Security of payment legislation in New South Wales, as elsewhere in Australia, exists to help someone who has carried out construction work, or supplied related goods and services, have the means to recover payment for what they have provided.
In New South Wales, the act is the Building and Construction Industry Security of Payment Act 1999 (NSW) (‘SOPA’). While SOPA shares many similarities with security of payment legislation both in Queensland (‘BIFA’) and throughout Australia, it also has some key differences. In this article, we’ll give an overview of how it works, and where it differs in material ways from the BIFA.
When does the SOPA apply? The SOPA applies to any contract or other arrangement under which one party undertakes to carry out construction work, or to supply related goods and services, for another party for construction work in New South Wales.
This generally includes contracts which are made in states other than New South Wales, and contracts which expressly state that they are governed by the law of another jurisdiction.
What is construction work in SOPA?
Construction work is a broad term and, as a testament to the imagination of lawyers, is almost identical in wording to the BIFA. The definition covers works within the common sense meaning of construction work, such as the construction, alteration, repair, or demolition of buildings or structures, including things such as walls, roads, power-lines, docks, railways, and pipelines.
The definition also covers works which might not be so readily described as construction in everyday language, such as the installation of heating, lighting and air-conditioning, as well as the cleaning of buildings or structures as long as they are cleaned in the course of their construction.
What are related goods and services?
Related goods under the SOPA include materials and components which form part of any work arising from construction work, as well as machinery or materials for use in connection with the construction work.
Related services includes the provision of labour to carry out the construction work, architectural, design, and surveying services relating to the construction work, as well as advisory services such as engineering and interior or exterior design.
How payment claims work in NSW
In general, making a claim under the SOPA will look something like this:
- A payment claim is served;
- The recipient of the claim replies;
- An adjudication application is made.
We’ll lay out these steps in a bit more detail.
What must I include in my SOPA NSW payment claim to be valid?
The first step is that the person who has performed the construction work, or supplied the goods or services (the claimant) gives a payment claim to the person who is liable to make the payment under the contract (the respondent).
What is a payment claim?
A payment claim is a way for the claimant to get the ball rolling. It is, essentially, a document making a claim for money. For a claim to be a payment claim for the purposes of the SOPA, it must simply identify the construction work or goods and services to which it relates, indicate the amount of money being claimed and state that it is a payment claim made under the Act.
Once a payment claim is served, if the claimant doesn’t receive a response within a certain time, they’ll be able to recover the full amount in court. This will be dealt with further below. The claim needs to identify the work or goods and services to which the payment relates and the amount claimed to be due.
When does a payment claim need to be served by?
Normally, a claimant has 12 months after the work was last carried out or the goods and services were last supplied; however, the contract may also provide a deadline. Importantly, whichever of these two is later is the one which applies, so make sure you’re aware of exactly what your contract says.
What are the differences to the Queensland legislation?
The key differences between the New South Wales and Queensland security of payment legislation is that, in New South Wales, the baseline period is 6 months longer (in Queensland, a claimant will only have 6 months from the last date the work or goods or services were provided), and that the same time periods apply to final payments (in Queensland, time frames relating to final payment claims can be affected by the length of the defects liability period). Under the New South Wales security of payment legislation, the payment claim must be endorsed pursuant to the act with a note expressly stating that it is a payment claim.
I received a SOPA payment claim. How must I respond?
A respondent has two options once they receive a payment claim:
- pay the claimed amount in full by the due date, or;
- provide a payment schedule
From here on, when the ‘due date’ is referred to, it means:
- for a payment from the principal to the contractor, 15 business days after a payment claim is made or earlier if provided for in the contract, or;
- for a payment to a sub-contractor, 20 business days after a payment claim is made or earlier if provided for in the contract, or;
- for a payment under a construction contract connected to a residential construction contract, the due date provided for in the contract, or if there is no date provided, 10 business days after the payment claim is made
What is a payment schedule and what does it need to include?
A payment schedule basically allows the respondent to protect itself from serious consequences, while giving them an opportunity to dispute the payment claim.
