The NSW Security of Payment Act is legislation that helps construction contractors recover payment for work, or goods and services supplied to others. All states and territories in Australia have similar legislation, so it's important to understand how it differs for contractors and subcontractors in New South Wales.
Every state and territory in Australia has its own security of payment legislation, and the specifics of the legislation differ from region to region. This page only covers the New South Wales Security of Payment Act. For other states, please see our in-depth articles on:
AANDI Lawyers has years of qualified expertise in managing dispute resolution in the building and construction industry. If you are engaging in a dispute, and desire the best possible outcome, get in touch.
What is the Security of Payment Act?
The Building and Construction Industry Security of Payment Act 1999 is otherwise know as the Security of Payment Act, or SOPA. This act was introduced to prevent insolvency in the construction industry. In essence, SOPA outlines:
- Rights for contractors seeking payment for work
- Statutory avenues for recovering progress payments
The New South Wales Security of Payment Act applies to any contract or agreement that involves one party executing construction work, or supplying related goods and services involved in construction work, in the state of New South Wales.
In terms of definition, the use of the word construction in the Act is fairly broad. Generally, construction denotes the following:
- General construction as used in everyday vernacular
- Installation of heating, cooling, and lighting
- Clean up of demolition and construction sites
Goods and services
Goods and services related to SOPA are those involved with the planning and execution of construction work, including:
- Architectural work and surveying
- Advisory services, like engineering
- Interior and exterior design
If you have any questions about whether or not you and your business can be considered covered by the Security of Payment Act in NSW, get in touch with the team at AANDI Lawyers. We will help you navigate the act, and reach the outcome that you deserve.
What protections are granted under SOPA?
Most commercial construction contracts are covered by the legislation. There are some exceptions to this, such as if the principal resides at, or proposes to reside at, the location where the work is being undertaken.
Contractors or providers of goods and services in construction are granted several protections under SOPA to ensure that they are fairly remunerated for work completed.
- Statutory rights to make regular payment claims
- Maximum time limits for responses to these claims
- Minimum interest rates on late payments
- Maximum payment terms:
- 15 business days for head contractors
- 20 business days for subcontractors
- A statutory right to suspend work following non-payment
Additionally, 'payment without holding request' is a handy protection afforded to subcontractors. Here, a subcontractor can obtain payment directly from a head contractor's client while the matter progresses to adjudication.
What's the process for claiming?
Summary of claiming under the Security of Payment Act in NSW:
Claiming under SOPA begins with the affected party (the contractor) making a claim against a party (the principal) under the Building and Construction Industry Security of Payment Act 1999. Most importantly, this claim needs to specifically mention the Act. There needs to be an available date attached to this claim, to which the respondent has 10 business days to respond.
If the claim is made against a head contractor, then the claimant must provide a supporting statement. Get in touch with AANDI Lawyers to learn more about this process.
This written response is called a 'payment schedule' - a detailed schedule of when the contractor will be paid and how much. If this is not provided within 10 business days (or shorter, if demanded by the contract), then the respondent is liable for the entire amount of the claim. This debt can be recovered in full in court by the plaintiff.
If the contractor disagrees with the payment schedule laid down by the principal or head contractor, then the matter can progress to adjudication.
What is the adjudication process?
If there is a disagreement between the contractor and respondent about the payment schedule, then the contractor can apply for an adjudication application. This streamlined process allows a contractor to recover disputed payments using a third party adjudicator.
This adjudicator is not a judge, and is appointed by a third-party nominating authority.
Similar to claiming directly through the Act, the adjudication process looks like this:
- The contractor serves a payment schedule to the respondent.
- The contractor writes a written application document to a nominating authority in NSW with 10 days of serving the original payment schedule. Sometimes, this time period will differ depending on the circumstances.
- A response to the application must be made within 5 business days, and an adjudicator may be appointed. A claimant can still withdraw from proceedings up until this stage. Once an adjudicator is appointed, the respondent can object to a withdrawal.
- The adjudicator makes a determination.
The respondent must action this determination. If the respondent fails to do this, the contractor can begin debt recovery proceedings through the court. Failure to respond to a determination can have many negative outcomes for a respondent, including impacted credit, and inability to secure future work.
Parties to adjudication are responsible for paying their own costs. Claimants must pay for the adjudicators costs before the determination is made, and these costs are usually recoverable from the other side.
How does insolvency affect the outcome?
If a respondent is insolvent at the time of a payment schedule claim, it might not be worth pursuing. However, in accordance with SOPA, subcontractors can claim for 'pay withholding'. In this process, subcontractors send a request to the head contractor's client to withhold funds to the amount of what is being sought in adjudication. If the adjudication process is successful, the subcontractor will then receive the amount withheld.
Businesses and contractors cannot make a claim for a payment schedule if they are in liquidation.
Is a decision handed down through SOPA final?
Usually, it is. Adjudications can be appealed in very specific circumstances, usually where an adjudicator has made a mistake which can be interpreted as a jurisdictional error.
All payments made through SOPA are interim payments. A contractor cannot recover more than the original contracted amount. If they do, then the respondent has a right to recover the difference.