TAS: 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 FOR PAYMENT 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 is being provided in Tasmania; and / or
- in which related goods or services to construction work is provided whether in or beyond Tasmania's borders.
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 Act distinguishes between the time frames within which respondents to residential payment claims must respond and all other claims.
Can the Act be used to secure payment from Homeowners?
Yes. Unlike other States, the Tasmanian Act covers residential building work. It is important to determine whether the payment claim is for residential or other work. For residential work, the Act allows the respondent 20 business days after the payment claim is served on the respondent to provide a payment schedule. For other work this is 10 business days. As these statutory time frames can't be increased by either the parties or the adjudicator (although a contract can decrease them), a payment schedule served after 10 business days in relation to work that is not residential work will be invalid and the claimant MUST serve a second opportunity [s.21(4)] notice on the respondent in order for any adjudication application to be valid.
Important Note: The contract between the parties may specify a shorter period in which the respondent must provide the payment schedule. In this case the shorter period applies.
What is residential building work?
A respondent has 20 business days (or shorter period if stipulated by contract) after a payment claim is received to provide the payment schedule, if
- the claim relates to a residential structure to be built on land; and
- the respondent is the owner of the land; and
- the respondent is not a building practitioner.
A "Residential Structure" means a building or structure that is a Class 1 or a Class 10 building or structure within the meaning of the Building Code of Australia, as in force from time to time. A Class 1 building is a single dwelling, boarding house, hostel or the like. A Class 10 building is a non-habitable building or structure e.g. private garage, swimming pool etc. The Australian Building Codes Board publishes the Building Code of Australia and has provided Adjudicate Today with an extract of the Class 1 and Class 10 building classifications from the Code.
Full details about obtaining the Building Code of Australia is available from www.abcb.gov.au.
Definitions of "owner" in relation to land and "building practitioner" are set out in Section 19 of the Act.
An "owner", in relation to land, means any one or more of the following:
- the person in whom is vested a fee simple in the land;
- if the land is not registered under the Land Titles Act 1980 and is subject to a mortgage, the person for the time being holding the equity of redemption in that mortgage;
- if the land is held under a tenancy for life, the person who is the life tenant;
- if the land is held under a lease for a term of not less than 99 years or for a term of not less than another prescribed period, the person who is the lessee of the land;
- a person who has a prescribed interest in the land.
A "building practitioner" means any of the following persons:
- a building practitioner, or an owner builder, within the meaning of the Building Act 2000;
- a person who holds a practitioner's licence, or a contractor's licence, under the Occupational Licensing Act 2005, authorising the person to perform electrical work within the meaning of Part 1 of Schedule 2 to that Act;
- a person who holds a subsisting certificate of registration under the Plumbers and Gas-fitters Registration Act 1951 to perform a class of plumbing work referred to in that Act;
- a person who holds a certificate of competency under the Workplace Health and Safety Regulations 1998;
- a person who holds a subsisting certificate of registration under the Plumbers and Gas-fitters Registration Act 1951 to perform a class of gas-fitting referred to in that Act;
- a person who is registered as an architect under the Architects Act 1929;
- a prescribed person.
In all other non-residential payment claim disputes, it is 10 business days after the payment claim is served on the respondent. The contract between the parties may specify a shorter period in which the respondent must provide the payment schedule. In this case the shorter period applies.
The due date for payment is the date on which a progress claim becomes due and payable. A contract provision seeking to extend the period beyond 10 business days (20 business days in relation to a residential payment claim) is void.
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 10 business days after the payment claim is made (20 business days in relation to a residential claim).
The time for a respondent's payment schedule is 10 business days after the payment claim is served or 20 business days in relation to a residential claim or a shorter time if provided for under the contract. A contract provision seeking to extend the period for the provision of a payment schedule beyond these times 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.
Where available, payment schedules 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.
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 10 business days (20 business days in relation to a residential claim) 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 10 business days?
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 10 business days (or 20 business days in relation to a residential claim) 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 10 business days (or 20 business days in relation to a residential claim) of receipt of the payment claim. [Note: Service by the respondent of a payment schedule after 10 business days (or 20 business days in relation to a residential claim) 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 light 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 20 business days in relation to a residential claim) after receipt of the claimant's payment claim
When a respondent fails to serve a valid payment schedule within 10 business days after receipt of the claimant's payment claim (or 20 business days in relation to a residential claim), the Act requires the claimant send the respondent a notice under section 21(4). 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 21(4) 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 21(4) 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 10 business days (or 20 business days in relation to a residential claim) (e.g. day 11 for a commercial claim). As it is invalid, the claimant must serve the section 21(4) notice and the respondent must provide (again) the payment schedule (within 5 business days).
- The claimant prepares and serves the adjudication application after 10 business days (or 20 business days in relation to a residential claim) (e.g. day 11 for a commercial claim) 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 21(4). 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 and public holidays) 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 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.