A Seven-Step Guide to using the Security of Payment Act
Robert Macindoe offers a guide to using the Security of Payments Act, based in firsthand experience.
The Security of Payment Act provides a fast, low-cost debt recovery process that empowers subcontractors, contractors, suppliers and consultants. It ensures continuity of payment to any person who undertakes to carry out construction industry work under a construction industry contract.
The Security of Payment Act has three main applications for architects:
- Architects chasing payment
- Builders chasing payment where the architect is the superintendent
- Consultants chasing payment where engaged by the architect
The following draws on Robert’s recent experience with the New South Wales Building and Construction Industry Security of Payment Act 1999 No 46. It is offered as a guide only – remember to check processes and timeframes against the applicable Act in your relevant State or Territory. See here for Robert’s answers to key questions about the experience.
How does the Act work?
The Act is governed by separate State and Territory legislation. This means that any application of the Act needs to be considered in reference to the current Building and Construction Industry Security of Payment Act (Act) applying to the State or Territory where the action is to be undertaken. The Acts are readily available on State and Territory legislation websites.
The process of applying the Act is similar in all States and Territories however there are differences, which can be seen by comparing the samples of ‘Adjudicate Today’ flowcharts available for the different states:
Step 1 – Application of the Act
Firstly, identify if the invoice or claim is issued under the Building and Construction Industry Security of Payment Act, or if the contract allows action under the Act.
Secondly, obtain copy of the Act for the applicable State or Territory from the relevant state legislation website. The Act sets out the procedure for recovering outstanding progress payments.
Determine if the Act is applicable. To be able to use the Act there following conditions must be met:
- A construction contract is in place, within the meaning of the Security of Payment Act.
- The work has been completed in accordance with the contract and is defect free.
Step 2 – First Notice
The process starts with the ‘Reference Date’. This is the date that both parties have agreed is the date each month for making a claim. There can only be one claim for each reference date per month. If there is no date agreed between the parties than the reference date will default to the last day of the month.
Once a valid payment claim is served (issued and received), the respondent (debtor) has 14 days to serve a payment schedule on the claimant. This would be the case where the debtor is disputing the claim or disagrees with the value or content of the claim.
The payment schedule indicates a scheduled amount that the respondent proposes to pay to the claimant. It must identify the payment claim to which the amount relates and must indicate the amount of the payment (if any) that the respondent proposes to make.
Step 3 – Second Notice
If the respondent fails to serve a payment schedule on the claimant within the time allowed, or fails to pay the whole or any part of the claimed amount by the due date for payment of the amount, the claimant must serve a second notice.
This second notice notifies the respondent of the claimant’s intention to apply for adjudication. It must be served under section 17(2) of the Act prior to applying for adjudication.
Critical factors determine exactly when the second notice can be sent. The claimant must serve the second notice within the period of 20 business days immediately following the due date for payment. The respondent is then given an opportunity to provide a payment schedule to the claimant within five business days after receiving the claimant’s second notice.
Note: A claim under the Act will fail if the timeframes imposed by the Act are not met.
Step 4 – Entitlement to Payment Under the Act
To persuade the adjudicator of your entitlement to be paid under the requirements of the Act, it is essential that you provide sufficient evidence of the following:
- That a construction industry contract within the meaning of the Act exists between the parties.
- That the work/services and or goods included in the payment claim have been completed / delivered and are defect free.
- That the work/services and or goods included in the payment claim have been charged at the agreed rates and or standard industry market rates.
- That a valid payment claim (tax invoice) has been served.
Step 5 – Adjudication Application
A claimant may apply for adjudication of a payment claim if they dispute a payment schedule or if full payment is not received by the due date.
An adjudication application:
- Must be in writing
- Must be made to an Authorised Nominating Authority (adjudicator) chosen by the claimant
- In the case of an application under subsection (1) (a) (i) – must be made within 10 business days after the Claimant receives the Payment Schedule
- In the case of an application under subsection (1) (a) (ii) – must be made within 20 business days after the due date for payment
- In the case of an application under subsection (1) (b) – must be made within 10 business days after the end of the 5 day period
- Must identify the payment claim and the payment schedule (if any) to which it relates
- Must be accompanied by such application fee (if any) as may be determined by the Authorised Nominating Authority (Adjudicator)
- May contain such submissions relevant to the application as the claimant chooses to include.
A claimant may apply for adjudication of a payment claim if they dispute a payment schedule or if full payment is not received by the due date.
Step 6 – Selecting an Authorised Nominating Authority (Adjudicator)
The claimant must select an Authorised Nominating Authority (Adjudicator). Adjudicating firms can be found on the web.
The Authorised Nominating Authority will provide an application form to appoint them.
The claimant pays the fee upfront, however under a successful full-adjudicated amount the fee is included in final settlement. In other words, the respondent reimburses the claimant in full for the amount of the fee.
(Adjudicate Today www.adjudicate.com.au is one such Authorised Nominating Authority in NSW, VIC, ACT and SA.At the time of writing, Adjudicate Today’s fixed fee for claims $5,001 to $15,000 is $1,100.)
Step 7 – The Adjudication Process
The claimant is required to complete an adjudication application form, which is lodged with the Authorised Nominating Authority. The Authorised Nominating Authority then date stamps the adjudication application form and attachments. The adjudication application is then sent to both parties by the Authorised Nominating Authority as the claimant’s service of the adjudication application on the respondent.
The Authorised Nominating Authority then appoints an adjudicator and advises both parties.
A respondent may lodge an adjudication response only if they have served a valid payment schedule under the first and second notices timeframes. The respondent cannot include in the adjudication response any reasons for withholding payment unless those reasons have already been included in the payment schedule provided to the claimant.
A copy of the adjudication response must be served on the claimant.
An adjudicator will review both parties applications / responses, written submissions and written and photographic evidence.
The adjudicator is not to determine an adjudication application until after the end of the period within which the respondent may lodge an adjudication response.
An adjudicator is to determine an adjudication application as expeditiously as possible and, in any case:
- Within 10 business days after the date on which the adjudicator notified the claimant and the respondent as to his or her acceptance of the application, or
- Within such further time the claimant and the respondent may agree.
Once the adjudicator has determined whether the claimant is entitled to payment and who is responsible for their fee, the determination is released upon payment of the adjudicators fee.
This Act binds the Crown in right of New South Wales (or other States and Territories as applicable) and, insofar as the legislative power of Parliament permits, the Crown in all its other capacities.
If the respondent does not pay within 7 days, an adjudicators certificate can be obtained and entered as a judgement on the court record.
Once judgement is obtained it can be enforced and the monies recovered from the Debtor.
Professional Indemnity
It is worth obtaining clearance from your professional indemnity insurance claims manager for actions under the Security of Payments Act, in case there are associated implications that could give rise to a potential claim. By doing this you have notified them of your proposed actions. Our experience received the following response from our claims manager: “I confirm that we have no objection to you proceeding with the Security of Payments Act application for adjudication.”
Note: The ACA advises that architects should undertake their own investigation and seek their own advice prior to the use of this Act. The ACA can take no responsibility for the misuse or inadvertent use of this information which is provided as a guide only.
Robert Macindoe is a principal of dwp | suters, Sydney.