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Security of Payment GuideTHIRD EDITION

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Security of Payment Guide | Page 5Page 4 | Security of Payment Guide

Written by Samuel Roberts

© Roberts Legal Pty Limited, 2012, 2015, 2019. All rights reserved.

WARNING: The information in this Guide relates to the laws in New South Wales under the Building & Construction Industry Security of Payment Act 1999 (NSW). Whilst the security of payment laws are similar in the various States, there are subtle differences. We recommend

that you call us if your enquiry relates to work carried out outside of New South Wales.

DISCLAIMER: This Guide contains general advice only in relation to the Building and Construction Industry Security of Payment Act 1999 (NSW). This Guide has been updated following the commencement of the

Building & Construction Industry Security of Payment Amendment Act 2013. While the information in this Guide was accurate on the date of publication of this Guide (August 2019), the law may have changed

since that time. Amendments to the security of payment laws enacted by the provisions of the Building and Construction Industry Security of Payment Amendment Act 2018 will commence on 21 October 2019.

Roberts Legal is not responsible for any actions taken or not taken on the basis of this information. You should obtain specific legal advice on any matters of interest arising from this Guide.

Why You Should Read This Guide and Keep it Close By ...........................................................6Introduction to Security of Payment Laws ..................................................................................7When Does the Security of Payment Act Apply? .......................................................................8Who’s Who Under the Security of Payment Act .........................................................................9Categories of Construction Contracts .....................................................................................10

How the Security of Payment Act Works .................................................................................. 11Statutory Rights to Payment .......................................................................................................12Statutory Rights to Suspend Work .............................................................................................13Adjudication of Payment Claims ................................................................................................14Payment Withholding Requests .................................................................................................15

Why is it Important to Serve Valid Payment Claims? ................................................................16Valid Payment Claims ..................................................................................................................17What is a Reference Date? ..........................................................................................................19Supporting Statements ...............................................................................................................21Serving Payment Claims .............................................................................................................22Payment Schedules .....................................................................................................................23Due Dates for Payment of Claimed Amounts ...........................................................................24Interest After Due Dates .............................................................................................................24

Time Limits for Adjudication Applications ................................................................................25Time Limits for Adjudication Responses ...................................................................................25Adjudication Applications ..........................................................................................................26Adjudication Responses ..............................................................................................................27Adjudication Procedures ............................................................................................................28Adjudication Determinations......................................................................................................29Enforcing Adjudication Determinations ....................................................................................30Challenging Adjudication Determinations ................................................................................31

Section 32: Rights Not Final .......................................................................................................32Upcoming Amendments .............................................................................................................32Key Definitions .............................................................................................................................35

Building and Construction ArticlesPreparing Your Business to be Able to Use the Security of Payments Act When it Counts ................................................................................39How Courts Consider Descriptions of Work in Payment Claims and Reasons for Withholding Payment in Payment Schedules ...............................................41How an Adjudicator is Required to Value Construction Work ................................................43High Court Confirms Limited Scope of Potential Challenges to Security of Payment Adjudications ....................................................................46Mid-Tier Construction Contract Essentials: How to Make it and Not go Broke ....................48Common Misconceptions About Contracting in the Building and Construction Industry and What to do to Avoid Getting Caught Out ...................................52

Contents


The Building and Construction Industry Security of Payment Act 1999 (NSW) (“the Security of Payment Act”) (and interstate equivalent) is unlike any other law in the country. These laws can be the source of significant rights as well as severe adverse consequences for most businesses in the building industry.

For businesses operating in the building and construction industry, these laws should not be taken lightly nor should the potential benefits be overlooked. Importantly, all rights under the Security of Payment Act flow from the service of a valid Payment Claim.

The purpose of this Guide is to assist contractors and suppliers to trade successfully and maintain cashflow when it counts by:

• understanding when and how to serve valid Payment Claims,

• understanding what do to when a Payment Claim is received by a subcontractor or supplier, and

• understanding how the regimes created by the Security of Payment Act can be used to recover progress payments and avoid expensive and drawn out litigation of disputes and when to seek legal assistance.

The making of clear Construction Contracts incorporating terms and conditions that assist with the valid service of Payment Claims and valuation of construction work is an important preparatory step for any business wishing to be ready to rely on the Security of Payment Act when the time comes (see page 39).

WARNING: Strict Time Limits Apply! If you think you need legal advice, don’t delay. Our Building and Construction Lawyers are here to help. Call now for a 15-minute Free Case Evaluation or to request a Fixed Fee SOPA Rights Assessment.

Introduction to Security of Payment Laws

The provisions of the Security of Payment Act have effect despite the terms of any Construction Contract and any term purporting to exclude its operation is void.

The Security of Payment Act creates important Statutory Rights that exist despite the terms of a Construction Contract and which a subcontractor would often be unable to negotiate for themselves.

These rights relate to:

• the right to recover payment of a Payment Claim through the Courts as an indisputable Statutory Debt where the other party fails to provide a Payment Schedule in response to a Payment Claim in time (see page 12),

• the prompt, cost effective and enforceable Determination of disputed Payment Claims by an independent Adjudicator (see page 14),

• the Maximum Time Limits for Due Dates for payment of progress payments relating to a Payment Claim (see page 24),

• the entitlement to Interest on overdue progress payments,

• the suspending of work without liability and despite the terms of a Construction Contract (see page 13), and

• the bypassing of Head Contractors and obtaining of payments directly from a Principal or other Contractor next up the contracting ladder (“Principal Contractor”) (see page 15).

Importantly, all rights flow from the service of a valid Payment Claim and strict compliance with the Security of Payment Act is necessary in terms of both the issue of valid Payment Claims and time limits for responding to them with a Payment Schedule.

Finally, it should be noted that rights to payment that arise under the Security of Payment Act are not final. They are enforceable and Judgment can be entered in the Courts, however, a party aggrieved with a Statutory Debt or Adjudication Determination arising under the Act may still bring an action against the other party through the Courts to recover a payment, or part thereof, that has been made as a consequence of the operation of the Security of Payment Act (see page 32).

Please note, as at the date of publication of this Guide reforms enacted by the Building and Construction Industry Security of Payment Amendment Bill 2018 have been passed in respect of which a commencement date has not yet been declared (see page 32).

Why You Should Read This Guide and Keep it Close By


The Security of Payment Act applies to all parties that enter into a contract or other arrangement, whether in writing or not, under which a party agrees to carry out “construction work” or supply “related goods or services” (“Construction Contract”) with limited exceptions.

These key concepts are defined broadly and give the Security of Payment Act significant scope and application (see page 35).

Generally, the Security of Payment Act applies to the following:

Manual Commercial Work All manual work in connection with the construction, alteration, repair, restoration, maintenance, demolition and installation of fittings in relation to commercial properties and property developments, including painting and decorating of internal and external surfaces.

Incidental & Preparatory Commercial WorkAll works incidental or preparatory to the above, such as excavation and earth moving, the erection and dismantling of scaffolding, the prefabrication of components, site restoration and the provision of roads or other access.

Residential Building WorkAll manual residential building work performed under a subcontract or pursuant to an agreement with a property investor or developer (not an owner-occupier).

Materials & ComponentsThe supply of all materials and components which form part of any building, structure or work arising from the above work.

Plant & MaterialsAll plant, equipment and materials used in connection with the above work, whether supplied by sale, hire or otherwise.

Planning & Advisory ServicesArchitectural, design, surveying and quantity surveying services and building, engineering, interior or exterior decoration or landscape advisory services in relation to construction work (including residential building work).

Labour ServicesThe provision of labour in relation to construction work (including residential building work).

When Does the Security of Payment Act Apply?

Exceptions

The Security of Payment Act does not apply to a Construction Contract:

• for the carrying out of residential building work (within the meaning of the Home Building Act 1989) on such part of a dwelling as the party for whom the work is carried out resides in or proposes to reside in,

• to the extent that it deals with construction work carried out, or related goods and services supplied in respect of construction work carried out, outside New South Wales,

• where the amount payable is to be calculated otherwise than by reference to the value of the work carried out or goods or services supplied, or

• for the drilling for, or extraction of, oil or natural gas, or the extraction of minerals.

Upcoming Amendments

Amendments to the Security of Payment Act (see page 32) commencing on 21 October 2019 will move the exemption in relation to residential building work carried out for an owner-occupier of the premises from the Security of Payment Act to the Regulations allowing the exemption to be refined or removed in future, if required.

Who’s Who Under the Security of Payment ActParties to Construction Contracts are broadly categorised as follows:

The Principal The developer or owner of the property on which the construction work is being performed.

The Head Contractor The party contracting with the Principal and who will subcontract at least part of the construction work to, or source supply of related goods or services for the project from, a Subcontractor.

A Subcontractor The party contracted, other than as Head Contactor, to carry out construction work or supply related goods or services under a Construction Contract. A Subcontractor may, therefore, perform construction work or be a Consultant or Supplier of related goods or services within the meaning of those phrases (see page 35).

See also the definitions of “Claimant”, Respondent” and “Principal Contractor” at page 35.

| Security of Payment Guide

Construction Contracts are categorised as:

The Main Contract The Construction Contract between the Principal and the Head Contractor.

A Construction Contract that is not the Main Contract Construction Contracts, better known as subcontracts, between the Head Contractor and Subcontractors or between different Subcontractors.

An Exempt Residential Construction Contract A contract for residential building work under the Home Building Act 1989 made with a person who resides or proposes to reside in the premises. The Security of Payment Act does not apply to these contracts.

A Construction Contract connected with an Exempt Residential Construction Contract A contract for residential building work to which the Home Building Act applies made with a Head Contractor, Subcontractor, developer or investor who does not reside or propose to reside in the premises.

