This article explains how to make an effective payment claim under the Building and Construction Industry Security of Payment Act 2002 (VIC).
1. Make sure you have a construction contract that is covered by the Act
The Act only applies to contracts, whether written or not, for construction work carried out or for related goods or services supplied in Victoria. (You can read more about the Victorian security of payment legislation here.)
Certain types of building contracts are excluded, such as contracts for domestic building work within the meaning of the Domestic Building Contracts Act 1995 (VIC).
You will not have any rights under the Act without a relevant construction contract.
2. Check if there is an available reference date
The Act gives contractors the right to claim progress payments on and from each ‘reference date’. Without a reference date, a payment claim under the Act cannot be made. A reference date is effectively a date on which a payment claim is to be made.
Your contract will most likely identify when reference dates occur. Usually this will be once per month, and typically towards the end (or on the last day) of the month.
If the contract does not identify a reference date, the Act provides rules for calculating the reference date. The timing will depend on whether the progress payment is a one off payment, an ongoing payment or a final payment. For example, the reference date for an ongoing progress payment is 20 business days after construction work was first carried out or related goods and services first supplied, as per section 9 of the Act.
The courts have found that reference dates will cease to accrue if the contract is terminated (see the Southern Han case). Usually, and depending on the terms of the contract, a payment claim made after termination of a contract will therefore be invalid.
Only one payment claim can be made in respect of each reference date (see section 14(8) of the Act). This can be a critical consideration if you only have one reference date left (for example, where practical completion has occurred and the contract allows only one further claim to be made).
3. Plan to serve the claim at the right time
A claim sent before the reference date may not be effective (see the Regal Consulting case). The position in Victoria may be different following the New South Wales Court of Appeal’s decision in Regal Consulting. You can read more about that here. You may have to wait for the next reference date before you can make a claim.
A payment claim in respect of a progress payment must be served only within the period determined by the construction contraction, or the period of 3 months after the reference date that relates to that progress payment, whichever is later (see section 14(4) of the Act).
4. Address the claim to the right person
A payment claim must be served on the person, who, under the construction contract, is or may be liable to make the payment.
For example, you cannot serve your claim on a related entity of the entity (or person) with whom you entered the contract.
In a practical sense, you may have difficulty obtaining judgment or enforcing a determination unless the respondent’s details on your claim precisely match those in your contract.
The courts have found that service of a payment claim on a superintendent given authority to receive payment claims on behalf of a principal may constitute valid service under the Act (see the Metacorp case). Whether this is true for your contract will depend on the terms of your contract and how the contract has been administered.
The courts have also found that a payment claim directing payment to a third party debt factor is an invalid payment claim for the purposes of the Act.
5. State that it is a payment claim under the Act
The payment claim must include the following statement:
“This is a payment claim under the Building and Construction Industry Security of Payment Act 2002”
Without this statement, the payment claim will not be effective under the Act.
6. Clearly identify the construction work to which the claim relates
The payment claim should contain enough detail and information so that the respondent is aware of the issues in dispute.
In Multiplex v Luikens, the Court said:
“a payment schedule should not… be required to be as precise and as particularised as a pleading in the Supreme Court. Nevertheless, precision and particularity must be required to a degree reasonably sufficient to apprise the parties of the real issues in the dispute.”
Make sure your claim contains sufficient detail to enable the recipient to understand, with a reasonable degree of precision, what you are claiming and how the amount claimed has been calculated.
7. Identify the ‘claimed amount’
The payment claim must identify the ‘claimed amount’, being the amount of the progress payment you claim to be due. The claimed amount may include any ‘claimable variations’. You can read more about claimable variations here.
Critically, the ‘claimed amount’ cannot include any ‘excluded amounts’. An excluded amount is any amount:
(a) relating to a variation of the construction contract that is not a claimable variation;
(b) (other than a claimable variation) claimed under the construction contract for compensation due to the happening of an event including any amount relating to:
(i) latent conditions;
(ii) time-related costs; and
(iii) changes in regulatory requirements;
(c) claimed for damages for breach of the construction contract or for any other claim for damages arising under or in connection with the contract;
(d) in relation to a claim arising at law other than under the construction contract.
The prohibition on claiming excluded amounts effectively means that most types of contentious claims, such as disputed variation claims, latent condition claims and claims for delay costs, cannot be pursued the Act. The Act is most often used by contractors seeking to recover payment for work falling within the original scope of the contract, where the respondent has not paid amounts that are due, or where the only disputes relate to the value of the work that has been performed or the existence (or value) of any alleged defects in that work.
Excluded amounts must not be included in payment claims, and they must not be taken into account by an adjudicator in determining an adjudication application. An adjudication determination will be void to the extent that the adjudicator has taken into account an excluded amount. (See section 23(2A)(a)).
Although excluded amounts cannot be recovered under Security of Payment, they can be claimed separately under the contract. Most commercial construction contracts will contain a dispute resolution process will dictate how the claim can be pursued.
8. Serve the claim properly
The time for the recipient to respond to your claim will not start until the claim has been served properly.
The safest way to serve the document is by hand (which can be done personally, by courier or through a process server), but this will sometimes be impractical.
The problem is that service by other more convenient means may not always be effective. For example, in a Queensland case (Conveyor & General Engineering v Basetec Services), service of documents by Dropbox was found to be ineffective as this was not contemplated by the contract.
Email can be effective, subject to the terms of the contract. If your contract expressly prohibits email service of payment claims, this may not amount to valid service. If you are going to use email and it is not prohibited, make sure you obtain a delivery and (if possible) read receipt.
Sending a cover letter with the details of the claim on a USB key is not likely to be effective (see the Parkview case).
In all instances, check the contract and section 50, as they will explain how you should proceed.
If you are sending the documents to a physical address, check the contract, and, if necessary, conduct an ASIC search to make sure you have the correct address for your desired recipient.
9. Keep evidence of service
Finally, make sure you keep written evidence of service. If you are serving the claim by email, this means retaining the email and (ideally) obtaining delivery and read receipts.
If you are serving by courier, this means a delivery receipt signed by the recipient and any other records the courier may be able to provide.
10. Be ready for the next step
The Security of Payment legislation prescribes strict timeframes for each step of the process.
If you are making a payment claim with a view to applying for adjudication, you should start thinking about that process now. You can read more about adjudication applications under the Victorian Security of Payment legislation here.