SA: Respondent Prepares Payment Schedule
A PAYMENT SCHEDULE NEED ONLY BE PREPARED IF THE RESPONDENT DOES NOT INTEND TO PAY THE FULL AMOUNT OF A PAYMENT CLAIM UNDER THE ACT BY THE DUE DATE. IGNORING A PAYMENT CLAIM WITHOUT AN 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 valid payment claim and is liable, or may be liable, to make a payment under a construction contract or for related goods or services.
A respondent is also party to a contract:
- in which construction work or related goods or services is being provided in SA; and
- which does not relate to a residence in which the respondent lives or proposes to live.
Important qualification: If a contract includes work other than on the respondent's residence, then that work is subject to the Act. The Act applies to contracts involving residential investment properties, landlords, strata title bodies corporate, developers, builders, contractors, sub-contractors, consultants and suppliers.
What is a payment schedule?
A payment schedule is the notice in writing which must be served on a claimant if the respondent does not intend to pay the full amount of a payment claim under the Act by the due date for payment. This is regardless of whether the respondent believes that the claimant is or is not entitled to make the claim.
The due date for payment is the date on which a progress claim becomes due and payable under the contract. If the contract is silent then it is 15 business days after the payment claim is made. However the contract may provide for a shorter period than 15 business days. A contract provision seeking to extend the period for the provision of a payment schedule beyond 15 business days is void.
A payment schedule must:
- Be in writing and addressed to the claimant;
- Identify the payment claim to which it relates;
- State 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 not paying any amount with respect to the payment claim;
- Detailed reasons in the attachment(s) as to why the respondent intends withholding any amount with respect to the payment claim including how the valuation of the withheld amount has been calculated.
- If that amount is less than the amount claimed, state all the reasons why. The Act precludes the adjudicator from considering issues not included in the payment schedule.
The payment schedule is not served until it is delivered in person to the claimant or lodged during normal business hours at the claimant's ordinary place of business or posted or faxed to the claimants ordinary place of business (or as otherwise provided by the contract), so that it reaches the claimant no later than 15 business days after receipt of the payment claim (or such shorter period provided by the contract) . The contract or common practice may provide for other methods of service, such as email.
A common reason provided by respondents for not agreeing to a payment claim is that they have not been paid by the principal. Effectively the respondent is asking the claimant for an extension of payment terms. This defence and others to an adjudication application are expressly barred by the Act. The policy behind the Act is that a respondent should not cause a claimant financial detriment because of their problems. The Act provides a remedy to the respondent being to serve a payment claim on the principal and apply for adjudication of the dispute.
What contract provisions are void by the Act?
Void contract provisions include:
- "Pay if paid" and "pay when paid" clauses, even if they are included in the contract;
- Any provisions that are inconsistent with the Act;
- Clauses that attempt to "contract out" of the Act;
- Clauses aimed to deter a person from taking action under the Act; and
- Any provision which would limit interest on late progress payments to an amount less than the rate of interest on judgments of the Supreme Court.
*** What happens if the payment schedule is not served within 15 business days?
The procedures and time frames which apply for adjudication under the SA Building and Construction Industry Security of Payment Act 2009 vary based on whether the claimant has served a valid payment claim and, in reply, received a valid payment schedule (response).
Until this point the Act's procedures remain the same. However they now diverge based on whether the respondent has or has not provided a valid payment schedule to the claimant.
The respondent who fails to provide a payment schedule must be given a second opportunity to provide one. If they fail a second time, the Act effectively punishes the respondent by denying them the right to participate in the adjudication process. This results in the two different procedures.
- Procedure 1 - Respondent serves a valid payment schedule within 15 business days after receipt of the claimant's payment claim
A valid payment schedule has been served when a claimant provides a payment claim to a respondent and the respondent provides the claimant with a payment schedule within 15 business days of receipt of the payment claim. (Note: Service by the respondent of a payment schedule after 15 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 of 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 15 business days after receipt of the claimant's payment claim
When a respondent fails to serve a valid payment schedule within 15 business days after receipt of the claimant's payment claim, the Act requires the claimant send the respondent a notice under section 17(2). 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 claimant's notice. 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 valid payment schedule or the claimant does not agree with the payment schedule.
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 15 business days (e.g. business day 16). 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).
- The claimant prepares and serves the adjudication application after 15 business days (e.g. business day 16) of receipt of a valid payment schedule. As the statutory time has passed, the payment claim has expired and the application can't proceed.
- 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 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; all days between Christmas and New Year; and any other day on which there is a Statewide shut-down of the operations of the building and construction industry) i.e. the day of service is day 0.
Based on your actual circumstances, our professional staff are available to advise on how to comply with each statutory step and the calculation of dates under the Act.
Please move to the next step on the SA flowchart by selecting either "Respondent serves a Payment Schedule within time" or "Respondent FAILS to serve a Payment Schedule within time" depending on the circumstances.