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Security of Payment Act NSW: Holy Grail or Pandora’s Box?

Caroline Hutchinson ||

The good news for the building and construction industry is that the boom we have seen in NSW seems set to continue for a number of years yet, even despite the housing market softening somewhat in recent months.   In fact, the Australian Construction Industry Forum (ACIF) expects the value of construction work undertaken to be more than $54 billion in 2018/19 (up from $52.986 billion in the financial year 2015/16).
 
Given the incredible growth in the industry – fuelled by residential, commercial and government infrastructure building projects – there has also been a significant increase in the number of Building & Construction Security of Payment Claims.

Prior to the last year or so, my view of the Building and Construction Industry Security of Payment Act (SOPA) was that it was an effective tool for contractors to get paid.  It seemed to work quickly and effectively in terms of resolving payment issues and if a payment dispute had to be referred to an independent adjudicator for resolution, the outcome was often in favour of the Applicant. 

However, over the last few months I have seen that position become eroded as an increasing number of adjudications are now ending in favour of the Respondent (i.e. the party that owes money or has failed to make payments).

So why the shift?

The main reason for this shift in the balance of outcomes is that the independent adjudicators appointed to resolve payment disputes are now taking a very strict approach when applying the Security of Payment Act.

In some of the most recent claims to have been adjudicated have ended in favour of the respondent (or have been set aside) for reasons such as:

  • Jurisdiction – for example it was found in one case that the rules of SOPA did not apply because the works were undertaken pursuant to a franchise agreement as opposed to it being an actual construction contract;
     
  • There was no ascertainable value as required by the Act e.g. an applicant argued that the works they and/or their staff members undertook at a particular rate per hour was fair value (there was no contractual agreement on price) but could not provide any evidence to prove that amount. The adjudication application failed; and 
     
  • Numerous errors on contracts and invoices, payment claims covering work in NSW but also in other states.

What does this mean?
 
Given this tightening of the rules and the application of SOPA to payment disputes, it has become imperative for both Contractors and Principals to ensure that they are getting the fundamentals of their contracts and agreements correct from the outset of the project or work undertaken.  

It is vital that you:

1.  Record a company name and any ACN on a contract;

2.  Attach supporting statements to payment claims where required;

3.  Obtain the correct reference date to ensure the Act applies; and

4.  Do not issue a payment claim more than once (except where the Act allows e.g. if the payment claim for the next reference date also includes new work).
 
For further information, please refer to our two Coleman Greig Plain English Guides which provide useful information to assist you in the payment claim process:

Plain English Guide to Making a Claim under the Building Construction Industry Security of Payment Act 1999

Plain English Guide to Contesting a Claim under the Building Construction Industry Security of Payment Act 1999

If you require legal advice regarding a building and construction contract or dispute, please do not hesitate to contact one of our experienced Building and Construction Law team members.

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