Know your rights and obligations under the Security of Payment Act

The Building and Construction Industry Security of Payment Act 2002 (‘the Act’) is an important piece of legislation that all builders and construction business owners should be aware of and understand. It can mean the difference between the quick recovery of debts and lengthy and expensive court proceedings.

The purpose of the Act is:

to address delays in payment under construction contracts to parties who carry out construction work”.

The Act provides a mechanism for the quick recovery of debts through the use of payment claims and progress schedules.

Does the Act apply to you?

If you are in the construction business, the Act may apply to you as the Act defines construction work in broad terms including, amongst other things:

  1. any work, or related goods and services, that is involved in the construction, alteration, repair, restoration, maintenance, extension, demolition or dismantling of buildings or structures, or to form, part of the land (whether permanent or not); and
  2. the installation in any building, structure or works including heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply, fire protection, security and communication systems.

The Act does not apply to domestic building contracts between builders and building owners for the carrying out of domestic building work.

Serving a payment claim as a builder

A payment claim is essentially a tax invoice served upon the debtor that describes the nature of the work you completed and the amount that you are entitled to be paid. Payment claims can be made during the progress of a project and can be issued in intervals as contemplated in the contract between you or otherwise every 20 business days.

If the debtor doesn’t agree that the money you claim is owed, the debtor must provide you with a payment schedule within 10 business days that informs as to:

  1. The amount the debtor believes you are owed; and
  2. A method to pay that amount.

Where the debtor does not provide you with a payment schedule and fails to pay you by the due date:

  1. You may recover the unpaid portion of the claimed amount by either commencing legal proceedings or by arranging for an adjudication of the matter. Legal proceedings in these circumstances are commenced simply to obtain summary judgement as the debtor is statutorily barred from raising defences that arise out of the contract as the debt is deemed as owing. Further the debtor is unable to bring any cross-claims against you. For example, the debtor is unable to argue that you are not entitled to payment of the claim because of poor workmanship; and
  2. You can suspend the carrying out of works or the provision of goods and services until payment is made.

What if you are served with a payment claim?

If you are a contractor served with a payment claim, you must reply within 10 days by providing a payment schedule that identifies the amount of the claim that you believe the builder is entitled, if any, and how you intend to make payment.

In the event that a payment schedule is provided for an amount below that claimed in the payment claim, the builder has the option of applying for an adjudication of the disputed amount. The adjudicator will determine the amount due as between the parties. Again, this avoids court proceedings.

Know your rights

A failure to understand the Act may mean that you are unable to take advantage of provisions that can lead to a timely recovery of money.

Both builders and contractors should ensure that their standard form contracts take into account the provisions of the Act and that they have in place template payment claims and payment schedules that comply with the requirements of the Act.

This article provides information that is general in nature and not a substitute for legal advice. Please contact Rudstein Kron Lawyers if you wish to obtain legal advice for your personal situation.