The Building and Construction Industry Security of Payment Act 1999 * - or, as most people call it, the 'Security of Payment Act', is NSW-specific legislation that is intended to reduce the incidence of insolvency in the construction industry.
It does this by:
All States and Territories in Australia now have security of payment legislation. However there are differences from State-to-State. This page only relates to the NSW Security of Payment Act. You can read about security of payment in other jurisdictions here.
* In late 2018 the NSW Government approved amendments to the Building and Construction Industry Security of Payment Act 1999 (NSW). The changes commenced on 21 October 2019. To learn more about the changes, click here.
Section 7 explains who is covered. Broadly, most commercial construction contracts will be caught by the legislation. Residential building work is excluded where the principal resides in, or proposes to reside in, the premises where the work is performed.
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The main protections given to contractors under the NSW Security of Payment Act are:
The legislation also contains a mechanism, involving a 'payment withholding request', that allows a subcontractor to obtain payment direct from a head contractor's client where an adjudication application is made.
The process for recovering payment under the NSW Security of Payment Act starts with the contractor making a payment claim. Click here if you'd like to learn more about how to make a payment claim in NSW.
A payment claim must identify itself as being made under the Act, for example, by stating "This is a payment claim for the purposes of the Building and Construction Industry Security of Payment Act 1999". Where the claim is made by a head contractor, it must be accompanied by a 'supporting statement'. (You can find the template here.)
A payment claim cannot be made under the NSW Security of Payment Act unless there is an available date – being a date fixed by the contract or the legislation as a date for making payment claims. Unless the contract otherwise provides, only one claim can be made in any particular named month.
Once a payment claim has been made, the principal (or head contractor) only has 10 business days to respond, unless the contract prescribes a shorter period. This response must be in writing and is called a ‘payment schedule’. If you'd like to learn more about how to respond to a payment claim, click here.
If the principal or head contractor fails to provide a payment schedule within the required timeframe, it 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’. We explain this further below.
If you're facing a potential payment issue or payment dispute on a construction project, our workshops may be of interest. Read more here.
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’. You can find a list of nominating authorities in NSW here.
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. (You can find the relevant part of the legislation here.)
Any response to an adjudication application must be made within 5 business days of receiving the application, or 2 business days after receiving notice of the adjudicator having accepted their appointment, whichever is longer. This is often an exceptionally short timeframe.
A claimant has an express right to withdraw an adjudication application. The respondent may object to the withdrawal if an adjudicator has been appointed.
Click here if you'd like to learn more about how to respond to an adjudication application.
Critically, the respondent is not entitled to include in its adjudication response 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.
Adjudication determinations under the Security of Payment Act are usually issued within 10 business days of the date the adjudication response was required (although extensions are often sought by the adjudicator and approved by the parties).
If you need help assessing your position under the security of payment legislation, we can help. Read more here .