If they give a payment schedule, it needs to indicate the payment claim to which it relates and the amount of payment (if any) that the respondent proposes to make. If the proposed amount is less than that being claimed, the respondent will need to provide good reasons for withholding or reducing payment. One example of a reason for denying payment could be that the work was defective, causing the respondent to rectify it at their own cost. If they don’t, the claimant will likely be able to recover the full amount later on, as, in an adjudication, a respondent cannot present any reasons for withholding payment which they did not include in the payment schedule.
When does a payment schedule need to be provided by?
If the respondent does not plan on paying the full amount, they will need to provide a payment schedule within 10 business days of receiving the payment claim, or earlier if the contract provides a sooner date. If a respondent doesn’t provide a payment schedule by then, they will be liable to pay the full amount on the due date.
If the respondent then fails to pay on the due date, the claimant will be able to recover the full amount as a debt in court, or go to an adjudication. In either case, the respondent has little help available to it.
If the claimant enforces it as a debt, the court will judge in favour of the claimant as long as they can prove the respondent didn’t provide a payment schedule and then failed to pay the claimed amount; and, importantly, the respondent cannot bring any counter claim or raise any defence. In an adjudication, because a respondent cannot include any reasons not provided in their payment schedule, they are similarly restricted.
So, if a respondent fails to make a payment schedule, unless the claimant never gets around to enforcing their claim, they are essentially guaranteed to have to pay the full claimed amount.
The claimant will also be able to suspend works or supply of goods and services once they give notice that they intend to do so.
What happens if a payment schedule is provided on time?
If the respondent provides a payment schedule and then does not pay the proposed amount by the due date, the claimant will similarly be able to recover that agreed amount as a debt in court or go to an adjudication, and suspend works or supply of goods and services. The same principles above apply to the claimant enforcing their claim, except that, if they go to an adjudication, the respondent will be able to rely on the reasons provided for in the payment schedule.
So what should I do?
If you receive a payment claim, unless you are going to pay the full amount, you should always give a payment schedule with good reasons for withholding or reducing payment.
If you do this, the claimant’s only real option is to go to an adjudication. Even if you fail to pay the amount in the schedule, unless it is brought to an adjudication, the claimant will only be able to recover, as a debt, the amount you proposed in the schedule, not the full amount.
SOPA Timing Different from the Queensland legislation?
Again, the key difference to the BIFA is the time frame. In Queensland, the legislated timeframe for a payment schedule is 15 business days from receiving the payment claim, not 10 as it is in New South Wales.
The Respondent has either failed to respond to my SOPA payment claim or has scheduled far less than claimed. What are my options now?
An adjudication is an assessment of a payment claim by an independent adjudicator.
To have a claim adjudicated the claimant needs to submit an application. An application can only be made if:
- the respondent failed to pay an amount owed to the claimant by the due date (whether the full amount or the amount proposed in the payment schedule); or
- the amount proposed in the payment schedule is less than the amount stated in the payment claim.
Applying for an adjudication
The application must be in writing, must be made to an authorised adjudicator nominating authority, and must identify the payment claim and payment schedule (if any) to which it relates. Any Authorised Nominating Authority (ANA), which is the organisation which appoints an adjudicator and issues the adjudication certificate, can provide an adjudication application form.
It must also be accompanied by an application fee (if any) as determined by the authority, as well as submissions relevant to the application. The claimant must serve a copy of the application on the respondent. It is unclear when precisely this must be done, but the SOPA clearly envisages service at practically the same time as the application being made. Courts in Queensland have indicated that it must be done as soon as possible; however, this was in reliance of a provision in the Acts Interpretation Act 1954 (Qld), which does not exist in the corresponding New South Wales Act.
The date by which the application needs to be submitted by will depend on the circumstances of the case.
If the respondent did not give a payment schedule, before an application can be submitted the claimant must give notice within 20 business days of the due date for payment that they intend to apply for adjudication. The respondent then has 5 business days from receiving the notice to provide a payment schedule. After this period, the claimant can make an application, but they must do so within 10 business days of the 5-day period ending.
If a payment schedule was provided, but the proposed amount was less than the claimed amount, the application must be made within 10 business days after the claimant received the payment schedule.
If the respondent did provide a payment schedule, but failed to pay the proposed amount by the due date, the application must be made within 20 business days after the due date of payment.