Categories of Construction Contracts How the Security of Payment Act works

The categorisation of Construction Contracts and the parties to them are important as:

1. The maximum payment terms for progress payments under each category of Construction Contract differ (see page 25).

2. A Head Contractor must not serve a Payment Claim unless it is accompanied by a Supporting Statement in the prescribed form (see page 21).

3. A Head Contractor who has entered into a Construction Contract where the value is at least $20 million must hold retention money in trust for Subcontractors from whom the money has been retained and pay the money into a Retention Money Trust Account established with an ADI and, among other things, deal with that money in accordance with Section 12A of the Security of Payment Act and Part 2 of the Building and Construction Industry Security of Payment Regulation 2008.

The Security of Payment Act was introduced in 1999 to attempt to stamp out the practice of some developers and contractors of delaying progress payments to subcontractors and suppliers by ignoring progress claims, raising frivolous or unmeritorious reasons for non-payment or simply delaying payment.

The main purpose of the Security of Payment Act is to ensure that any person who carries out construction work, or provides related goods and services, is able to promptly recover progress payments and to suspend work where amounts due and payable remain unpaid. Progress payments include single or lump sum payments, final payments and milestone payments.

Importantly, all rights under the Security of Payment Act flow from the effective service of a valid Payment Claim (see page 16).

The Security of Payment Act provides a statutory regime for ensuring that Head Contractors and Subcontractors (including suppliers and consultants) can promptly recover payment, thereby creating security of payment.

The Security of Payment Act does this in four (4) significant ways, namely:

1. by creating virtual indisputable Statutory Rights to Payment,

2. by creating Statutory Rights to Suspend Work,

3. enabling parties to have disputed Payment Claims swiftly and independently Adjudicated upon, and

4. enabling Subcontractors to by-pass the other party to the contract and seek payment directly from a Principal Contractor.

To facilitate the payment regime created under the Security of Payment Act, Section 12 provides that a pay when paid provision of a Construction Contract has no effect in relation to any payment for construction work or related good or services under the contract.

Additionally, to facilitate the objects of the the Security of Payment Act, the Act and Regulations provide that where the value of a Head Contractor’s Construction Contract is at least $20 million, the Head Contractor must hold retention money in trust for Subcontractors from whom the money has been retained and pay the money into a Retention Money Trust Account established with an ADI. The Head Contractor must thereafter operate and maintain records of the Retention Money Trust Account and report annually in accordance with the Regulations. For more information about operating a Retention Money Trust Account please contact us.


Where a Head Contractor or Subcontractor (“the Claimant”) serve a valid Payment Claim and the other party (“the Respondent”) does not respond by providing a written Payment Schedule within the allowed time, that Respondent becomes liable to pay the Claimed Amount and is prohibited from bringing any Cross-Claim or raising any Defence in relation to matters arising under the contract if Court proceedings become necessary to recover payment.

Where a Respondent does provide a Payment Schedule but fails to pay the Scheduled Amount, a statutory debt and similar prohibition arises in relation to the Scheduled Amount.

This statutory debt and prohibition on resisting its enforcement is significant and unique to the building industry. It applies even if there is a genuine dispute.

Whenever a valid Payment Claim is served there is, therefore, the potential for what is effectively an indisputable statutory right to payment of the Amount Claimed in a Payment Claim (or Scheduled Amount in a Payment Schedule) to

Statutory Rights to Payment Statutory Rights to Suspend Work

arise (“Statutory Right to Payment”).

Whether or not a Statutory Right to Payment exists in relation to a Payment Claim is the first thing that any Building & Construction Lawyer should consider when a progress claim needs to be recovered or any dispute arises.

Where it exists, the Claimant will have significantly greater bargaining power to resolve any genuine dispute and can usually obtain Summary Judgment through the Courts if the Respondent is not prepared act reasonably in negotiations relating to any genuine dispute. In practice, where a Statutory Right to Payment exists, Court proceedings are rarely necessary, and usually a well drafted detailed legal demand will swiftly turn a reluctant Respondent into a willing and anxious payer.

Our Building & Construction Lawyers are experts in evaluating whether a Statutory Right to Payment exists and, where it exists, using that right to recover progress payments and settlement disputes with finality promptly.

Importantly, the Security of Payment Act also creates a statutory right for a Head Contractor or Subcontractor to suspend work in certain circumstances:

• regardless of whether any right to suspend exists in the relevant Construction Contract, and

• without risk of liability for loss or damage suffered by the other party as a consequence of work not being carried out during the period of suspension.

This right is significant as the ability to suspend work is a critical factor in ensuring your payment is prioritised and avoiding further losses where the other party to the Construction Contract becomes insolvent.

• the Respondent has provided a Payment Schedule in response to the Payment Claim but fails to pay the Scheduled Amount by the Due Date for payment, or

• the amount payable in relation to the Payment Claim has been determined following an Adjudication Application and the Respondent fails to pay the Adjudicated Amount within 5 Business Days of the date of the Adjudication Determination or such later date as the Adjudicator determines.

Where a Claimant has served notice of intention to suspend work in one of the above circumstances, the Claimant may then suspend work without further notice if at least 2 Business Days have passed. The right of suspension will then exist until the end of the period of 3 Business Days immediately following the date on which payment of the relevant amount is received by the Claimant.

Additionally, if a Claimant who has validly exercised a right to suspend works incurs any loss or expense as a result of the removal by the Respondent of any part of the work from the contracted scope, the Claimant is entitled to recover such loss or expense from the Respondent.

A Claimant who has served a valid Payment Claim may give at least 2 Business Days’ notice of their intention to suspend carrying out construction work (or to suspend supplying relates goods and services) under a Construction Contract where:

• the Respondent did not provide a Payment Schedule in response to the Payment Claim and fails to pay the Claimed Amount in full by the Due Date for payment,


Adjudication of Payment Claims Payment Withholding Requests

The Security of Payment Act also provides a right for a Head Contractor or Subcontractor who has served a valid Payment Claim to apply to have the amount payable by the other party assessed by an independent Adjudicator.

This is a very appealing option where the Statutory Right to Payment of the Claimed Amount has not arisen because the other party has provided a Payment Schedule in response to a Payment Claim. However, Adjudication may also be preferred where there is a genuine dispute which the Head Contractor or Subcontractor wants to be determined quickly and cost effectively, including where a Payment Schedule was not provided.

Strict time limits apply in relation to making Adjudication Applications and Adjudication Responses (see page 25) so do not delay if you think Adjudication may be a necessary or preferred outcome or if you are served with an Adjudication Application.

Where an Adjudication Application is made:

• the Respondent party typically may only provide an Adjudication Response with Supporting Submissions and evidence in response to the Adjudication Application within 5 Business Days of receiving the Adjudication Application, and

• the Adjudicator must determine the Adjudication Application by issuing a Certificate setting out the amount payable and Due Date for payment within 10 Business Days of notifying the parties of their acceptance of the Adjudication Application.

Therefore, within 3 weeks of lodging an Adjudication Application a Claimant can usually expect to receive a Determination of the amount payable, interest payable, if any, and the Due Date for payment.

Significantly, a Certificate of Determination of an Adjudicator can be registered with the Courts and enforced as a Judgment debt if the amount determined by the Adjudicator as payable is not paid by the Due Date (see page 30).

See also Adjudication Applications, Adjudication Responses, Adjudication Procedures, Adjudication Determinations and Challenging Adjudication Determinations at pages 26 to 31.

A Subcontractor has the ability to require a Principal, Head Contractor or Subcontractor next up the contracting ladder (referred to in the Act as a “Principal Contractor”) to withhold payments owing to a Respondent against whom the Subcontractor has lodged an Adjudication Application by serving a Payment Withholding Request in the prescribed form.

A Principal Contractor who receives a Payment Withholding Request must retain, out of money owed to the Respondent, the amount of money to which the Payment Claim relates (or the amount owed by the Principal Contractor to the Respondent, if that amount is less than the amount to which the Payment Claim relates).

The obligation to retain money in accordance with a Payment Withholding Request remains in force until the earlier of the following:

• the withdrawal of the Adjudication Application,

• the payment of the Claimed Amount by the Respondent,

• the service by the Subcontractor of a Notice of Claim on the Principal Contractor under the Contractors Debts Act 1997, and

• the lapsing of a period of 20 Business Days after a copy of the Adjudicator’s Determination of the Adjudication Application is served on the Principal Contractor.

The Security of Payment Act does not, however, impose any obligation on the Principal Contractor to pay any retained money to a Subcontractor directly. That obligation instead arises under the Contractors Debts Act 1997.

Under the Contractors Debts Act 1997 a Subcontractor, who files an Adjudication Certificate with a Court, is entitled to be issued with a Debt Certificate in respect of the debt. The Subcontractor is then entitled to serve a Notice of Claim under the Contractors Debts Act on the Principal Contractor in relation to the debt. Service of the Notice of Claim operates as an assignment to the Subcontractor of the right to payment from the Principal Contractor of money owed to the Head Contractor or superior Subcontractor, as the case may be. Upon receipt of a Notice of Claim the Principal Contractor must pay the money then owed to the Respondent instead to the Subcontractor.Another circumstance where Adjudication

might be sought is where the Respondent sets out poor or insufficient reasons for withholding payment in a Payment Schedule. This is because an Adjudicator may not consider any reasons for withholding payment contained in any Adjudication Response or Supporting Submissions unless the reasons had already been included in the relevant Payment Schedule (see page 22).


Nearly all rights under the Security of Payment Act flow from the service of a valid Payment Claim.

A Statutory Right to Payment may only arise following service of a valid Payment Claim (see page 12).

The Maximum Time Limits for payment of a progress payment are calculated by reference to the date of service of a valid Payment Claim (see page 24).

An Adjudication Application may only be made in relation to a valid Payment Claim (see page 14).

