The security of payment legislation consists of State-specific statutes that are intended to reduce the incidence of insolvency in the construction industry. They do this by:
The security of payment legislation varies between States and Territories.
We will be adding more State-specific information about the legislation for QLD, SA, TAS, WA, NT and ACT in the future. Sign up to our newsletter here to stay updated.
You can access the relevant legislation by clicking the relevant link below:
Because this is State-specific, this varies from State to State.
As a general rule, most commercial construction contracts are covered. In many States, residential building work is excluded, at least where the work is performed for a person who intends to occupy the premises.
Again, this is State-specific. In NSW, the protections include:
The legislation in most other jurisdictions contains similar protections.
Some States have begun to introduce project bank accounts, the purpose of which is to ensure subcontractors are not left unpaid in the event of a head contractor’s insolvency.
Typically, the process starts with the contractor making a ‘payment claim’.
A payment claim cannot be made without an available ‘reference date’ – being a date fixed by the contract or the legislation as a date for making payment claims. Only one claim can be made in respect of each reference date.
Once a payment claim has been made, the principal (or head contractor) only has a limited time to respond - usually 10 business days, however this can be shorter. This response must be in writing and is called a ‘payment schedule’ in most jurisdictions.
If the principal or head contractor fails to provide a payment schedule within the required timeframe, in some jurisdictions t will be liable for the entire amount of the claim. The contractor can then recover this amount as a debt in court.
If the principal issues a payment schedule but the contractor disagrees with the assessment, the contractor can make an ‘adjudication application’.
Adjudication is a streamlined process that allows a contractor to recover a disputed or unpaid progress payment. The dispute is determined by an independent adjudicator.
The adjudicator is not a judge (and is often not a lawyer), and is appointed by an independent ‘nominating authority’. Each State or Territory has its own list of nominating authorities.
The adjudication application is a written document that must be sent to the nominating authority within a fixed period – usually 10 business days from the date the payment schedule is served on the principal or head contractor. The exact timeframe will depend on the circumstances, as well as the jurisdiction.
A respondent must provide an adjudication response within the time required by the legislation (which can be as short as 5 business days).
In some jurisdictions, the respondent is not entitled to include in its payment schedule any reasons for withholding payment that were not included in its payment schedule.
Once the time for a response has lapsed, the adjudicator is required to determine the application. Typically, this is done by reference to the application and the response, with neither party having any right to appear before the adjudicator. It is not uncommon for the adjudicator to seek further submissions from the parties.
Once an adjudication determination has been made, the respondent must pay the ‘adjudicated amount'. If it does not:
If the judgment debt is not paid, the contractor can then commence debt recovery proceedings.
The entry and enforcement of an adjudication certificate can have negative implications for the respondent’s credit rating and, if it is a head contractor, its ability to secure future work. This is because some principals and government bodies will take this type of behaviour into account when awarding tenders.
If the principal is insolvent, an adjudication determination may not be worth much unless it can be enforced against another party. In NSW, there is a mechanism that will allow a subcontractor to recover an amount from the head contractor's principal. You can read more about that here.
The parties to an adjudication must each bear their own costs. That is, you will not be able to recover any costs you incur in preparing or responding to an adjudication application from the other side.
If you are the claimant, you will need to pay the adjudicator’s costs before he or she releases a determination. If you are successful, the adjudicator will normally allow you to recover most or all of those costs from the other side. Those costs form part of the adjudication certificate if they are not immediately paid by the respondent.
Yes, however the circumstances in which they can be appealed are extremely limited. (There is a review mechanism built into the legislation in Victoria, which is an exception.)
The mere fact that an adjudicator makes a mistake is not a sufficient reason for a determination to be set aside. In NSW and South Australia (and potentially other jurisdictions as well), this is the case even where the adjudicator has incorrectly interpreted and applied the terms of the contract.
To be able to set aside a determination, the respondent will generally prove some form of ‘jurisdictional error’. A jurisdictional error is an error that involves the adjudicator having acted outside the scope of his or her authority. For example, by:
You can read more about this here.
Any payment made under the security of payment legislation is an interim payment only.
If the contractor recovers more under the security of payment legislation than it would be entitled to receive under the contract, the principal (or head contractor) will have a contractual right to recover the difference.
This interim nature of the payment is reflected in the name of the legislation. Also, when the legislation was originally passed, respondents had the option to pay the adjudicated amount into court pending the final determination of the dispute. Unless there are exceptional circumstances (potentially including the insolvency of the claimant), that is no longer the case.