Getting Paid: Security of Payment

Peter Sarlos , 2 February 2014

Being paid for services provided is fundamental to any business, architectural practice included. Yet for many it can be a continual struggle. Peter Sarlos outlines the Security of Payment Act and how architects can use it to their benefit.

The building industry is notorious for principals (clients, project managers, builders, etc) not paying or short-paying their bills. The reasons usually given all have similar undertones: lack of funds; the service provided was not what was specified, scoped, or to standard; and “get it from the purchaser”. This is true as much for architects as it is for other service providers in the industry.

Not getting paid or having to provide a service uneconomically impacts directly on the ability of the architect to practise architecture.

Architects facing such a situation should be aware of the Building and Construction Industry Security of Payment Act, which was introduced as a result of the impact of the failure of principals in the building industry. The NSW Act dates from 1999, with similar acts following in other states, most of them modelled on NSW. Architects should know their way around these Acts and how to use them. The following provides a short guide.

The Act is designed to protect the right of a building contractor or a person providing related goods and services with the right to be paid. It achieves this objective by effectively modifying the terms and conditions of contract, and includes these statutory provisions:

• A prohibition of actual or implied clauses seeking to restrict an obligation to pay until the principal receives payment or funds (for example, pay when paid);
• The voiding of any contractual provision to the extent that a term of contract – whether actual or implied – seeks to exclude, modify or limit a right to payment under the Act;
• A right to suspend work without penalty until payment is received where such a suspension is made in accordance with the Act;
• A right to be paid within a time stated under the contract provided that such a time is reasonable or within the time stated in the Act (10 business days).

The Act includes special provisions that include architects (the design consultants) in provisions identified as related goods and services. The states that rely on the NSW Act as a model (all except Victoria) have extended the right to be paid under the Act to architects, engineers and other design professionals in fee disputes with homeowners. Such provisions are not stated in the Act but arise because other legislation has the effect of protecting designers from exclusion of liability of homeowners under the Act.

Over the past year architects have recovered outstanding fees between $500,000 and $1 million from residential (domestic) clients, including solicitor clients, in Queensland and NSW.

The words and meanings of the Act are continuously re-evaluated and redefined by decisions of the Supreme Courts that deal with it in the various Australian jurisdictions. In some cases, decisions are made in relation to other legislation or disputes unrelated to the Act. This can have a profound effect on the interpretation of the meaning of the Act. When read together, two decisions of the NSW Court of Appeal – one in 2012 and another in 2005 – make the following implications:

• The provisions of the legislation should be interpreted broadly, and
• A person providing building-related goods and services can include persons providing advice of a legal nature.

A number of successful claims have been made by architects in the last year, where the fees arising from the services of an adjudication consultant have been partly and openly recovered. The Act imposes strict timetables and procedures that must be followed by you (the architect), your client and the adjudicator. If they are not followed, a claim and a response under the Act can be found to be defective in some way, as can an adjudicator’s decision. If the procedures are followed, then it is possible to obtain a debt certificate from an appropriate court within about six weeks (where time is under the Act) and within what might be called a reasonable time under a contract.

Once you have been issued with a judgement order (over the counter) you have a number of options for recovering the money, including through the Sheriff, the service of a garnishee order, etc.

It is important to bear in mind that the use of the legislation is not risk-free. However, the limited statistics available show that over 90% of the matters that are sent to adjudication are resolved either by the process or by the discussions arising as a result of process. Less than 5% of all adjudication decisions are overturned or voided.

In measuring that risk you need to consider the risk to your practice, your family and to you!