Therefore, if your business fails to serve valid Payment Claims you will be exposing yourself to delay tactics and expensive litigation if a dispute arises or if the other party simply refuses to pay as you will be unable to utilise the regimes created by the Security of Payment Act to recover payment promptly.

In most cases, where a valid Payment Claim has not been served, we can work with you to serve a valid Payment Claim. However, in these instances it is more likely that the other party will be ready to serve a Payment Schedule and Adjudication is more likely to be necessary.

When businesses serve valid Payment Claims from the outset, they are more likely to accrue Statutory Rights to Payment and be in a far better position to recover payment quickly should then need to invoke the force of the Security of Payment Act arise.

Similarly, if the Payment Claim is valid and a Payment Schedule has been provided, the business can enforce a Statutory Right to Payment in relation to the Scheduled Amount and/or quickly seek independent Adjudication of the amount payable, provided the time for making an Adjudication Application has not lapsed.

Why is it Important to Serve Valid Payment Claims?

Due to the significance of the Statutory Right to Payment that arises where a party fails to respond to a Payment Claim, the Courts have strictly interpreted the Security of Payment Act when determining the validity of a Payment Claim.

Under Section 13 of the Security of Payment Act, a document will only be a valid Payment Claim if it at least:

1. identifies and sufficiently describes the construction work (or related goods and services) to which the progress payment relates (see page 41),

2. indicates the amount of the progress payment that the contractor claims to be payable (“the Claimed Amount”),

3. is issued on or after a “Reference Date” (see page 19), and

4. is served on the other party to the Construction Contract (see page 22).

is connected with an Exempt Residential Construction Contract (ie, residential building work carried out as a subcontractor or builder on behalf of a developer or investor, not an owner occupier), the Payment Claim must include a statement to the following effect:

“This is a Payment Claim made under the Building & Construction Industry Security of Payment Act 1999”

Significantly, only 1 Payment Claim can be made in respect of each Reference Date. However, a party can include an amount that has been the subject of a previous Payment Claim in a subsequent Payment Claim issued in relation to a later Reference Date.

Unless the Construction Contract provides otherwise, a Payment Claim cannot be served later than 12 months after the construction work to which the claim relates was last carried out (or the related goods and services to which the claim relates were last supplied).

Finally, a Payment Claim need not also be a Tax Invoice. However, for a Tax Invoice to be a valid Payment Claim it must satisfy the requirements in Section 13 of the Security of Payment Act.

Valid Payment Claims

The following additional requirements may also apply to Payment Claims:

1. Where the Payment Claim is to be served by a Head Contractor under a Main Contract, it must be accompanied by a Supporting Statement in the prescribed form (see page 21).

2. Where the Payment Claim relates to a Construction Contract that


Upcoming Amendments

Amendments to the Security of Payment Act (see page 32) to commence on 21 October 2019, will abolish the concept of a Reference Date. Instead a party who has carried out construction work will be entitled to serve a Payment Claim:

• monthly on or after the last day of the named month in which construction work was first carried, and thereafter on and from the last day of each subsequent month, or

• if the Construction Contract makes provision for the serving of a Payment Claim on one or more earlier dates, on or after such earlier date(s) in such months.

Whilst the concept of a Reference Date will not exist in relation to construction contracts entered into after 21 October 2019, the validity of a Payment Claim will still be dependent on their being an available date on which the Claimant was entitled to serve a Payment Claim and careful attention will still be required to ensure a Payment Claim can be served at the

A valid Payment Claim may only be issued on or after a Reference Date.

The failure to serve a Payment Claim in relation to an available Reference Date is by far the most common mistake that Subcontractors make when attempting to serve valid Payment Claims.

“Reference Dates” in relation to a Construction Contract means:

1. the date determined by or in accordance with the terms of the Construction Contract as the date on which a claim for a progress payment may be made, or

2. if the Construction Contract makes no express provision with respect to the matter:

(a) the last day of the named month in which the construction work was first carried out (or the related goods and services first supplied) under the Construction Contract, and

(b) the last day of each subsequent named month.

In many cases, where a Construction Contract consists of a Quote and verbal acceptance or a Purchase Order only, there is no express provision in the Construction Contract in relation to the dates on which the contractor is entitled to make a claim for a progress payment. In these circumstances, the Reference Date is the last date of the month and the Subcontractor runs the risk of not issuing a valid Payment Claim where:

• the job is short and when completed a Tax Invoice is rendered before a

What is a Reference Date?

Reference Date has passed.

For example, where a job is started on the 10th day of a month and completed on the 15th. If a Tax Invoice is issued on the 16th day it cannot be a valid Payment Claim as the Reference Date (the last day of the month) has not passed.

• a final progress claim is made in relation to a project that is not short and where progress claims are made and progress payments received at the end of each month, after the job has been completed but before a further Reference Date has passed.

For example, where a job that has been completed over several months is nearing completion the contractor will likely have issued a Tax Invoice at the end of the month. If the job is completed on say the 20th day of the subsequent month and a final progress claim made on the 21st day, the final progress claim cannot be a valid Payment Claim as the Reference Date (the last day of the month) has not passed.

An unintended effect of the amendments applying to the Security of Payment Act from 21 April 2014, which removed the requirement that the Payment Claim state that it is made under the Security of Payment Act, is that contractors may inadvertently exhaust available Reference Dates where they do not have contractual rights to make claims for progress payments more than once each month but nevertheless issue multiple progress claims or separate variation claims.

relevant time of reference to be valid.

The amendments will, however, ensure that there is a right serve a Payment Claim at least monthly despite the terms of the relevant Construction Contract.

When the amendments commence it will again be a requirement for all Payment Claims to state that is it made under the Security of Payment Act, this having been the position prior to amendments in 2014.

In preparation for these changes, it is recommended that Claimants resume the practice of including words to the following effect on every Payment Claim:

“This is a Payment Claim made under the Building and Construction Industry Security of Payment Act 1999”.


Upcoming Amendments

Amendments to the Security of Payment Act (see page 32) to commence on 21 October 2019, will abolish the concept of a Reference Date. Instead a party who has carried out construction work will be entitled to serve a Payment Claim:

• monthly on or after the last day of the named month in which construction work was first carried, and thereafter on and from the last day of each subsequent month, or

• if the Construction Contract makes provision for the serving of a Payment Claim on one or more earlier dates, on or after such earlier date(s) in such months.

Whilst the concept of a Reference Date will not exist in future, the validity of a

A Head Contractor must not serve a Payment Claim on a Principal unless it is accompanied by a Supporting Statement that indicates that it relates to the Payment Claim. There is otherwise no requirement under the Act for a Head Contractor or Subcontractor to provide a Supporting Statement with a Payment Claim.

A “Supporting Statement” is a Statement in the form prescribed by the Building and Construction Industry Security of Payment Regulation 2008 and (without limitation) includes a declaration to the effect that all Subcontractors, if any, have been paid all amounts that have become due and payable in relation to the Construction Contact concerned.

Importantly, amounts referred to in a Supporting Statement as due and payable and which are not in dispute, must be paid in full before the declaration forming part of the Supporting Statement is signed.

When preparing a Supporting Statement, the Regulations have clarified that:

1. a reference to an amount due and payable to a Subcontractor does not include a reference to an amount in dispute between the Head Contractor and a Subcontractor.

Supporting Statements

2. any Subcontractors with whom an amount is in dispute with the Head Contract must be separately identified in the second table to the attachment to the Supporting Statement.

3. a reference to an amount due and payable includes a reference to a retention amount due and payable.

4. the Supporting Statement need only relate to those Subcontractors and suppliers engaged directly by the Head Contractor.

Significantly, it is an offence for a Head Contractor to serve a Payment Claim on a Principal:

• that is not accompanied by a Supporting Statement, or

• accompanied by a Supporting Statement knowing that the statement is false or misleading in a material particular in the particular circumstances.

Payment Claim will still be dependent on their being an available date on which the Claimant was entitled to serve a Payment Claim and careful attention will still be required to ensure a Payment Claim can be served at the relevant time of reference to be valid.

The amendments will, however, ensure that there is a right serve a Payment Claim at least monthly despite the terms of the relevant Construction Contract.

The amendments will also overcome a loophole identified by the Hight Court in Southern Han Breakfast Point Pty Limited (in liq) v Lewence Construction Pty Limited [2016] HCA 52 by providing that a Payment Claim can be validly served on or after termination of a Construction Contract.


A Payment Schedule is a document or email (or potentially an SMS message) that a party who is served with a Payment Claim (“Respondent”) may provide to avoid a Statutory Right to Payment of the Claimed Amount accruing under the Security of Payment Act in favour of the party who served the Payment Claim (“Claimant”).

A Payment Schedule must:1. identify the Payment Claim to which it relates,2. indicate the amount of the payment (if any) that the party considers is payable

(“the Scheduled Amount”),3. If the Scheduled Amount is less than the Claimed Amount, the Payment Schedule,

must indicate why the Scheduled Amount is less and (if it is less because the party is withholding payment for any reason) the Respondent’s reasons for withholding payment (see also page 41),

4. be provided to the Claimant by the earlier of:(a) the time required by the relevant Construction Contract for provision

of a Payment Schedule, and(b) 10 Business Days.

Significantly, where a Respondent provides a Payment Schedule and subsequently the Claimant makes an Adjudication Application, the Respondent will be prohibited from including in an Adjudication Response any reasons for withholding payment unless those reasons were included in the relevant Payment Schedule.

If you are subcontracting construction work or the supply of related goods or services it is critical that you have adequate systems in place to ensure that:

1. All Construction Contracts are reviewed to identify any limitation on the period for providing Payment Schedules,

2. The quality, extent and value of work a Subcontractor performs is monitored so that Payment Claims can be promptly assessed when received, and

3. Where the Claimed Amount in a Payment Claim is disputed, a Payment Schedule setting out all reasons for withholding payment is provided within the allowed time.

