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, recover payment for what they have provided.
This process is governed by the Building and Construction Industry Security of Payment Act 1999 (NSW) (‘SOPA’). While SOPA shares many similarities with security of payment legislation in other states, it also has some key differences. In this article, we’ll provide an overview of the process, pointing out some of the key elements those familiar with other jurisdictions may get tripped up on.
When does SOPA apply?
At a very high level, you can assume that if it relates to work on a building site, it is caught by SOPA.
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.
These terms (“construction work” and “related goods and services”) are defined in SOPA and cover a wide field that includes things you might normally consider to be “construction works” (e.g. the construction of a part of a building) and things you may not otherwise think are caught (labour hire for construction work, cleaning services for a construction site). For this article we will use the collective phrase “performing works”.
How claims work under SOPA
So, we have established that SOPA applies, but what does that actually “get” you? As someone performing works, the principal benefit of SOPA is that it creates a legislative regime for claiming payment, and disputing under-payments. This means that even if your contract doesn’t include a useful (or favourable) dispute mechanism – you still have something to fall back on.
The claim process in SOPA looks a little like this:
- A payment claim is served;
- The recipient of the claim replies; and
- An adjudication application is made.
There are twists and turns throughout this process in addition to side paths (such as going to court, which we touch on below), but for the most part when people think SOPA, they think adjudication.
What must I include in my payment claim to be valid in NSW?
The first step for the person who has performed the works (the claimant) is to give a payment claim to the person who is liable to make the payment under the contract (the respondent).
In most circumstances this will be a claim from a sub-contractor to their head contractor, or the head contractor to the principal.
A payment claim is a way for the claimant to get the ball rolling. It is, essentially, a document that claims an amount of money. For a claim to be a “payment claim” for the purposes of SOPA, it must 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.
This last requirement is one of the most likely to trip claimants up (especially those from over the border). This is because not all jurisdictions have this requirement and not all invoice templates (which many claimants use to claim payment) will have SOPA identified on them.
How long do I have to serve my payment claim?
Normally, a claimant has 12 months after the work included in their claim was last performed to submit a valid payment claim. However, the contract may also provide a deadline. The longer of these deadlines will apply.
Importantly, not all of the work has to have been performed within 12 months. If, for example, you have not been paid for works performed 14months ago, but last month you installed an additional widget, provided your claim includes for the installation of that widget, the work from 14 months ago can also be validly included.
How does the respondent respond to a payment claim?
A respondent has two options once they receive a payment claim:
- pay the claimed amount in full by the due date for payment; or
- provide a payment schedule
A payment schedule is basically the respondent’s opportunity to dispute all or part of the payment claim.
Like payment claims, payment schedules have requirements and to be valid, 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 the amount being claimed, the respondent will also need to provide reasons for withholding or reducing payment.
A respondent should always ensure that if it is not paying the full amount of the payment claim that the reasons provided are detailed and sufficient. This is because if that claim is later adjudicated, the only reasons the respondent will be entitled to rely on are those it included in the payment schedule.
Providing reasons that are lacking in detail or incomplete leaves you very little room to argue later.
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.
As harsh as it may seem – a late payment schedule is as good as no payment schedule, as far as SOPA is concerned.
I put in my claim and didn’t receive a payment schedule – what happens now?
If you have submitted a valid payment claim and have not been paid the amount of that claim or received a payment schedule by the date it is due, the full amount of the payment claim becomes a debt owing from the respondent.
That debt can then be enforced in court where the respondent is not allowed to raise any factual reasons why you are not entitled to payment.
This is why, as a respondent, it is so important to put in a payment schedule and to ensure it is on time.
I did receive a payment schedule but am unhappy with it – what happens next?
If, as a claimant, you receive a payment schedule with an amount scheduled that you disagree with, your next step is to proceed to adjudication.
An adjudication is an assessment of a payment claim by an independent adjudicator. An adjudicator could be anyone who has completed a relevant training course but will normally be a construction or legal professional.
Applying for an adjudication
An adjudication application must be in writing, be made to an Authorised Nominating Authority (ANA), and must identify the payment claim and payment schedule (if any) to which it relates. Often ANA’s will have their own application forms for you to complete too.
Additionally, adjudications are normally accompanied by detailed legal submissions that support the claimant’s rights to the claims in the payment claim and sworn evidence (i.e. a statutory declaration) from individual(s) involved in the project. That material can span many volumes.
The date the adjudication application needs to be submitted by will depend on the circumstances of the case, but as a general rule will be 10 business days after the date of the relevant payment schedule.
This is a short turn around, especially considering the level of detail that is usually included in an adjudication application. Accordingly. the best adjudications are those where the claimant has prepared for the adjudication early (sometimes before the claim ever went in!).
Once an adjudication application is made to an ANA, a complete copy must also promptly be served on the respondent.
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.
Where adjudication applications can often span over many folders of material, this sharp deadline emphasises the importance for respondents of ensuring that as much work is done at the payment schedule stage as possible.
The adjudication process
Once the adjudicator is armed with the application and response, they will consider the material and make a determination. Sometimes, in coming to that decision, they will request further submissions from the parties. Adjudicators are also technically empowered to convene conferences, or to inspect the works but these powers are rarely utilised.
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.
After that time has elapsed, the adjudicator will render an invoice for their fees which are typically required to be paid prior to the decision being released. For this reason, functionally, the claimant will normally pay the adjudicator in the first instance. Those fees can, however, be apportioned by the adjudicator within the decision (e.g. the decision states that the respondent is to pay the adjudicator’s fees and therefore the claimant can request those monies be paid back to it).
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.
Importantly, an adjudication decision, even one enforced in court, is only ever interim – parties can still take the matter before a court for a final determination of their rights irrespective of their decision.
NSW SOPA – Step Carefully
While Security of Payment legislation is a powerful tool for recovery, a wrong step can have significant consequences for the chances of your claim succeeding. Waiting too long to get legal advice can sometimes mean that things have gone too far to salvage.
Therefore it’s important to get experienced security of payment lawyers on board at an early stage, to maximise your prospects of a successful claim or response.