Security of Payment Act 1999 (NSW): Payment Claims, Schedules and Adjudication

Scope of the NSW Security of Payment Act

The Building and Construction Industry Security of Payment Act 1999 (NSW) was the first Security of Payment Act in Australia. It applies to construction contracts entered into in New South Wales. The Act aims to improve payment practices in the construction industry and provides a framework for resolving payment disputes. [Portable long service leave for construction] is another important consideration for those working in the industry.

The Act’s scope is broad, covering building work, civil engineering, demolition, fit-out, and goods or services related to construction. It gives every person who carries out construction work or supplies related goods or services a statutory right to receive progress payments (section 8). This right is designed to ensure timely payments for work performed and materials supplied. [WHS primary duty (s.19)] highlights the importance of safety and responsibility in construction.

However, the Act does contain exclusions. Contracts for residential building work where the principal is an owner-occupier are excluded from the right to adjudicate (section 7(2)(b)). Furthermore, the Act overrides any contrary contractual provisions; for example, a ‘pay when paid’ clause has no effect (section 12). Recent amendments have also introduced maximum payment periods: 20 business days for head-contractor invoices on owner principal and 15 business days for subcontractor invoices on head contractor.

Making and responding to a payment claim

A payment claim under the Security of Payment Act 1999 (NSW) must be in writing. It must clearly identify the construction work, the amount claimed, and state that it is made under the Act. Payment claims can generally be served once a month, although contracts may allow for earlier claims. Claims must be served within 12 months after the construction work was last carried out. National Construction Code compliance is relevant to construction work.

Following service of a payment claim, the respondent has 10 business days to provide a payment schedule. This schedule must identify the payment claim, state the amount the respondent intends to pay (the scheduled amount), and provide reasons for withholding any portion of the claimed amount. Plant safety (WHS Chapter 5) considerations may impact construction work.

Failure by the respondent to serve a payment schedule within the 10 business day period has significant consequences. In this instance, the respondent becomes liable to pay the full amount claimed, and the claimant can pursue recovery of the debt or initiate adjudication proceedings.

Adjudication process and timelines

The adjudication process begins when a claimant applies to an Authorised Nominating Authority (ANA) approved by the NSW Building Commission. This application can be made within 10 business days of receiving a payment schedule, or 20 business days after the due date for payment if no schedule was served. Security of Payment (Vic) provides a useful comparison for interstate readers.

Following receipt of the adjudication application, the respondent has a limited timeframe to respond. They must lodge an adjudication response within 5 business days of receiving the application, or 2 business days after the adjudicator’s acceptance, whichever is later. Critically, the respondent is restricted to reasons for withholding payment that were already outlined in the payment schedule; new reasons cannot be introduced at this stage. Security of Payment (Qld) BIFA offers insights into similar legislation.

The adjudicator must issue a determination within 10 business days of notifying their acceptance, unless the parties agree to an extended timeframe. Once issued, the adjudication determination can be enforced by filing the adjudication certificate as a judgment debt in court.

Enforcement, debt recovery and trust account safeguards

Following an adjudication determination, payment must be made within 5 business days, or a date specified in the determination. Failure to comply allows the claimant to suspend work, provided at least 2 business days’ notice is given, and to pursue recovery of the determined amount as a judgment debt. This provides a pathway for claimants to enforce their rights under the Act. Industrial manslaughter laws by state may also be relevant in certain circumstances.

Head contractors with contracts exceeding $20 million are subject to retention money trust account requirements as outlined in the Building and Construction Industry Security of Payment Regulation 2020 (NSW). This aims to ensure subcontractors are paid. Furthermore, head contractors must provide a supporting statement with each payment claim, confirming subcontractor payments. Portable long service leave for construction is another consideration for those in the construction sector.

Providing false supporting statements carries significant penalties, with individuals facing a maximum penalty of 200 penalty units ($22,000). The NSW Building Commission is the regulator responsible for monitoring and investigating compliance with the Act.