Serving Payment Claims Payment Schedules

A Payment Claim will only be effective and valid if and when it is served on the other party.

The following methods of service of a Payment Claim are expressly permitted under the Security of Payment Act:

1. Delivering it to the party personally,

2. Sending it by email to an email address specified by the party for service of Payment Claims,

3. Lodging it during normal office hours at the party’s ordinary place of business,

4. Sending it by post addressed to the party’s ordinary place of business,

5. Without limiting the above, where a party is a company, by:

• leaving it at, or posting it to, the company’s registered office; or

• delivering it personally to a director of the company who resides in Australia, or

6. Any other manner that may be permitted under the relevant Construction Contract.

On 27 June 2017 the Security of Payment Act was amended so that service of a Payment Claim by fax was no longer effective unless expressly permitted under the Construction Contract.

Additionally, whilst service via email is now recognised under the Act, it should be noted that email service will only be absolutely effective where the relevant email address has been specified by a Respondent as an address for service of Payment Claims or other notices of that kind.

The above methods are not exclusive and other methods of service may still be proven to result in valid service of a Payment Claim.

When considering how to serve a Payment Claim, the certainty of the date of service should be considered carefully. Where the actual date of service may be uncertain it may then be difficult to know if or when the other party has failed to provide a Payment Schedule.


The Security of Payment Act provides that the Due Date for an amount payable in relation to a valid Payment Claim is the earlier of the date provided in accordance with terms of the Construction Contract and:

• for a Construction Contract that is a Main Contract, the date that is 15 Business Days after a Payment Claim is served,

• for a Construction Contract with a Subcontractor (that is not connected with an Exempt Residential Construction Contract), 30 Business Days after a Payment Claim is served, and

• for a Construction Contract that is connected with an Exempt Residential Construction Contract, 10 Business Days after a Payment Claim is served.

A term of a Construction Contract that allows for payment of a progress payment later than the above dates is of no effect. The above dates are, therefore, effectively the maximum time limits that parties have to make a payment in relation to Payment Claim.

It should be noted that no Due Date arises in respect of an invalid Payment Claim.

Upcoming Amendments

Amendments to the Security of Payment Act (see page 32) apply to contraction contracts entered into from 21 October 2019 , will reduce the Due Date for payment of a progress payment in relation to Payment Claim to a Subcontractor (not a Head Contractor) from 30 Business Days to 20 Business Days after a Payment Claim is served.

Due Dates for Payment of Claimed Amounts Time Limits for Adjudication Applications

Interest After Due DatesIf a progress payment is not paid by the Due Date then, in addition to payment of the amount, the Claimant is entitled to interest on the unpaid amount at the greater of:

• the rate prescribed under Section 101 of the Civil Procedure Act 2005 (7.5% per annum as at 1 January 2017), and

• the rate specified in the Construction Contract, if any.

Please note that the interest rate under Section 101 of the Civil Procedure Act is reviewed on 1 January and 1 July each year and remains 7.5% as at the date of publication of this Guide.

Time Limits for Adjudication ResponsesIf you are the party served with an Adjudication Application (“Respondent”), the Adjudicator will be prohibited from considering any Adjudication Response (Submissions and supporting documents) that you wish to make in relation to the Application unless that Response is lodged with the Adjudicator by the later of:

1. 5 Business Days after receiving a copy of the Adjudication Application, and

2. 2 Business Days after receiving notice of an Adjudicator’s acceptance of the Adjudication Application.

The following time limits apply strictly in relation to Adjudication Applications:

1. Where a Respondent provides a Payment Schedule:

(a) an Adjudication Application may only be made within 10 Business Days of the Claimant receiving the Payment Schedule, or

(b) if the Respondent fails to pay the Scheduled Amount by the relevant Due Date, an Adjudication Application may only be made within 20 Business Days of the Due Date for the payment.

2. If no Payment Schedule was provided, the Claimant may not apply for Adjudication unless they have:

(a) first, within 20 Business Days following the Due Date for the payment, notified the Respondent of their intention to apply for Adjudication, and

(b) subsequently, allowed the Respondent 5 Business Days thereafter to provide a Payment Schedule.

In this case, the Adjudication Application may only be made within 10 Business Days of the expiration of the said 5 Business Day period.

3. Where:

(a) a Claimant has not received an Adjudicator’s acceptance of an Adjudication Application within 4 Business Days after lodging the application, or

(b) an Adjudicator who accepts an Adjudication Application fails to give a Determination within the allowed time,

the Claimant may withdraw the Adjudication Application and make a new Adjudication Application at any time within 5 Business Days after the Claimant became entitled to withdraw the previous Adjudication Application.


There is no prescribed form for an Adjudication Application, however, most Authorised Nominating Authorities will have a form or coversheet for an Adjudication Application available.

An Adjudication Application:

• must be in writing,

• must be lodged with an Authorised Nominating Authority chosen by the Claimant,

• must be lodged strictly within the applicable time limit (see page 26),

• must identify the Payment Claim and the Payment Schedule, if any, to which it relates,

• must be accompanied by the application fee, if any, charged by the Authorised Nominating Authority, and

• may, and typically does, contain written submissions and supporting documentation, in particular, relating to the reasons for withholding payment given by the Respondent in its Payment Schedule.

Once lodged:

1. the Claimant must serve a copy of the Adjudication Application on the Respondent, and

2. the Authorised Nominating Authority will refer the Adjudication Application to an Adjudicator.

If the Adjudicator accepts the Adjudication Application, the Adjudicator must serve notice of their acceptance on the Claimant and the Respondent.

If a Claimant does not receive an Adjudicator’s acceptance within 4 Business Days’ of lodging an Adjudication Application, the Claimant may:

1. withdraw the Adjudication Application, by giving notice in writing to the relevant Authorised Nominating Authority, and

2. make a new Adjudication Application within 5 Business Days after the Claimant became entitled to withdraw the previous Adjudication Application.

Adjudication Applications

Significantly, an Adjudication Response may only be lodged by a Respondent if the Respondent provided a Payment Schedule to the Claimant within the allowed time.

There is no prescribed form for an Adjudication Response.

An Adjudication Response:

• must be in writing,

• must identify the Adjudication Application to which it relates,

• may, and typically does, contain written submissions and supporting documentation, and

• must be lodged with the Adjudicator strictly within the time allowed (see page 25).

Critically, the Respondent cannot include in the Adjudication Response any reasons for withholding payment (or related submissions) unless those reasons have already been included in the Payment Schedule provided to the Claimant.

Once lodged, the Respondent must serve a copy of the Adjudication Response on the Claimant.

Adjudication Responses


An Adjudicator may not consider an Adjudication Response unless it was lodged before the end of the period within which the Respondent was entitled to lodge such response (see page 27).

In determining an Adjudication Application, an Adjudicator is to consider the following matters only:

1. the provisions of the Security of Payment Act,

2. the terms of the relevant Construction Contract,

3. the Payment Claim to which the application relates, together with all submissions and relevant documentation that have been lodged by the Claimant in support of the claim,

4. the Payment Schedule, if any, to which the application relates, together with all submissions and relevant documentation that have been duly made by the Respondent, and

5. the results of any inspection carried out by the Adjudicator of any matter to which the claim relates.

Relevantly, Section 10 of the Security of Payment Act stipulates the priority of considerations when valuing construction

Adjudication Procedures Adjudication Determinations

An Adjudicator may not determine an Adjudication Application until after the period that a Respondent has to lodge an Adjudication Resonse has expired (see page 27).

An Adjudicator is otherwise required determine an Adjudication Application as expeditiously as possible and, in any case:

1. within 10 Business Days after the date on which the Adjudicator notified the Claimant and the Respondent of their acceptance of the application, or

2. within such further time as the Claimant and the Respondent may agree.

Specifically, when making a Determination, the Adjudicator is to determine:

1. the amount of the progress payment, if any, to be paid by the Respondent to the Claimant (“the Adjudicated Amount”)

2. the date on which the Adjudicated Amount became or becomes payable, and

3. the rate of interest payable on the Adjudicated Amount.

The Adjudicator’s Determination must be in writing and include the reasons for the determination (unless agreed otherwise).

An Adjudicator may not consider or determine any other claim that might exist between the Claimant and the Respondent, for example, a common law claim for damages for breach of contract or a claim under the law of misleading or deceptive conduct.

Provided that the Adjudicator otherwise makes a Determination in accordance with the Adjudication Procedures (see page 28), the Adjudicator is free to determine the application as they see fit save only that, if a value of any work or related goods or services has been determined by an Adjudicator in connection with an earlier Adjudication Application, the Adjudicator must give the same value as previously determined unless a party can show that the value has changed since the previous Determination.

Before an Adjudicator will release their Determination to the parties, the Claimant will typically need to pay the Adjudicator’s fees in full, even though they will usually be able to recover at least half of the Adjudicator’s fees once the Determination is received.

If an Adjudicator who has accepted an Adjudication Application does not give a Determination within the time allowed, the Claimant may:

1. withdraw the Adjudication Application, by giving notice in writing to the Adjudicator, and

2. make a new Adjudication Application within 5 Business Days after the Claimant became entitled to withdraw the previous Adjudication Application.

An Adjudicator will not, however, have failed to determine the Adjudication Application within the allowed time if they have notified the parties that a Determination has been made and are awaiting payment of their fees before releasing the Determination.

work carried out or related goods or services performed, with a valuation in accordance with the terms of the relevant Construction Contract to prevail where the contract makes express provision with respect to the matter (see page 43). Accordingly, contractors would be wise to ensure that their Construction Contracts include clear and favourable terms for valuing work carried.

