The Building and Construction Industry Security of Payment Act 2009 provides for a statutory right to progress payments for construction work undertaken in South Australia. The right to progress payments is backed up by a powerful system to enforce those progress payments, centred around the concept of “adjudication”, a rapid means of determining, on an interim basis, the liability of a respondent to pay a claimant a progress payment.
The Act applies to “construction contracts”, a concept drafted broadly enough to capture all construction and related activities – from onsite construction work to material supply and related services such as design, engineering and project management.
Despite the wide reach of the Act, there are specific exceptions. These include contracts involving domestic building work where the client intends to reside in the premises (but the Act does apply to subcontracts made pursuant to that contract), as well as certain contracts involving APRA regulated financial institutions. Other exemptions include drilling for or extracting minerals, oil or gas, employment contracts and insurance contracts.
The right to a progress payment
Part 2 of the Act creates the right to progress payments. This is achieved by setting a point in time by which a person who has performed construction work becomes entitled to a progress payment. This is called the “reference date”.
The reference date is the date set by the construction contract for making a progress payment. If the contract makes no provision, the default provision is the last day of each calendar month. As a result, there is a degree of flexibility between parties to agree on periodic progress payments, staged payments or some other method, with a monthly progress payment being the default.
The Act then sets a due date for payment of the progress payment. Once again, this is determined by the construction contract or, if it makes no provision, 15 business days. The consequences of failing to pay by the due date for payment can be significant. Interest accrues on the unpaid amount and the claimant can exercise a lien over unfixed plant and materials supplied by the claimant.
Interestingly, where a contract specifies a due date for payment (as most standard form contracts do), the due date for payment is fixed and the provisions relating to interest and liens apply automatically. However, where a contract makes no provision, the due date is only triggered by serving a payment claim (see below).
The Act provides a procedure for determining the amount that is payable under a construction contract. The first consideration is the amount set by the construction contract, such as a staged payment. Larger construction contracts tend not to set specific amounts, and where no amount is set, the amount of the progress payment is determined in accordance with the terms of the contract or, if there is no express provision, having regard to various considerations including the contract price, rates or prices set in the contract, agreed variations and the value of any variations.
Serving a Payment Claim
Part 3 of the Act sets out the procedure for recovering progress payments. Under the Act, a person entitled to a progress payment (the claimant) is entitled to serve a payment claim against the person liable to pay it (a respondent).
To be valid, a payment claim must:
A payment claim must include sufficient detail in it to enable a respondent to understand the basis and to respond appropriately. In most cases, this requires more than a mere invoice including a statement that it is made under the Act. The level of detail required in a claim should be considered on a case by case basis.
Responding to a Payment Claim
Once the payment claim has been served, a respondent has a limited period of time to decide whether to pay the amount claimed or to dispute some or all of the claim. If the respondent wishes to dispute any of the amount claimed, they must provide a payment schedule to the claimant within 15 business days (or a shorter amount if the contract provides).
In order to be valid, a payment schedule must:
Failing to provide a payment schedule within the requisite timeframe carries significant consequences. If the respondent does not provide a payment schedule within the requisite timeframe and payment is not made by the due date for payment, the amount claimed becomes a debt which may be either enforced as a judgement debt or sent through to adjudication, bypassing traditional legal mechanisms. The claimant may also serve notice to suspend work without penalty.
Properly preparing a payment schedule is of critical importance. In subsequent court action or adjudication to recover money claimed in that payment claim, a respondent is not able to bring a cross-claim or raise a defence that was not already raised in a payment schedule. Given these strict limits, it is wise for a respondent to thoroughly assess a payment claim and be prepared to provide supporting documentation if required in an adjudication.
If a claimant is dissatisfied with the respondent’s payment schedule, or if none is provided, they may apply to an Authorised Nominating Authority (ANA) for adjudication. An application may also be made if the respondent fails to pay the amount they proposed to pay in their payment schedule.
The adjudication process is rapid. The ANA must appoint an adjudicator as soon as practicable. Following this, the respondent is provided a limited opportunity to put forward submissions. This is usually five business days from the date of service of the application, unless there is a delay in nominating an adjudicator. The respondent is limited to making submissions on matters raised in their payment schedule.
Once the respondent has lodged their adjudication response (or the time has elapsed), the adjudicator is given a period of ten business days to make a final determination, in writing. During this time, they may call for further submissions, inspect the workers or call a conference. Although these powers exist, claimants and respondents should prepare for decisions to be made only on the basis of the materials they provide in their application or response.
The adjudicator is entitled to determine the amount (if any) that is payable, when it is payable, whether any interest is owing and who pays the cost of the adjudication. If any monies are awarded to the claimant, there is a limited timeframe for payments to be made (typically 5 days, unless the adjudicator decides otherwise).
If payments are not made, the claimant may enforce the adjudicated amounts as a judgement debt, with interest accruing, and may also serve notice to suspend work without penalty.
Authorised Nominating Authorities
Central to the operation of the security of payment system are the authorised nominating authorities. These bodies are responsible for appointing adjudicators and ensuring the quality of the adjudicators that they train and nominate.
ANAs are required to comply with the Code of Conduct for Authorised Nominating Authorities.
The importance of having high quality and respected adjudicators being appointed to security of payment disputes should not be understated. Judicial review of decisions, often brought about by poor quality adjudicators, or poor quality decisions, can be an expensive exercise for all parties involved. For a claimant with limited means, it is vital that the adjudicator gets the decision right. For both parties, trusting the adjudicator’s skills and competence will limit the risks of a challenge being made.
Given the importance of ensuring quality adjudicators, Master Builders SA successfully applied to become an ANA. As the peak industry association, Master Builders SA has a long history of assisting dispute resolution between building industry participants and has access to highly trained and experienced industry practitioners, with industry know-how to assist in resolving disputes and trust in the industry.
The Code of Conduct places various limits on bodies acting as ANAs. Master Builders SA is limited to dealing with disputes involving:
In the first scenario, both parties must agree to Master Builders acting as that ANA. In the second scenario, the non-member would need to acknowledge the potential conflict of interest before proceeding. In all of these cases, Master Builders is committed to the task of helping all stakeholders in the construction process resolve disputes as fairly and as efficiently as possible.
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