A new year and debts still on the books? Here’s what contractors in NSW can do to get paid
In the construction industry, contractors often face the challenge of getting paid on time and, as we all know, cash flow is king. Under the Building and Construction Industry Security of Payment Act 1999 (NSW)(SOPA), there are several options available to contractors as “claimants” to enforce their rights to payment.
- Recovering the debt through Court action
If a respondent (the party up the contractual chain) fails to respond to a valid payment claim with a payment schedule, the respondent becomes liable to pay the claimed amount as a debt due and payable under section 14(4) of SOPA.[1]
Section 15(2) of SOPA also allows claimants to issue a notice of intention to suspend work under the contract and either elect to commence proceedings to recover the claimed amount or proceed to adjudication under SOPA.
If the claimant chooses to pursue the debt through legal proceedings, the respondent is prohibited from raising any cross-claim against the claimant[2] or defence related to matters arising under the construction contract.[3]
However, litigation can be time-consuming and costly, involving court fees, legal representation and other associated costs. While a successful claim may allow for the recovery of some of these costs, court proceedings are typically more complex, slower (often taking months or even years) and are generally more expensive than alternative enforcement options. Legal action is usually only commenced, at this point, if there is a strategic reason to do so.
- Proceeding to Adjudication
Adjudication typically offers a faster, more cost-effective alternative to court proceedings. If the respondent fails to provide a payment schedule within the required time,[4] claimants can apply for adjudication under section 17(1)(b) of SOPA.
The claimant must first serve a written notice of intention to apply for adjudication (Adjudication Notice or a section 17(2) notice) on the respondent within 20 business days after the payment due date.[5] If the respondent does not respond with a payment schedule within 5 business days,[6] the claimant can lodge an Adjudication Application within 10 business days to an authorised nominating authority.[7]
Section 21(3) requires the adjudicator to decide the application as quickly as possible, and in any case, within 10 business days from the lodgement of an adjudication response by the respondent or when the adjudication response was due (unless the parties agree to further time).
The adjudication process typically takes a couple of months and results in a binding interim decision if the claimant is successful.
The adjudicator’s determination is enforceable, and if the respondent fails to pay any adjudicated amount, the claimant can request an Adjudication Certificate,[8] which can be filed as a judgment debt in court.[9]
This process ensures a quicker resolution compared to litigation, helping to prevent payment delays and improve cash flow in an industry plagued by payment issues and the constant risk of insolvencies.
- Issuing a Payment Withholding Request
In cases where an adjudication application has been lodged, claimants can issue a payment withholding request to the principal (usually the developer) to withhold payment from the head contractor (the respondent in this case).[10] This enables the claimant to receive payment directly from the principal, provided the conditions of SOPA are met.[11] This option can be executed relatively quickly, often within the same timeframe as the adjudication process, and therefore does not typically delay the recovery process.
Recommended Strategy: Adjudication
While each enforcement option has its merits, adjudication is typically the most efficient and cost-effective choice for preserving the lifeblood of the construction industry – cash flow. It provides a swift, binding interim decision that can be enforced. If the respondent fails to comply with the adjudicator’s determination and pay the adjudicated amount, the claimant can then take enforcement action to recover the debt.
It is important to note that determinations under SOPA are interim and do not constitute a final determination of the parties’ rights. However, in practice, most parties tend to accept the determination, as there are limited grounds for setting them aside, and often, it is not commercially viable to proceed to Court (depending on the amount claimed and the parties’ appetite for litigation).
In summary, claimants in NSW have options under SOPA to secure payment. By choosing the right enforcement option based on the circumstances, claimants can take decisive steps to secure the payments owed when payment disputes cannot be resolved.
Bradbury Legal is a specialist building and construction law firm. If you or anyone you know requires advice or assistance, reach out to us on (02) 9030 7400, or email us at [email protected] to see how we can assist you.
[1] Assuming a valid payment claim was served in compliance with s 13(2) of the Building and Construction Industry Security of Payment Act 1999 (NSW)(SOPA), and within the time stipulated by s 13(4) of the SOPA, that is, according to the time stated in the contract, or 12 months after the relevant construction work was carried out or related goods or services were last supplied, whichever is later.
[2] See s 15(4)(b)(i) of SOPA.
[3] See s 15(4)(b)(ii) of SOPA.
[4] See s 13(4) of SOPA.
[5] See s 17(2)(a) of SOPA.
[6] See s 17(2)(b) of SOPA.
[7] See s 17(3)(e) of SOPA.
[8] See s 24(1)(a) of SOPA.
[9] See s 25(1) of SOPA.
[10] See s 26A(1) of SOPA.
[11] See s 26A of SOPA