For the purpose of conducting any proceedings for the purpose of determining an Adjudication Application, an Adjudicator may:

1. request further written submissions from either party and must give the other party an opportunity to comment on those submissions,

2. set deadlines for further submissions and comments by the parties,

3. call a conference of the parties, and

4. carry out an inspection of any matter to which the claim relates.

An Adjudicator specifically has the power to determine an Adjudication Application despite the failure of either or both of the parties to make a submission or comment within the allowed time or to comply with a call for a conference of the parties.


Upcoming Amendments

Enforcing Adjudication Determinations

An Adjudication Determination cannot be challenged merely because one party is unsatisfied with the Determination. Instead, except in limited circumstances, if a party is aggrieved with the outcome of an Adjudication Determination the party must commence a separate action in the Courts as contemplated by Section 32 of the Security of Payment Act, at which time all issues in dispute between the parties whether arising under the Construction Contract or not may be determined (see page 31).

There have been many cases over the years seeking to challenge the Determination of an Adjudicator including the recent High Court case of Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2018] HCA 4 in which the High Court confirmed that Courts do not have the power to review Adjudication Applications for non-jurisdictional error on the face of the record (see page 46).

Therefore, the fact that an Adjudicator makes an error or mistake does not mean that the Determination can be challenged and set aside unless their error was a jurisdictional error.

Challenging Adjudication Determinations

In essence, a jurisdictional error will occur when an Adjudicator does something they are not empowered to do, or fails to do something the are required to do, under the Security of Payment Act. To make an Adjudication Determination there must be a valid Adjudication Application. This means there must be:

• a Construction Contract to which the Security of Payment Act applies,

• an available Reference Date to which the Payment Claim in question relates,

• the Payment Claim must otherwise meet the requirements of Section 13, and

• an Adjudication Application lodged with an Authorised Nominating Authority within the allowed time.

It is not uncommon for an Adjudication Response to include Submissions that go to these matters.

If an Adjudicator makes a mistake in relation to any of the above matters it will usually constitute a jurisdictional error upon which a Respondent could apply to the Supreme Court for an Order setting aside the Determination.

Notwithstanding the above, the Security of Payment Act does permit an Adjudicator to correct a Determination if the Determination contains a clerical mistake, error arising from an accidental slip or omission, a miscalculation of figures or a material mistake in the description of any person, thing or matter or a defect of form.

Amendments to the Security of Payment Act (see page 32) applying to construction contracts entered into from 21 October 2019, will extend the period that an Adjudicator will have to determine an Adjudication Application where a Respondent has provided a Payment Schedule in response to the relevant Payment Claim and, therefore, is entitled to lodge an Adjudication Response. In this case, unless the parties agree to a longer period, the Adjudicator will instead have to determine an Adjudication Application within 10 Business Days after:

1. where the Respondent is entitled to lodge an Adjudication Application, the date on which the Respondent lodges the Adjudication Response or, if no response is lodged, the end of the period within which the Respondent was entitled to lodge a response, or

2. in any other case – the date on which notice of the Adjudicator’s Acceptance of the Adjudication Application is served on the Claimant and the Respondent.

A Respondent must pay an Adjudicated Amount by the later of:

1. the date occurring 5 Business Days after the Adjudicator’s Determination is served on the Respondent, or

2. the later due date determined by Adjudicator as part of the Determination.

If a Respondent fails to pay the whole or any part of an Adjudicated Amount within the above time, the Claimant may obtain an Adjudication Certificate from the relevant Authorised Nominating Authority for the unpaid balance of the Adjudicated Amount.

The Adjudication Certificate may then be filed and enforced as Judgment debt in any Court of competent jurisdiction.

Significantly, if a Respondent wishes to challenge an Adjudication Determination and make an application to the Supreme Court to set aside the Determination, the Respondent will be required to pay the unpaid balance of the Adjudicated Amount to the Court as security pending the hearing of its application.


It is important to remember that the payment regimes created by the Security of Payment Act are intended only to facilitate cash flow for contractors by facilitating the prompt payment of progress payments. A Statutory Right to Payment or an Adjudication Determination is not a final determination of a party’s rights in relation to a matter.

Section 32 of the Security of Payment Act specifically provides that a right arising under Part 3 of the Act, including in relation to a Statutory Right to Payment and an Adjudication Determination, does not affect any right that a party to a Construction Contract:

• may have under the Construction Contract,

• may have under Part 2 of the Act (Due Dates, Interest etc), or

• may have in respect of anything done or omitted to be done under the contract.

Section 32: Rights Not Final

Upcoming Amendments

On 21 November the NSW Government enacted the Building and Construction Industry Security of Payment Act 2018 (“the Amendment Act”). It has recently been proclaimed that the Amendment Act and the Building and Construction Industry Security of Payment Amendment Regulation 2019 will commence on 21 October 2019.

The amendments will apply to construction contracts entered into from 21 October 2019. A summary of the key amendments is below.

1. Changes to Reference DatesThe concept of a Reference Date is to be abolished. Therefore, the availability of a Reference Date will no longer be a precondition for a valid Payment Claim.

Instead, a party who has carried out construction work or supplied related good or services will be able to serve a Payment Claim monthly on the last day of the named month in which construction work was first carried, and thereafter on and from the last day of each subsequent month.

Parties will be free to agree that a right to serve a Payment Claim will accrue on one or more earlier dates in any particular month.

Therefore, whilst the concept of a Reference Date will no longer exist, for a Payment Claim to be valid it must be issued after an available date on which a Claimant was entitled to serve a Payment Claim. This will, however, arise at least monthly.

In addition, if the Construction Contract is terminated before completion, irrespective of the terms of the contract, a Claimant will be entitled to serve Payment Claim on or after the date of termination.

2. Changes to Payment ClaimsA Payment Claim will again need to state that is it made under the Security of Payment Act, this being the position prior to amendments in 2014.

In preparation for these changes, it is recommended that Claimants resume the practice of including words to the following effect on every Payment Claim:

“This is a Payment Claim made under the Building and Construction Industry Security of Payment Act 1999”.

3. Due Dates for Payment The Due Date for payment of a Payment Claim to a Subcontractor (not a Head Contractor) will be reduced from 30 Business Days to 20 Business Days after a Payment Claim is served.

4. Application of Act to Residential Building WorkThe Amendment Act will remove the exemption of the application of the Security of Payment Act in relation to residential building work carried out for an owner-occupier of the premises by removing the exemption in Section 7(2)(b) and at the same time introduce a concept of an “owner occupier construction contract“, being a construction contract for the for the carrying out of residential building work

within the meaning of the Home Building Act 1989 on such part of any premises as the party for whom the work is carried out resides or proposes to reside in.

Work in respect of an owner occupier construction contract will instead become exempt from the Security of Payment Act by the Building and Construction Industry Security of Payment Amendment Regulation 2019.

5. Corporations in LiquidationThe Amendment Act makes clear that a company in liquidation will not be able to serve a Payment Claim.

In addition, any Adjudication Application on foot when a liquidator is appointed will be deemed to be withdrawn.

6. Withdrawal of Adjudication ApplicationsA Claimant to an Adjudication Application will be able to withdraw the application at any time before the appointment of an Adjudicator.

A Claimant will also be able to withdraw an Adjudication Application after an Adjudicator has been appointed (but before the application has been determined) unless the Respondent objects to the withdrawal and the Adjudicator considers that it is in the interests of justice to uphold the objection.

7. Adjudication ProceduresThe time that an Adjudicator will have to determine an Adjudication will be extended where a Respondent has provided a Payment Schedule in response to the relevant Payment Claim


and, therefore, is entitled to lodge an Adjudication Response in relation to the Adjudication Application.

Unless the parties agree to a later period, the Adjudicator will instead have to determine an Adjudication Application within 10 Business Days after:

(a) where the Respondent is entitled to lodge an Adjudication Application – the date on which the Respondent lodges the Adjudication Response or, if no response is lodged, the end of the period within which the Respondent was entitled to lodge a response, or

(b) in any other case – the date on which notice of the Adjudicator’s Acceptance of the Adjudication Application is served on the Clamant and the Respondent.

8. Challenges to Adjudication ApplicationsIn addition to quashing an Adjudication Determination wholly, the Supreme Court of NSW will be empowered to sever a particular part of an Adjudication Determination that is subject to a jurisdictional error.

9. New Investigatory and Enforcement Powers of Authorised Officers A new Part 3A is to be established, conferring investigatory and enforcement powers on Authorised Officers under the Security of Payment Act for the purpose of:

• investigating, monitoring and enforcing compliance with the requirements of the Act,

• obtaining information and records connected with the administration of the Act, and

• administering or executing the Act.

10. Code of Practice for Authorised Nominating AuthoritiesNSW Fair Trading’s ability to oversee Authorised Nominating Authorities will be enhanced by an ability for the Minister to introduce a Code of Practice addressing matters including the conduct, assessment and selection, training and monitoring of Adjudicator, as well as complaint-handling procedures.

11. More Stringent Penalties for Offences Committed Under the ActPecuniary penalties for contraventions of the Security of Payment Act in relation to Supporting Statements will be increased from 200 penalty units to 1,000 penalty units in the case of corporations and 200 penalty units for individuals.

Authorised Nominating Authority“Authorised Nominating Authority” means a person or company authorised by the Minister to nominate persons to determine Adjudication Applications.

Business Days“Business Day” under the Act means any day other than:

1. a Saturday, Sunday or public holiday, or

2. 27, 28, 29, 30 or 31 December.

Claimant“Claimant” means a person by whom a Payment Claim is served.

Construction Contract“Construction Contract” is a contract or other arrangement under which one party undertakes to carry out construction work, or to supply related goods and services, for another party.

Significantly, the words “other arrangement” extent the reach of the Security of Payment Act beyond contracts in the purest form.