Responding to an adjudication application
The respondent can only respond to an adjudication application if they provided a payment schedule on time.
If the respondent has done this and wishes to respond to the application, they must do so within 5 business days of receiving a copy of the application, or 2 business days of receiving notice of an adjudicator’s acceptance of the application, whichever is later.
The response must be in writing and identify the application to which it relates. It may also contain submissions relevant to the response; however, it cannot include any reasons for withholding payment which were not given in the payment schedule.
For this reason, it’s important that, if you are giving a payment schedule, you consider the reasons that you give for withholding payment carefully, as you won’t be able to do this later.
Getting the decision from your adjudication
Once you have submitted your adjudication application or response, that isn’t necessarily all you have to do. While coming to their decision, the adjudicator can request further written submissions and set deadlines for those submissions, call a conference of the parties, and inspect any matter to which the claim relates.
Although the main thing the adjudicator will decide is the validity of the claim, they will also decide the fees the parties have to pay for the adjudication and in what proportions.
The adjudicator must determine the adjudication as soon as possible, but at the latest within 10 business days after they accepted the application, or later if the parties agree to a later date.
The result of the adjudication will essentially depend on whether the validity of the documents (for example, if they were served on time), the provisions of the contract, and the reasons for withholding payment given by the respondent. This is because the adjudicator cannot consider anything beyond these matters, such as claims arising outside of the relevant contract or claims which rely on legislation outside of the SOPA.
So, if the claimant has followed all the correct procedures and are claiming what they are entitled to under the contract, they will generally succeed unless the respondent can show they had good reasons for withholding payment.
What happens after the adjudication decision?
Following the decision, the respondent must pay the adjudicated amount within 5 business days of the decision being served on them, or a later date as decided by the adjudicator. If they fail to do so, the claimant will be able to recover the adjudicated amount as a debt in court.
There is very little scope to dispute the decision of the adjudicator, and to do so a party must allege that the adjudicator should not have decided the case at all, known as a jurisdictional issue, such as because the payment claim was not in fact a payment claim for the purposes of the Act because it lacked particularity. Both parties have the ability to apply to have errors in the decision corrected, but these are restricted to minor errors such as clerical mistakes and miscalculations.
What happens if the adjudicator doesn’t reach a decision?
If the adjudicator does not accept the claimant’s application, or if the adjudicator does not determine the application within the time limit, the claimant can either:
- withdraw the application, by written notice served on the adjudicator; or
- make a new adjudication application in the same way as the original.
How does SOPA Adjudication Differ from Queensland legislation?
Again, the primary differences are the time frames. The periods of time in which an adjudication application or response can be made are substantially shorter in New South Wales. The Queensland legislation also gives a 5 day extension for the adjudicator to make their decision when they’re adjudicating a ‘complex claim’, whereas New South Wales adjudicators always have 10 days, regardless of complexity.
What else is in the SOPA?
The SOPA also provides for something akin to what is known as subcontractors’ charges in Queensland, where a subcontractor can receive payment directly from the principal if the contractor defaults. There are several important differences between the Queensland and New South Wales legislation which we’ll outline very quickly.
First, in New South Wales, the system is used only as an extra security measure for an adjudication; that is, if the claimant is a sub-contractor, and the respondent is the contractor, the subcontractor can only ask the principal to withhold money from the contractor if they have already made an adjudication application.
By contrast, in Queensland, you can only claim through either an adjudication or a sub-contractors’ charge, but not both. Second, in New South Wales, if the principal fails to set aside enough money to satisfy the claim, the sub-contractor can’t call on the contractor’s security, whereas in Queensland they can.
In this article, we’ve outlined the processes needed to make a payment claim through the SOPA, the differences it has to the Queensland security of payment legislation, as well as impending changes to the New South Wales legislation.
As already explored, the differences between the New South Wales and Queensland legislation are by and large restricted to the time frames in which you need to have served documents on the other parties.
If you are responding to or making a payment claim, you need to be aware of what is required of you and when, as failing to submit a payment claim or payment schedule on time or in the correct form could be fatal to your case. It is also crucial to ensure that you are dealing with the most recent version of the legislation for the same reason