Vic: Claimant Prepares & Serves Payment Claim
Unless the construction contract provides for a longer period, a payment claim under the Act must be made within 3 months after the construction work to which the claim relates was last carried out or the related goods and services were last supplied.
Also, a reference date needs to be identified before a valid payment claim can be 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 20 business days after the last reference date.
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, by the 20 business day default required by the Act.
|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 stipulate a time when a progress claim can be made||The reference date is 20 business days after construction work was first carried out or goods and services provided and, for subsequent reference dates, 20 business days after the previous reference date.|
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 3 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. It is not uncommon for construction contracts to provide for longer periods. One example is 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. In this example, the contract has extended the period for the making of the final payment claim from 3 months to 12 months plus 28 days. A contract can't reduce the 3 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
- contain the words: “This is a payment claim made under the Building and Construction Industry Security of Payment Act 2002 Victoria” or words to that effect.
- 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.
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 (VIC) 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.
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.
- 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 carried on outside Victoria or related goods and services supplied for construction work carried on outside Victoria. 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 claim for damages for breach of contract. Also if the contract price exceeds $150,000 and the contract includes a dispute resolution clause there are restrictions on the amount claimable for disputed variations. These important and complex exclusions are fully detailed under the heading Excluded Amounts and Variation Claims.
- A construction contract between parties to the extent that it 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 in which the consideration payable for construction work carried out or related goods and services supplied under the contract, is calculated other than by reference to the value of the work or goods and services supplied.
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.
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
- Fax - Print and keep full page fax journal report as evidence of transmittal. Do not use fax for colour photographs and plans as they are generally rendered unreadable. Lengthy faxes have been known to lose pages in transmission.
- 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.
- 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.
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 under the Act is the date on which a payment claim becomes due and payable either in accordance with the terms of the contract or, if there is no such valid provision, 10 business days after the payment claim is made. If the contract provides that payment is due 28 days after invoice then, upon service of the payment claim, the due date for payment under the Act is 28 days later. Proper calculation of this date is imperative as a number of milestones under the Act are calculated from this date.
Endorsing all invoices as a payment claim ensures that claimants don't need to wait for additional, often lengthy, periods before seeking recovery of debts under the Act. The due date of payment under the Act (regardless of any contract provision) can't occur prior to service of the payment claim. If the claimant is not paid by the due date, they have a right to interest at the greater of the rate, if any, in the contract or the rate on Supreme Court judgments. The Supreme Court rate changes from time to time but is usually around 10% per annum.
How long do I have to wait for a payment schedule in response?
The next step of our flowchart provides crucial information for both claimants and respondents. Up until this time the Act's time frames and procedures were the same. However they now diverge based on whether the respondent does or does not provide 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 which affect the interests and actions of both claimants and respondents. These procedures are fully described in the next step on the flowchart.
Please move to the next step on the flowchart being "Respondent has 10 business days after receipt of the Payment Claim to serve a Payment Schedule (or such shorter period if provided by construction contract) to prepare and serve a Payment Schedule".
What other rights do I have?
The Act also provides that a claimant may take a lien or charge over unfixed plant or materials supplied by the claimant to the respondent 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. Generally speaking, when a principal pays a contractor for items, they become the property of the principal.
Before exercising a lien, legal advice should be obtained to ensure that there is no trespass upon the rights of others and thereby incur a liability to a third party.