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Your guide to the Security of Payment Act — New South Wales

July 16, 2020
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Your guide to the Security of Payment Act — New South Wales
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Dispute resolution
3
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Understanding building and construction disputes under SOPA

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.

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.

Construction

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?

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.

These include:

  • 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

What's the process for claiming under SOPA?

Claiming under SOPA begins with the affected party making a claim under the Building and Construction Industry Security of Payment Act 1999. There needs to be an available date attached to this claim, to which the respondent has 10 business days to respond.

This written response is called a 'payment schedule'. If this is not provided within 10 business days, then the respondent is liable for the entire amount of the claim. This debt can be recovered in full in court by the plaintiff.

What is the adjudication process?

gavel on a desk with person signing a document in the background

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.

Similar to claiming directly through the Act, the adjudication process looks like this:

  1. The contractor serves a payment schedule to the respondent.
  2. The contractor writes a written application document to a nominating authority in NSW with 10 days of serving the original payment schedule.
  3. A response to the application must be made within 5 business days.
  4. 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.


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