NSW Respondent: Preparing the Payment Schedule
A payment schedule need only be prepared if the respondent does not intend to pay the full amount of a payment claim by the due date for payment.
IGNORING A PAYMENT CLAIM WITHOUT INTENTION TO PAY IN FULL BY THE DUE DATE MAY HAVE SERIOUS FINANCIAL CONSEQUENCES.
Who is a Respondent?
A respondent is a person who has received a payment claim under the Act.
What is a payment schedule?
A payment schedule is the notice in writing which must be served on the claimant if the respondent does not intend to pay the full amount of a payment claim by the due date for payment. This is regardless of the respondent believing that the claimant is or is not entitled to make the claim or if the respondent denies being party to the contract. Assuming a payment claim is not valid, and therefore can be ignored, is risky. Click here for details about a payment claim.
What is the due date for payment - How is it calculated?
The due date for payment is the date on which a payment claim becomes due and payable in accordance with the terms of the contract. However for most, but not all contracts, the Act sets a maximum time period for the due date for payment which overrides any contractual provision which is longer.
Unless the contract provides for a shorter period, a progress payment:
- by a principal to a head contractor becomes due and payable 15 business days after a payment claim has been made;
- by anyone else to a subcontractor or supplier becomes due and payable 20 business days after a payment claim has been made.
However if the contract applies to a residential property in which the owner resides, or intends to reside, and the contract was NOT made directly with the owner, a progress payment becomes due and payable an accordance with the terms of the contract (i.e. the 15/20 day maximum period does not apply) or, if the contract makes no provision, 10 business days after a payment claim has been made.
Calculating the due date for payment correctly is important because, if there is a payment dispute, certain rights and privileges are calculated from that date. Even experienced practitioners have made errors calculating the due date for payment.
The payment schedule is due within 10 business days after receipt of the payment claim, or a shorter period if provided by the contract. A contract provision seeking to extend the period for the provision of a payment schedule beyond 10 business days is void.
A payment schedule must:
- Be in writing and addressed to the claimant;
- Identify the payment claim to which it relates;
- Identify the scheduled amount of payment that it is proposed be paid (it may be "nil");
- If the amount that the respondent proposes to pay is less than the amount claimed in the payment claim, the respondent should set out:
- The amount (if any) that the respondent agrees to pay - the "scheduled amount";
- The amount that the respondent does not agree to pay under the payment claim;
- Detailed reasons in the attachment(s) as to why the respondent intends withholding any amount, including how the valuation of the withheld amount is calculated.
How is a Payment Schedule served?
Service should occur during normal business hours, at the claimant's ordinary place of business or as otherwise required by the contract. In the absence of a contrary contract provision, the safest way of ensuring service is to serve by courier with instruction to obtain a signed receipt. In our experience, below is the safest ranking to ensure service:
- Courier - signature required
- Mail - Express Post: keep express post tracking number for delivery verification
- Platinum Post - Signature required
- Ordinary Post - Make a statement verifying the address, date of postage and other relevant details
- Email (only to an email address which is specified by the person for the services of documents of that kind - generally the claimant). In email options, we advise tick both "request a delivery receipt" and "request a read receipt"
- In person - Ensure a receipt is obtained or
- A different method only where such method is provided under the relevant construction contract. Please note that service by fax is only valid if provided by the contract. If service by fax is permitted, print and keep full page fax journal report as evidence of transmittal.
- Respondents are strongly advised to keep a record of the time, date and manner of service on the claimant. A claimant may deny receiving a payment schedule in which case the respondent must be able to evidence the date of service.
- When items are sent by ordinary post, allow sufficient time for them to be received. Generally, items sent by ordinary post are deemed to be received on the fourth working day after posting. We recommend against post as claimants have denied receipt..
- Should fax be permitted by contract as a form of service, ensure you retain the full page fax receipt and refrain from sending colour photographs, and plans as they are generally rendered unreadable. Lengthy faxes have been known to lose pages in transmission.
What contract provisions are void by the Act?
A common reason for respondents not agreeing to a payment claim is that they have not been paid by the principal. Effectively the respondent is imposing on the claimant an extension of payment terms. This defence of "pay when paid" or "pay if paid" is expressly barred by the Act, even if such right is included in the contract. The policy behind the Act is that a respondent should not cause a claimant financial detriment because of their problems. In any case, respondents can seek a remedy under the Act by serving a payment claim on the principal and applying for adjudication.
