NSW Claimant: Preparing & Serving the Payment Claim
A reference date needs to be identified before a payment claim is made under the Act. This date is normally easy to identify but some contracts make the easy difficult!
What is a reference date and does this date comply with the Act?
A reference date is either the date for making progress claims as stated in the contract, or if the construction contract does not say, it is the last day of each named month.
A claimant can only give the respondent a progress claim on and after each reference date. Also the sum claimed for work performed can only be for work performed up to the reference date. Claiming for work performed after a reference date may render the whole payment claim invalid.
How do I determine the reference date?
The reference date may be determined by a term in the construction contract or if there is no express term then the Act defines it as the last day of the month. So:
|If the construction contract DOES stipulate a time (e.g. the 10th day of the month) that a progress claim can be made||That date is the reference date|
|If the construction contract DOES NOT make any stipulation about when a progress claim can be made||Then the reference date is the last day of the month in which work was performed and the last day of each subsequent month.|
Sometimes a construction contract requires progress claims to be made at different stages of work. This sort of contractual provision is usually referred to as milestone payments. The claimant must check the construction contract to establish reference dates when ‘milestone payments’ are relevant.
Once the reference date has been identified, a progress claim can be prepared and served for work performed (or related goods and services provided) to that date.
- Only one progress claim can be made for each reference date. Multiple progress claims can't be made in relation to the same reference date. However a progress claim which was previously submitted and not paid in whole or part, can be incorporated as part of a new progress claim in respect of a later reference date.
- Unless additional work has been undertaken, progress claims (or parts of progress claims), which are the subject of an earlier adjudication determination can't be resubmitted in a subsequent progress claim even when made in respect of a later reference date. That is, exactly the same work can’t be submitted to a second adjudication if the claimant is not satisfied with the result of the first adjudication. Where there is an overlap of work (some previously adjudicated and some new), the second adjudicator must give the previously adjudicated work the same value as the first adjudicator.
- Where a progress claim is served which is not a payment claim, the reference date will remain available for future payment claims i.e. they are not “used up”.
- Unless the construction contract provides for a longer period, a progress claim must be made within 12 months after the construction work to which the claim relates was last carried out or the related goods and services to which the claim relates was last supplied. Construction contracts may provide for longer periods e.g. a contract which provides for a 12 months defects liability period and that the final claim for payment should be made within 28 days after the end of the defects liability period. Here, the contract has extended the period for making the final payment claim from 12 months to 12 months plus 28 days. A contract can't reduce the 12 month period allowed by the Act.
Once the reference date has been identified, a payment claim can be prepared and served for work performed to that date.
What is a payment claim?
A payment claim is a progress claim (invoice) which allows recovery of money owed using the Act.
- be served by or on behalf of a claimant; and
- identify the respondent and the construction work performed or related goods and services; and
- indicate the amount. A claim for $10,000 + GST should be described as $11,000 including GST; and
- relate to work performed on or prior to a reference date.
- In relation to disputes over contracts made before 21 April 2014 or contracts which relate to a property where the owner resides or intends to reside and the owner did not contract directly with the claimant, the payment claim must also state: "This is a payment claim made under the Building and Construction Industry Security of Payment Act 1999" or words to that effect.
- A head contractor who serves a payment claim on the principal must include a supporting statement or otherwise face a large fine and, in the case of an individual, imprisonment.
- payment claim to be valid. Further details, including a supporting statement template, are available here.
Who is a Claimant?
A claimant is a person who has carried out construction work, or supplied related goods and services, and is or claims to be entitled to a payment claim under a construction contract. e.g. any sub-contractor who renders a progress claim for payment is a claimant.
Identify the Respondent
Ensure the payment claim is addressed to the legal entity that the claimant contracted with (the respondent). It is no use seeking an adjudication determination against a respondent if the name and/or ACN/ABN is incorrect. Courts won't enforce determinations unless the name and ACN/ABN of the respondent match. Here are three examples (with names changed) of problems encountered.
- A contract is entered into with "Respondent (NSW) Pty Ltd" but payments are received from "Respondent Pty Ltd" An adjudication application failed when the claimant applied for a determination against "Respondent Pty Ltd" which was not the company and ACN/ABN as identified in contract.
- A claimant was engaged under contract by a consortium but all dealings and payments were with one individual company member of the consortium. As the contract was with the consortium, an application against the individual member of the group couldn't succeed.
- A claimant contracted with Fred Smith (legal entity) trading as ABC Building (trading name) but the payment claim was issued to ABC Building. An adjudication determination can't be enforced against a trading name. The payment claim should have been issued to Fred Smith.
Am I entitled to make a payment claim under the Act?