Construction WorkSection 5 of the Security of Payment Act provides that “construction work” means any of the following:

1. the construction, alteration, repair, restoration, maintenance, extension, demolition or dismantling of:

(a) buildings or structures forming, or to form, part of land (including temporary buildings and structures),

(b) walls, roadworks, power-lines, telecommunications apparatus, pipelines, water mains, sewers and industrial plant and installations for the purposes of land drainage,

2. the installation in any building, structure or works of fittings including heating, lighting, air conditioning, ventilation, power supply, drainage, water supply, fire protection, security and communications systems,

3. the external or internal cleaning of buildings, structures or works, so far as it is carried out in the course of their construction, alteration, repair, restoration, maintenance or extension,

4. the painting or decorating of the internal or external surfaces of any building, structure or works,

5. any operation which forms an integral part, or is preparatory to or is for rendering complete, works referred to in paragraphs 1 and 2 above, including:

(a) site clearance, earthmoving, excavation, tunnelling and boring,

(b) the laying of foundations,

(c) the erection, maintenance or dismantling of scaffolding,

(d) the prefabrication of components to form part of any building, structure or works (wherever carried out), and

(e) site restoration, landscaping and the provision of roadways and other access works.

Key Definitions


However, “construction work” does not include any of the following work:

1. the drilling for, or extraction of, oil or natural gas,

2. the extraction (whether by underground or surface working) of minerals, including tunnelling or boring, or constructing underground works, for that purpose,

3. any other work of a kind prescribed by the Regulations.

Exempt Residential Construction ContractAn “Exempt Residential Construction Contract” is a construction contract for the carrying out of residential building work (within the meaning of the Home Building Act 1989 (NSW) on such part of any premises as the party for whom the work is carried out resides or proposes to reside in.

The Security of Payment Act does not apply to an “Exempt Residential Construction Contract”. However, where residential building work is carried by a subcontractor on behalf of a builder or by a builder or subcontractor on behalf of a developer or investor, the Act will apply as the person does not propose to reside in the premises to which the contract relates.

From 21 October 2019 “Exempt Residential Construction Contract” will mean:

1. a construction contract that is connected with an Owner Occupier Construction Contract, or

2. any other type of construction contract for the carrying out of residential

building work that is prescribed by the regulations for the purposes of this definition.

Head Contractor“Head Contractor” means the person (or company):

1. who is to carry out construction work or supply related goods and services for the Principal under a Construction Contract (“the Main Contract”), and

2. for whom construction work is to be carried out or related goods and services supplied under a Construction Contract as part of or incidental to the work or goods and services carried out or supplied under the Main Contract.

Note: There is no Head Contractor when the Principal contracts directly with Subcontractors.

Main ContractThe ‘Main Contract’ is the Construction Contract between the Principal and the Head Contractor.

Payment Claim“Payment Claim” means a claimed referred to in Section 13 of the Act. See page 9 for more information about Payment Claims.

Payment Schedule“Payment Schedule” means a schedule referred to in Section 14 of the Act. See page 12 for more information about Payment Schedules.

Principal“Principal” means the person (or company):

1. for whom construction work is to be carried out or related goods and services supplied under a Construction Contract (“the Main Contract”), and

2. who is not themselves engaged under a Construction Contract to carry out construction work or supply related goods and services as part of or incidental to the work or goods and services carried out or supplied under the Main Contract.

Owner Occupier Construction ContractA construction contract for the carrying out of residential building work within the meaning of the Home Building Act 1989 on such part of any premises as the party for whom the work is carried out resides or proposes to reside in.

Principal Contractor“Principal Contractor” is a name used to describe the party on whom a Payment Withholding Request may be served in the event that an Adjudication Application has been lodged. Section 26A(4) of the Act defines “Principal Contractor” as the person (or company) by whom money is or becomes payable to the Respondent party to the Adjudication Application for work carried out or materials supplied by the Respondent to the person as part of or incidental to the work or materials that the Respondent engaged the Claimant party to the Adjudication Application to carry out or supply.

Related Goods & ServicesSection 6 of the Security of Payment Act provides that “related goods” means goods of the following kind:

1. materials and components to form part of any building, structure or work arising from construction work, and

2. plant or materials (whether supplied by sale, hire or otherwise) for use in connection with the carrying out of construction work.

Section 6 further provides that “related services” means services of the following kind:

1. the provision of labour to carry out construction work,

2. architectural, design, surveying or quantity surveying services in relation to the construction work,

3. building, engineering, interior or exterior decoration or landscape advisory services in relation to construction work.

Respondent“Respondent” means a person on whom a Payment Claim is served.

Scheduled Amount“Scheduled Amount” means the amount of a progress payment that is proposed to be made under Payment Schedule.

Subcontractor“Subcontractor” means a person (or company) who is to carry out construction work or supply related goods and services under a Construction Contract otherwise than as Head Contractor.

Supporting Statement“Supporting Statement” means a statement that is in the form prescribed under the Building and Construction Industry Security of Payment Regulations 2008 and (without limitation) includes a declaration to the effect that all Subcontractors, if any, have been paid all amounts that have become due and payable in relation to the Construction Contact concerned.

See page 21 for more information about Supporting Statements.

Security of Payment Guide | Page 39

Frequently, when a problem arises and a Subcontractor wants to rely upon the Security of Payment Act to recover payment:

1. The Subcontractor has failed to ensure that there was an available Reference Date when serving the Payment Claim, and/or

2. There is uncertainty about the validity of the Payment Claim due to the Subcontractor’s poor contracting practices and the lack of any expressly agreed Reference Dates.

For example, if a Subcontractor has poor contracting procedures and does not make Construction Contracts that either specify or incorporate relevant standard form Terms & Conditions of Trade dealing with Reference Dates, there can be uncertainty in relation to the Reference Dates applicable to the contract. This in turn leads to uncertainty in relation to whether a Payment Claim is issued on or after any Reference Date on which it depends for its validity.

Preparing Your Business to be Able to Use the Security of Payments Act When it Counts

Similarly, where a Subcontractor serves Payment Claims without regard to the Security of Payments Act, for example, where multiple claims are made each month or separate claims are made for variations, one of the Payment Claims may be valid but the rest may not be due to the lack of any available Reference Date. This problem is also common where a claim for payment is made on completion despite there being no express contractual right to claim payment on completion.

Where there is no Reference Date or uncertainty as to the validity of a Payment Claim, to avoid legal costs and arguments about technicalities, the solution is usually to wait until a new Reference Date arises and to start again with a new Payment Claim. However, this delay will generally increase the period that the Subcontractor is deprived of funds and the financial pressure on the shoulders of the owners.

The SolutionSubcontractors and suppliers can easily address these problems by making better Construction Contracts.

Depending on your business and how you are suited to make contracts, this may be by adopting a long form Construction Contract template and/or short form contract templates including Quotations and Purchase Order Forms incorporating standard form Terms & Conditions of Trade. In either case, the contract terms should make express provision in relation to when your business can claim a progress payment and your business should be conscious of ensuring that claims are only made on or after such dates.

by Samuel Roberts

Building & Construction Articles


If you serve Payment Claims by email, the contracts should also directly address this. If you would prefer to continue your existing practices, all you need to do is ensure that your contracts are drafted to accommodate them. Finally, the terms may be able to limit the period that a Respondent has to respond to a Payment Claim by providing a Payment Schedule and thereby increase the likelihood that your business will accrue a Statutory Rights to Payment of the Amount Claimed in the Payment Claim.

Alternatively, if the proposed form of Construction Contract is put forward by the other party, it is recommended that the Subcontractor:

1. gets legal advice before signing the contract,

2. understands the essential terms of the contract including Reference Dates and methods for serving Payment Claims, and

3. prepares a Contract Matrix (summary) that they can refer to confidently serve valid Payment Claims and otherwise effectively administer the contract.

The Security of Payment Act is specifically designed to assist businesses in the construction industry to avoid costly disputes and cashflow nightmares. However, these businesses still need to be aware of the fundamental mechanics of the Act and work with their Lawyers to ensure that they are making contracts that create suitable Reference Dates so that they (and their Lawyers) can rely on the Act immediately when it counts.

We offer a number of practical solutions to everyday contracting for subcontractors and suppliers including:

1. preparation of standard form contracting documents including Quotation templates, Purchaser Order forms, Terms & Conditions of Trade, Variation forms and Credit Applications,

2. preparation of long form plain English Construction Contracts and Contract Matrices for larger projects, and

3. advice in relation to one-off Construction Contracts and the preparation of a Contract Matrix for future reference and ease of administration.

Ensuring that you can rely on a Payment Claim or a Payment Schedule to invoke or resist the considerable force of the Building and Construction Industry Security of Payment Act 1999 (NSW) (“the Act”) to recover payment or resist the obligation to pay is critical for any business in the building and construction industry. In this article we consider how the Courts consider the adequacy of describing works or reasons for withholding payment in assessing the validity and reliability of Payment Claims and Payment Schedules

Payment ClaimsSection 13 of the Act sets out the requirements for a valid Payment Claim and relevantly provides that:

1. a Payment Claim must identify the construction work or related goods and services to which the progress payment relates,

2. must indicate the amount of the progress payment that the claimant claims to be due (“the Claimed Amount”), and

3. if the Construction Contract is connected with an Exempt Residential Construction Contract, must state that it is made under the Act.

When considering the level of detail required by the Act for identifying construction work (or related goods or services) to which a Payment Claim relates the Courts have held that:

• this is an objective test. It must be asked whether a reasonable person having consideration of the Payment Claim as a whole would be left with any doubt as to its meaning1,

• it is sufficient if the Payment Claim identifies the work in terms of the contract and location with respect to which it was undertaken2, and

• while it is not necessary for a Payment Claim to be as precise and as particularised as a Court pleading, there is a need for “precision and particularity… to a degree reasonably sufficient to apprise the parties of the real issues in the dispute”.3

Essentially, a Payment Claim must sufficiently identify the construction work (or related goods or services) to which the claim relates to enable the Respondent to understand its basis.4

Payment Schedules A party receiving a Payment Claim who wishes to dispute the Claimed Amount and avoid a statutory debt arising must provide a Payment Schedule within the allowed time.