Other void contract provisions include:
- Any provisions that are inconsistent with the Act;
- Clauses that attempt to "contract out" of the Act;
- Unjust penalty provisions;
- Clauses aimed to deter a person from taking action under the Act; and
- Any provision which limits interest on late progress payments at a rate less than the rate of interest on judgments of the Supreme Court.
What happens if the payment schedule is not served within time?
A payment schedule should be served on the claimant within 10 business days of the payment claim or shorter period if provided by the construction contract. A respondent who fails to comply must be given a second opportunity to provide a payment schedule. If the respondent ignores the second opportunity, the Act denies the respondent the right to participate in the adjudication process. The respondent is being punished for failure to comply with the Act.
The requirement on the claimant to provide a second opportunity to the respondent to provide a payment schedule results in different time frames and procedures.
- Procedure 1 - Respondent serves a payment schedule within 10 business days after receipt of the claimant's payment claim
The respondent provides the claimant with a payment schedule within 10 business days of receipt of the payment claim. (Note: Service by the respondent of a payment schedule after 10 business days renders the payment schedule invalid - go to procedure 2).
The claimant seeks adjudication because either there is a dispute over the respondent's reasons for withholding some or all of the claimed amount; or the claimant has accepted the payment schedule but the respondent fails to pay the scheduled amount by the due date for payment.
The blue shaded section of the flowchart describes how to proceed in these circumstances.
- Procedure 2 - Respondent does NOT serve a valid payment schedule within 10 business days (or shorter period if provided by the construction contract) after receipt of the claimant's payment claim
When a respondent fails to serve a payment schedule within 10 business days after receipt of the claimant's payment claim, the Act requires the claimant to send the respondent a notice under section 17(2). The notice must be served within 20 business days of the due date for payment. The effect of this notice is to provide the respondent with a second opportunity to serve the claimant with a payment schedule; however within the shorter period of 5 business days.
Once the claimant serves the section 17(2) notice, there are two mutually exclusive possibilities.
Either the respondent:
- serves; or
- does not serve
a valid payment schedule within 5 business days after receipt of the section 17(2) notice.
The respondent who serves a payment schedule within 5 business days suffers no disadvantage. The respondent who fails to serve a payment schedule within time is denied the right to participate in the adjudication process.
The pink shaded section of the flowchart describes both the procedures and time frames of serving the section 17(2) notice and how to proceed to adjudication if the respondent again fails to issue a payment schedule or, if the respondent does serve and the claimant does not agree with the payment schedule or, the respondent fails to pay a scheduled amount.
Parties must comply with the statutory procedures and time frames of the Act. Failure to comply may have serious consequences. Some examples of common errors which can't be corrected by either Adjudicate Today or the adjudicator:
- The respondent provides the payment schedule after 10 business days (e.g. business day 11). As it is invalid, the claimant must serve the section 17(2) notice and the respondent must provide (again) the payment schedule (within 5 business days of receipt of the section 17(2) notice).
- The claimant prepares and serves the adjudication application after 10 business days (e.g. business day 11) of receipt of a payment schedule. As the statutory time has passed, the payment claim has expired and the adjudicator must determine that the application is invalid.
- The claimant prepares and serves an adjudication application on Adjudicate Today and/or the respondent prior to the expiry of the 5 business days permitted to a respondent under section 17(2). The application is invalid as it has been served early. The claimant should have waited the elapse of the fifth business day. The application may be served again after the fifth business day from the respondent's receipt of the section 17(2) notice and before the twentieth business day expires.
The lesson from each of these examples is to count business days carefully, remembering that the first business day is the first day after service (excluding Saturday, Sunday, public holidays and all days between Christmas and New Year) i.e. the first business day of service is day 0.
Based on your actual circumstances, our professional staff are available to help with each statutory step.
Head contractor obligation to retain retention money in a trust account
The NSW Building and Construction Industry Security of Payment Amendment (Retention Money Trust Account) Regulation 2015 came into effect on 1 May 2015. It applies only to subcontracts entered into by a head contractor after 1 May 2015 and to construction projects with a value of at least $20 million. The regulation requires head contractors to hold retention money under subcontracts in a separate trust account. The effect of the Regulation is to create a new record keeping and reporting obligation for head contractors.
Please move to the next step on the NSW flowchart by selecting either "Respondent serves a Payment Schedule within time" or "Respondent FAILS to serve a Payment Schedule within time", whichever applicable"