<img height="1" width="1" style="display:none;" alt="" src="https://px.ads.linkedin.com/collect/?pid=1556145&amp;fmt=gif">

15 March 2018

How to respond to a payment claim under security of payment in NSW

If you receive a payment claim under the Building and Construction Industry Security of Payment Act 1999 (NSW), you have limited time to prepare a payment schedule. This article explains how to do it.

If you have received a valid payment claim under the security of payment legislation, the consequences of not responding to the claim properly (or at all), can be severe. 

We suggest the following steps:

1. Determine when your response is due.

2. Work out how and where your response needs to be sent.

3. Consider whether the claim is a valid payment claim under the security of payment legislation. 

4. Include the prescribed information in your response.

5. If you don't intend to pay the full amount claimed, set out all of your reasons for withholding payment.

6. Make sure your response is signed by the right person.

7. Serve your response properly, in time, and keep a record (evidence) of delivery.

8. Mark your diary and be ready to respond to an adjudication application, if you think the claimant might challenge your payment schedule.

Each of these steps is explained in more detail below.

As an initial step however, it is important for you to understand what you might be required to respond to. 

What is a payment claim under security of payment?

A payment claim is a document that:

  • is served on the person who, under the construction contract concerned, is or may be liable to make the payment; and
  • identifies construction work or related goods and services; and
  • indicates the amount of the progress payment that the claimant claims to be due.

This could potentially include a range of documents. If you’re not sure whether a document is a payment claim, you should treat it as if it is.

Although it used to be that a payment claim had to identify itself as being a payment claim under the Act, that is no longer the case. (The only exception is where the contract is connected with an ‘exempt residential construction contract’).

Since you will only have a limited amount of time to deal with the claim, you should have a system in place to ensure that any payment claim that arrives is promptly brought to the attention of someone who will be in a position to deal with it.

Once you have identified a document that you think might be a valid payment claim, we suggest that you follow the steps outlined below.

Trying to avoid a payment dispute, but not sure how? We can help. Read more here.

1. Determine when your response (payment schedule) is due

Before doing anything else, calculate when your response is due. Assuming the payment claim is valid, your payment schedule must be served within:

  • 10 business days after the payment claim has been served; or
  • the time prescribed by the contract, whichever is shorter.

Although this step may be obvious, it is critical to ensuring that you don't miss the deadline. 

2. Work out how and where your response will be sent

This step is related to the point above.  Once you know when your response is due, and how it must be delivered, you can work out how long you actually have to consider and prepare your response to the claim.

You should not assume that service by email, Dropbox, USB key, document management system (eg Aconex) or website portal will be effective. (See for example the recent Supreme Court decision of Parkview Constructions for an example of service by USB key not being effective.)

Always check the terms of your contract to see what methods of service are permitted.  Also check section 31 of the Act, which may give you additional options.

If you do not serve your payment schedule on or before the due date, the claimant will have the right to recover the entire amount of the payment claim as a debt, among other options. It is therefore critical to ensure that your payment schedule is served on time.

After you have worked out when and how your response will be sent, it’s time to start considering the substance of the claim.

4. Consider whether the claim is in fact a valid payment claim under the Act

Just because a claim purports to be a payment claim under the security of payment legislation, does not mean that it is necessarily a valid claim.

If the claim is not a valid payment claim, the claimant will not have any rights (and you will not be exposed to any liabilities) under the Act.

A claim will not be a valid payment claim under the Act unless it is:

  • made pursuant to a construction contract covered by the Act;
  • made in respect of a reference date, and made on or after that date;
  • served on the right person; and
  • if the claim is being made by a head contractor, includes a completed supporting statement in the prescribed form (included at Schedule 1 of the Regulations).

Determining whether a payment claim meets these criteria is not always a straightforward process. If in doubt, assume that it is a valid claim and that you are required to prepare a payment schedule.

Be aware that even if a claim is not a valid payment claim under the Act (for example, because it is an early payment claim), it may still be a valid progress claim under the construction contract.

Further, some contracts will deem a payment claim to have been approved in full if a payment schedule has not been received within the agreed timeframe. See for example, clause 37.2 of AS 4000-1997, which states:

“If the Superintendent does not issue the progress certificate within 14 days of receiving a progress claim in accordance with subclause 37.1, that progress claim shall be deemed to be the relevant progress certificate.

5. Include the prescribed information

A payment schedule must clearly identify:

  • the payment claim it is responding to; and
  • the ‘scheduled amount’, being the amount you propose to pay. (If you propose to pay nothing, the scheduled amount will be nil.)

If the scheduled amount is less than the claimed amount, you must set out your reasons for withholding payment.

6. Set out all of your reasons for withholding payment

If you do not intend to pay the full amount claimed, for each item in the claim, you should set out:

  • the amount that is agreed (if any);
  • the amount that is not agreed; and
  • your reasons as to why you do not agree to pay the amount claimed, or part of the amount claimed.

Your reasons for withholding payment must be sufficient to enable the claimant to understand why you are withholding payment.

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.” 

When preparing your reasons for withholding payment, think about:

  • the substantial issues, such as whether certain work is claimable as a variation (by reference to the original scope), or the rates and quantities applied; and
  • the technical legal issues, such as time bars in your contract, or provisions that operate as preconditions for claiming payment (such as the giving of contractual notices).

If more than one reason applies to the same item, include them both. If you don’t include a reason for withholding payment in your payment schedule, you are unlikely to be able to raise it later if the claimant applies for adjudication under the Act.

7. Have the payment schedule signed by the right person.

The person required to issue a payment schedule is the person upon whom the payment claim is served (ie the person liable to make the payment).

It’s possible for someone else to issue a payment schedule on behalf of that person, such as a superintendent or a solicitor, provided that person has been authorised to do so.

8. Serve the document properly and keep evidence of delivery

Following the principles discussed earlier, make sure the payment schedule is delivered in the right way and by the deadline.

If you are sending documents to a physical address, check the payment claim and the contract to ensure you are sending the payment schedule to the right place. If you are dealing with a corporation, consider conducting an ASIC search to ensure the address is current.

If you have multiple addresses to choose from and you’re not sure which one to pick, it may be worth sending the payment schedule to all of them. Serving the document multiple times would be better than running the risk of not serving it properly at all.

When you arrange delivery, make sure you obtain evidence of service, such as:

  • a delivery and read receipt if sent by email (assuming email is permitted);
  • a transmission report if sent by fax; or
  • post or courier receipts.

9. Mark your diary and be ready for an application

If you think the claimant is likely to apply for adjudication, mark your diary for the date that is 10 business days after the date you deliver the payment schedule. That is the last day the claimant will have to make an application.

If an adjudication application is made, you will only have 5 business days to prepare your response. Consequently, if it looks likely that you will receive an adjudication response, you should consider seeking legal advice at the earliest opportunity to ensure you have enough time to compile your best possible defence to the claim.

You can read about how to respond to an adjudication application here.

Better contracting checklist

Related Posts

About Turtons

Turtons is a commercial law firm in Sydney with specialist expertise in the construction and technology sectors.

We specialise in helping businesses:

  • improve their everyday contracting processes,
  • negotiate large commercial contracts and other deals that fall outside of "business as usual", and
  • undertake strategic initiatives, such as raising capital, buying businesses, implementing employee share schemes, designing and implementing exit strategies and selling businesses.
Greg Henry | Principal


Greg Henry | Principal


Turtons Linkedin logo

Greg has supported clients through $3.5b+ in transactions in the construction and technology sectors. He assists medium sized businesses grow and realise capital value through strategic legal initiatives and business-changing transactions.

greg.henry@turtons.com | (02) 9229 2904