How Courts Consider Descriptions of Work in Payment Claims and Reasons for Withholding Payment in Payment Schedules

by Tasha Wolodko-Kouril


Section 14 of the Act relevantly provides that a Payment Schedule:

1. must identify the Payment Claim to which it relates;

2. must indicate the amount of the payment (if any) that the recipient of the claim proposes to make (“the Scheduled Amount”); and

3. if the Scheduled Amount is less than the Claimed Amount, the schedule must indicate why the Scheduled Amount is less, and must provide the Respondent’s reasons for withholding payment.

In the case of a Respondent withholding payment, the Courts have held that:

• the issues in dispute need to be apparent.5

• the Respondent needs to make it clear to the Claimant their reasons for withholding payment.6

• the reasons given for withholding payment should enable the Claimant to make a decision whether or not to accept the Scheduled Amount, and to understand the nature of the case the Claimant will have to meet in an Adjudication.7

The provision of adequate reasons for withholding payment in a Payment Schedule is critical, as Section 20(2B) of the Act precludes a Respondent from including in an Adjudication Response any reasons for withholding payment unless those reasons have already been included in the Payment Schedule provided to the Claimant.

By way of example, if, in an Adjudication, a Respondent wants to challenge jurisdiction to invalidate a Payment Claim, the Respondent would have had to have included this challenge in the Payment Schedule originally provided in response to the Payment Claim.

Conclusion Parties seeking to rely on the Act to recover payment or resist a Payment Claim should be careful to ensure that the works are adequately described or reasons for withholding payment sufficient articulated in their Payment Claims and Payment Schedules, as the case may be, to enable the other party to understand and evaluate the clams and defences that are being made.

Where a dispute is anticipated such that a subsequent Adjudication Application and Determination is likely to follow, parties should, noting that strict time limits apply, immediately seek the assistance of an experienced Building & Construction Lawyer before serving their Payment Claim or Payment Schedule to ensure that they will be able to most effectively press their claims/defences in a subsequent Adjudication Application.

A question that commonly arises when we are assisting clients with preparation of an Adjudication Application or Response, is: “How is the Adjudicator going to value the construction works (or related goods and services)?”

Knowing how an Adjudicator will value the works is particularly important given the very short timeframes provided for parties to an Adjudication Application to prepare their submissions and supporting documents.

Section 22(2) Building and Construction Industry Security of Payment Act 1999 (NSW) (“the Act”) provides that when determining an Adjudication Application an Adjudicator is required to consider the provisions of the Act, the provisions of the relevant Construction Contract, the Payment Claim, the Payment Schedule and the submissions (including relevant documentation) duly made by the parties.

In valuing construction work (or related goods or services) the Adjudicator is, therefore, bound to consider Section 10 of the Act which provides that

construction work is to be valued:

1. in accordance with the terms of the contract, or

2. if the contract makes no express provision with respect to the matter, having regard to:

(a) the contract price for the work,

(b) any other rates or prices set out in the contract,

(c) any variation agreed to by the parties to the contract by which the contract price, or any other rate or price set out in the contract, is to be adjusted by a specific amount, and

(d) if any of the work is defective, the estimated cost of rectifying the defect.

Related goods and services are valued in the same way as construction works, except that, in the case of materials and components that are to form part of any building, structure or work arising from construction work, the only materials and components to be included in the valuation are those that have become (or, on payment, will become) the property of the party for whom construction work is being carried out.

Therefore, if the Construction Contract sets out a clear a method or basis for valuing the works, the Adjudicator should value the works based on that method or basis. For example, a contract may state that the works are to be valued by reference to a percentage of the contract price based on staged completion or by the hours worked and a schedule of rates.

How an Adjudicator is Required to Value Construction Work

by Felicity Donald

1. Parist Holdings Pty Ltd v WT Partnership Australia Pty Ltd [2003] NSWSC 365 at [28].

2. Walter Construction Group Ltd v CPL (Surry Hills) Pty Ltd [2003] NSWSC 266 at [63] – [66].

3. Multiplex Constructions Pty Ltd v Luikens and Anor [2003] NSWSC 1140 at [76].

4. Coordinated Construction Co Pty Ltd v Climatech (Canberra) Pty Ltd [2005] NSWCA 229 at [25].

5. Above n 3.

6. Leighton Contractors Pty Ltd v Campbelltown Catholic Club Ltd [2003] NSWSC 1103 at [77] – [78].

7. Above n 3 at [78].


If the Construction Contract does not expressly provide for how the works are to be valued, however, then the Adjudicator will look at the remaining matters set out in Section 10 of the Act, being the contract price, any other rates or prices set out in the contract, any agreed variations to adjust the contract price or rates, any agreed variations and the estimated cost of rectifying any defects.

Other important points to note in relation to how the Adjudicator will value the construction works (or related goods or services) are that:

• the Adjudicator will value the works as at the applicable Reference Date.

• the Adjudicator must only value works which are included in the Payment Claim to which the Adjudication Application relates, and not, for example, any other work which may have subsequently been carried out and claimed in the Application.

• if there has been a previous Adjudication Application in which an Adjudicator made a Determination in relation to the value works, in any subsequent Adjudication Application the Adjudicator is required to give the same value as that previously determined unless one of the parties satisfies the Adjudicator that the value has changed since the previous Determination. This only applies, however, where the previous Adjudicator has valued the works, and not for example, where an Adjudicator has determined that there is no entitlement or that the works cannot be valued.

• if one party has placed a value for an item that is not challenged or disputed, it is not necessary for the Adjudicator to independently value that item or claim. The Adjudicator may accept that value and apply the claimed amount.

As such, when preparing submissions, it is very important to ensure that all disputed items of work are in fact disputed and challenged in that party’s submissions and supported by relevant documents.

• another common issue arises when the Construction Contract provides for works to be valued by way of an Architect or Superintendent issuing a Superintendent’s Certificate or the like. This type of provision is often included in larger Construction Contracts.

In the past the Courts have taken varying approaches to the question of whether an Adjudicator is required to follow a Superintendent’s Certificate rather than valuing the works independently.

The current approach taken by the NSW Court of Appeal is that if an Adjudicator fails to follow a Superintendent’s Certificate this may amount to an error of law, but even so it does not render the Adjudicator’s Determination invalid (see Abacus v Davenport & Ors [2003] NSWSC 1027 and Transgrid v Walter Construction Group [2004] NSWSC 21).

On the present law, an Adjudicator can, therefore, effectively step

into the shoes of an Architect or Superintendent when valuing the works, and does not have to simply accept the Superintendent’s Certificate.

There is still much debate about whether the failure by an Adjudicator to follow a contractual provision for the Superintendent to fix value is an error of law or is a more fundamental failure to follow the basic requirements of the Act.

• An Adjudicator is not required to follow a particular mechanism in a contract for the valuing of the works, but only criteria by which the works are to be valued.

• Likewise, any clause in the contract which caps the maximum value of the contract in order to deny a claim and the right to value work in accordance with the contract, may be viewed as contracting out of the Act and therefore invalid.

The Courts have acknowledged that valuing the works can sometimes be a difficult task for an Adjudicator, but the Adjudicator must undertake this task in accordance with the Act and provide sufficient reasons for the Determination.

Given the significant rights that accrue in utilising the Act to claim payment or dispute liability for a payment, you should always seek specialist advice from an experienced Building & Construction Lawyer when negotiating and entering into a Construction Contract and, in particular, when preparing or responding to an Adjudication Application, to ensure your rights are protected.


In Probuild Constructions (Aust) Pty Ltd v Shade Systems Pty Ltd [2018] HCA 4 the High Court affirmed the decision of the NSW Court of Appeal that the availability of judicial review to quash an Adjudication Determination under the Building and Construction Industry Security of Payment Act 1999 (NSW) (“the Act”) was limited to cases of jurisdictional error.

In doing so the High Court held that Courts do not have do not have a power to review an Adjudication Determination for non-jurisdictional errors of law on the face of the record.

FactsOn 14 October 2014 the parties entered into a contract pursuant to which Shade Systems Pty Ltd (“Shade Systems”) agreed to supply and install external louvres to the façade of a property at Chatswood as a subcontractor to Probuild Constructions (Aust) Pty Ltd (“Probuild“).

On 23 December 2015, Shade Systems served a Payment Claim on Probuild in the amount of $289,849.33 plus GST pursuant to the provisions of the Security of

Payment Act. On 11 January 2016 Probuild served a Payment Schedule alleging that no money was owing to Shade Systems, primarily on the basis that an amount of $1,089,900 was payable by it to Probuild as liquidated damages under the contract.

The dispute was referred to an Adjudicator under the Act on 25 January 2016, with the Adjudicator rejecting Probuild’s claim for liquidated damages “on the basis that liquidated damages could not be calculated until either “practical completion” (being actual completion of the works) or termination of the subcontract” [at 22].

Supreme Court Application for ReviewProbuild applied to the Supreme Court for a review of the Adjudicator’s Determination, alleging both a denial of procedural fairness in the adjudication process (which constituted a jurisdictional error) and errors of law which appeared in the Adjudicator’s written reasons (which constituted non-jurisdictional errors of law).

The claim of procedural unfairness was rejected, however, the trial Judge held that:

1. the supervisory jurisdiction of the Supreme Court was available to review non-jurisdictional errors of law on the face of the record, and

2. because such an error had been established by Probuild in connection with the Adjudicator’s findings with respect to the payment of liquidated damages, the Adjudicator’s Determination should be quashed.

