your particular circumstances.
When a dispute arises under a home building contract worth between $7,500 and $500,000 both the builder and the owner can apply to Building and Energy for determination.
If you are not satisfied with a decision by Building and Energy, you can apply for a review by the State Administrative Tribunal (SAT). SAT may also determine matters that are referred to it by Building and Energy.
Rapid adjudication is a mechanism of the Construction Contracts Act. It allows a party to a construction contract to make an application for a payment dispute to be determined by an adjudicator. A ‘payment dispute’ includes a rejected, disputed or overdue payment claim.
HIA has further information available regarding rapid adjudication, on request.
A letter of demand should set out the amount of money that is outstanding and provide the client with a timeframe in which to make payment. It also sets out the consequences of non-payment. It is used as a last resort prior to taking more decisive action such as going to court or arbitration.
In WA the Magistrates Court deals with civil matters up to a value of $75,000. The types of matters that are dealt with in Magistrate’s Court include debt or damages claims and consumer/trader claims. Some matters, such as building services complaints, are not dealt with by the Magistrate’s Court and come under the jurisdiction of Building and Energy or SAT.
For disputes up to a value of $10,000 parties are not represented by lawyers. The fees for Magistrates Court are also reasonably low.
Despite this, preparing for court is a very time consuming and costly exercise. Taking a matter to court may also come with a significant psychological burden. Before proceeding to court, it is worthwhile considering whether there is any opportunity to resolve the dispute in another way.
In addition, where the parties have agreed to alternative dispute resolution (ADR) under a contract, the Court may require the parties to honour their contractual agreement and proceed through ADR instead.
Before exercising any contractual or legal rights, it is important that you read the contract carefully and if you are unsure contact HIA or seek independent advice.
HIA’s building contracts, trade agreements and variation forms are available via Contracts Online.
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