Those who can make a payment claim under the Act include:
- contractors against clients (e.g. principals, developers, owner-builders, government);
- subcontractors against contractors;
- suppliers of building components against purchasers;
- architects, engineers, and others (e.g. consultants) providing advice against clients;
- plant and equipment hirers against clients.
Construction work and services can be claimed under the Act even if the contract is not written and/or does not provide for progress payments. e.g. a single payment to be made when work is completed.
Unless the construction contract provides for a longer period, the claimant has 12 months to serve a payment claim on the respondent from the time construction work was last carried out or the related goods and services were last supplied.
What work is covered?
Construction work and the supply of related goods and services includes:
- building work;
- civil engineering;
- hire of plant or equipment;
- professional services such as architectural design, surveying and soil testing;
- supply of building materials.
What can I claim for?
A claimant can make a payment claim on the respondent for:
- construction work done;
- construction materials or plant provided;
- consulting services provided;
- interest on overdue progress payments;
- losses and additional expenses due to work being deleted from contract while work is suspended under the protection of the Act;
- cash security & retention monies.
Can the Act be used to secure payment from Homeowners?
No. The Act does not apply to homeowners if the homeowner is party to the contract and resides or intends to reside in the building. These contracts are controlled by the Home Building Act 1989. Further information is available on the Fair Trading website (click here).
- If a contract includes work other than on the respondent's immediate residence, then that work is subject to the Act. e.g. work involving a residential investment property.
- If the owner did not contract directly with the claimant, then that work is subject to the Act. Examples include contracts with landlords, strata title bodies corporate, developers, builders, contractors, sub-contractors, consultants and suppliers.
What else is excluded by the Act?
- A construction contract that deals with construction work or related goods and services carried on outside NSW. In this situation, an adjudication application should be made under the Security of Payment Act relevant to the State in which the work was performed.
- A construction contract that forms part of a loan agreement, a contract of guarantee or a contract of insurance under which a recognised financial institution undertakes to lend or repay an amount lent; guarantee payment of an amount owing or repayment of an amount lent; or provide an indemnity relating to construction work carried out or related goods and services supplied.
- Contracts where the amount payable is calculated other than by reference to the value of the work performed.
An adjudicator can't determine an amount greater than claimed. If the claim is for $10,000 worth of work and all work performed is subject to GST, claim $11,000 inclusive of GST.
What information should be included with a payment claim?
A payment claim should include all information necessary for a respondent to both identify the work and how the sum claimed is calculated. During adjudication, some respondents have successfully argued that they could not approve payment because the work claimed was so vague as to make it impossible to be confidently valued.
Where available, payment claims should include attachments such as:
- statements detailing the extent of the work completed;
- completion certificates;
- delivery dockets;
- other contract documentation as may be required by contract.
Note: Our template retains the statement "This is a payment claim made under the Building and Construction Industry Security of Payment Act 1999 NSW". Including it does no harm while excluding it means that payment claims made, in relation to disputes over contracts made before 21 April 2014 or contracts which relate to a property where the owner resides or intends to reside and the owner did not contract directly with the claimant, are invalid.
How is a Payment Claim served?
Service should occur during normal business hours, at the respondent'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 notices of that kind - generally the respondent). 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.
- Claimants are strongly advised to keep a record of the time, date and manner of service on the respondent. The time for the respondent to provide the payment schedule (response) runs from the date of receipt of the payment claim. A respondent may deny receipt of the payment claim in which case the claimant 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 respondents 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.
When should I receive payment?
A claimant is entitled to be paid a valid progress payment claim by the due date for payment.
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 of 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 30 business days after a payment claim has been made.
However if the contract was made before 21 April 2014 or 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 15/30 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.
How long do I have to wait for a payment schedule in response?
The next step in our flowchart provides crucial information for both claimants and respondents. Depending on whether a respondent does or does not provide a payment schedule to the claimant within 10 business days' results in different time frames and procedures.
The respondent who fails to provide a payment schedule within 10 business days must be given a second opportunity to provide one. If it fails a second time, the Act effectively punishes the respondent by denying it the right to participate in the adjudication process.
Please move to the next step on the flowchart being "Respondent has 10 business days after receipt of the Payment Claim (or shorter period if provided by construction contract) to prepare and serve a Payment Schedule".
What other rights exist?
A claimant may take a lien or charge over unfixed plant or materials supplied by the claimant for or in connection with the carrying out of the construction work.
A lien is the right to seize and sell goods in order to obtain payment. If the goods are sold for more than the amount owed under the Act then the balance must be paid to the respondent. The lien granted by the Act does not give the claimant preference over a lien or charge existing before the date upon which the progress payment became due. It does not give the claimant any rights where a third party owns the items.
Before exercising a lien, legal advice should be obtained to ensure that there is no trespass upon the rights of others, which may cause the claimant to incur legal liability.