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How does the Security of Payments Act affect residential building contracts?

Ben Johnson, Jared Scanlon ||

Why the Act was introduced

The Building and Construction Industry Security of Payment Act (Act) came into effect in October 1999. It was introduced to speed up payments to contractors, subcontractors, consultants and suppliers, reducing cash-flow issues where payments were delayed or withheld.

The Act introduced an entitlement to progress payments on and from each reference date as contemplated by the construction contract. In circumstances where no reference date was nominated, it applied to the date occurring four weeks from the date construction was first caried out.

The Act also introduced a strict time bar in relation to issuing a payment schedule in response to a valid payment claim. The failure to observe the time bar would result in a statutory debt owing to the claimant. This provision of the Act is still operational today and is fundamental to the proper performance of the legislation.

Amendments to the Legislation

The Act, as it was introduced in 1999, applied to contracts between head contractors and subcontractors. The application of the Act was expressly excluded from applying to construction contracts that were entered for the purpose of carrying out residential building work within the meaning of the Home Building Act. Accordingly, the Act didn’t apply to construction contracts between builders and homeowners.

Since 21 March 2021, changes to the legislation mean that a residential building contract, or contract between a builder and a homeowner, is now subject to the building and construction industry payment regime.

This change was implemented because head contractors carrying out residential construction work couldn’t rely on the Act but their subcontractors could.

Builders could be left in a difficult financial position if a homeowner hadn’t paid them, but the builder had to pay subcontractors. This could occur even if the performance of the subcontractor was the reason why the builder was refused payment.

The Act now operates to assist builders in circumstances where the homeowner has failed to provide a payment schedule in response to a valid payment claim or make payment of the statutory debt that is formed as a consequence of that failure.

Adjudication

Importantly, the Act also established the forum known as Adjudication. The purpose of Adjudication is to assist in resolving disagreements about progress payments and money owed. It is a quick, and by comparison, cost effective alternative to court proceedings. Time provisions for making an application to have an Adjudicator decide a dispute are tight and must be carefully adhered to.

If the Adjudicator has made a determination in favour of the builder, the owner must satisfy the determination within five business days. If the owner fails to do so, then the builder may take the following actions:

  • suspend performance of the work, on two business days’ notice; and/or
  • enter judgment with the court for the amount of the adjudication certificate issued by the Adjudicator and enforce that as a judgment of the court.

Summary

For advice concerning your rights and obligations under the Act or to discuss any other aspect of your construction contract, please contact Coleman Greig’s Building & Construction team. Our experienced construction lawyers regularly assist builders, contractors, developers and homeowners in the resolution of construction disputes.

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