Court of AppealShade Systems appealed to the Court of Appeal, with the only question on appeal being, “whether the Security of Payment Act excluded the jurisdiction of the Supreme Court to make an order in the nature of certiorari for error of law on the face of the record”. The Court of Appeal of the Supreme Court of New South Wales found that the jurisdiction was ousted, and overturned the primary Judge’s decision.

High Court Decision The High Court ultimately agreed with the Court of Appeal, with the majority finding that:

“The Security of Payment Act evinces a clear legislative intention to exclude the jurisdiction of the Supreme Court to make an order in the nature of certiorari to quash an adjudicator’s determination for non-jurisdictional error of law on the face of the record.”

In reaching its decision and rejecting Probuild’s argument that allowing the Adjudicator’s decision to stand, given that it was erroneous, was “manifestly absurd”, the High Court identified that the Act:

• was “enacted to reform payment behaviour in the construction industry” and provide Claimants with the ability to recover progress payments promptly,

• is “not concerned with finally and conclusively determining the entitlements of parties to a construction contract”,

• provides very short timeframes which are “not conducive to lengthy consideration

by an adjudicator of detailed submissions on all questions of law”,

• permits informal procedures in the conduct of an Adjudication, such as a conference of the parties, and

• deliberately omits any right of appeal from an Adjudicator’s Determination.

Relevantly, the Court observed that:

“A non-jurisdictional error of law may have serious consequences. But those consequences are dealt with by s 32 of the Security of Payment Act. The limited exclusion of review does not irrevocably entrench the consequences of an erroneous determination. Where it is contended that an adjudicator has made an error of law within jurisdiction, resulting in a progress payment that is inadequate or excessive, the dispute may be resolved through civil proceedings under the construction contract. If necessary, a restitutionary order can be sought.”

Summary

In essence the High Court has held that the Act empowers Adjudicators to make valid Determinations despite the Determination being based on an incorrect legal interpretation of the relevant Construction Contract.

Therefore, non-jurisdictional errors committed by Adjudicators when making Determinations may not be subject to judicial review and instead would need to be addressed in separate Court proceedings as anticipated by Section 32 of the Act.

However, the Supreme Court may still quash an Adjudicator’s Determination for jurisdictional error (see page 29).

High Court Confirms Limited Scope of Potential Challenges to Security of Payment Adjudications

by Samuel Roberts


Long before I was a Construction Lawyer, I was a Construction Manager for one of Australia’s top tier building contractors. In this article I have set out some simple and practical tips for effective contract management based on my experience in both construction and law.

This article will be particularly relevant for growing contracting businesses who are stepping up into the world of mid-tier contracting, as I often see these types of companies make fundamental contract management mistakes with potentially disastrous consequences. These clients typically appear at our firm for help at the 11th hour of an ugly dispute, having previously had little regard for the contents of their Construction Contract, but hoping to rely on it now as their saviour. Here are some of their common mistakes:

Common MistakesMistake 1 – Not appreciating the force of contractual terms.

Contractors whose businesses are growing often get themselves in trouble

Mid-Tier Construction Contracting Essentials: How to Make it and Not Go Broke

by Ned Mortensen

by signing a contract put forward by the other party without understanding their rights and obligations or properly considering the terms of the contract at all. This is especially so for long form Construction Contracts that incorporate Australian Standard General Conditions of Contract. These terms are often confusing and difficult for Contract Administrators to properly follow and administer.

Because of this, works under these contracts are frequently performed without regard to the actual agreed terms, which of course is a recipe for disaster when problems arise.

Mistake 2 – Failing to monitor and manage the progress of works.

This is a common mistake that often leads to a contractor’s failure to apply for adequate Extensions of Time (“EOT”) in accordance with the contract. Typically, there are strict time limits for EOT claims and this failure may ultimately result in claims for liquidated damages against the contractor by the Head Contractor or Principal.

Mistake 3 – Failing to give contractually binding notices of Variations and Delay.

Most Construction Contracts require written notice to be given in the events of delay or changes to the scope of work which may give rise to a contractual variation. Failing to issue such notices in the manner required by the contract can leave you in a position at the end of the contract where you are unable to claim for variations because they have not been approved or run the

risk of liquidated damages due to a failure to apply for extensions of time.

Mistake 4 – Failure to adequately document and manage defects.

Defects are one of the major causes of construction litigation that I see. If you are sued for the repair of faults which reveal themselves after the defects liability period, not only may you end up paying the cost of the additional works for which you should not be liable, but you could also be left paying the costs of defending the claim even when your defence is successful.

Exposure to claims for defect rectification can be minimised by taking the time to understand the defects liability period and the process by which defects need to be notified and rectified. The use of defect repair systems and checklists are essential. When claims are made by property owners after the conclusion of the defects liability period, get the right legal advice as to your contractual liability as soon as possible.

RecommendationsThe following recommendations come from both construction industry and legal practice experience and can be adapted to both the management of Head Contracts and Subcontracts alike.

Tip 1 – Ignore the contract at your peril.

The right contract can be both a valuable weapon and a shield. If you are a growing construction company stepping up into the mid-tier market, be aware that your contract management game needs to change. Effective contract

administration will work to maximise your profits and protect you from disaster. Similarly, a failure to fulfil your contractual administration obligations can have dire legal consequences in the event of any future dispute.

In particular, contractors should ensure that they are familiar with contract provisions relating to the correct ways to:

• give notices pursuant to the contract,

• apply for extensions of time,

• inform clients of variations and seek approval, where necessary,

• serve Payment Claims, and

• manage disputes.

Tip 2 – Get specialist legal advice prior to signing a contract.

If you’re signing a Construction Contract for an amount that you could not afford to lose, having an experienced Construction Lawyer explain the finer details and provide their feedback on the contract can be a very valuable investment. A Construction Lawyer can also recommend amendments to any contracts provided by Head Contractors and Principals to help ensure that there is a more level playing field between the parties, and even negotiate those amendments on your behalf.

Tip 3 – Develop your own plain English Construction Contract.

Construction Contracts incorporating Australian Standard General Conditions of Contract can be difficult to follow and administer unless you are an experienced Construction Lawyer. Often these forms


of contract are adopted by Principals or Head Contractors simply because they do not know what else to use or simply want to look like they know what they are doing. In most cases, however, a customised plain English Construction Contract would be of far greater use to all parties.

When the form of contract is not being put forward by a Principal or Head Contractor, we encourage contractors to develop and use a customised plain English long form Construction Contract with an accompanying Contract Matrix (see below). We have many clients that do this successfully, usually with the other party being grateful to receive something that is easier to understand and follow.

Tip 4 – Develop a Contract Matrix.

A Contract Matrix is a list of important contractual events, with a “how-to” guide for each. For example, the list might include:

• the commencement of site works,

• the discovery of latent conditions,

• dealing with requests for variations or change to the works required,

• the encountering of events causing delays,

• applying for extensions of time,

• when and how formal notices under the contract should be given,

• the making of progress claims,

• steps for practical completion and certification, and

• dealing with disputes.

Alongside each of these events should be step-by-step procedures covering off your contractual rights and obligations for dealing with these events as they arise, and detailing any applicable time limitations.

A good Contract Matrix is written in simple, plain language and can even be in the form of a flowchart.

Tip 5 – Develop a set of Pro forma Contract Notices and Variation Forms.

Prepare templates for contractual Notices and Variations so that they are quick and easy to issue. These should be checked (or prepared) by a Construction Lawyer. Consistently worded Notices that are familiar to both you and your client will go a long way to streamlining approvals and fast client responses.

Make sure that they are worded specifically for the contract you are using, and save them with any fields that need to be manually filled brightly highlighted.

Tip 6 – Have the right Administrator.

Have the contract administration process managed by an appropriate person in your organisation.

I often see growing construction companies leaving their contract administration to engineering and construction management graduates fresh from University. These young men and women can be an excellent choice, provided that they have the right support through specific training and management, and that they have both the authority and people skills to manage potential contractual problems when they arise.

For example, does the 23 year old, wet behind the ears Contract Administrator in your business have the wear with all and authority to stop the hardened 60 year old general foreman from using his two available 30 tonne excavators to excavate in rock he’s just discovered when the client hasn’t approved a variation for rock excavation?

The right support from both the Project Manager and Company Directors for fresh faced Contract Administrators is essential.

Tip 7 – When a problem arises get help early.

Form a relationship with one of our experienced Construction Lawyers and get the help that you need promptly, when you need it.

With most building disputes it is important to seek advice from an experienced Construction Lawyer as soon as it appears likely that a problem will arise. This will give you the best chance of avoiding a dispute and/or managing the problem before it grows into something bigger and ends in litigation.


When I ask subcontractors whether a written contract was in place or whether variations had been documented, too often I receive the following response “no there was no contract, we just agreed to it” or “I didn’t think it was necessary it was a small job”.

It is an incorrect assumption that just because an agreement is verbal, that there is not a binding contract in place. A contract can be verbal unless it relates to an interest in land or there is a statutory requirement that it be in writing, for example, a contract for “residential building works” where the value of the works is at least $5,000.00.

Further, the Security of Payment Act makes specific reference to an “other arrangement” in its definition of Construction Contract.

Whilst a contract can be verbal, regardless of the size of the job, all agreements, including variations, should be formally documented. This simple step can prevent many disputes and reduce a significant

number of risks associated with carrying on a business in the building industry.

A formal written contract can provide parties with the ability to:

• confirm the agreed scope of works and any exclusions,

• identify the correct contracting parties, so there is no issue as to which person, company or trust a contract is with,

• obtain payment of a deposit depending on the credit risk of the particular client,

• stipulate when a variation will arise and how it will be valued,

• dictate time frames to complete various stages or scope of works,

• create Reference Dates under the Security of Payment Act and limit the period that the other party has for providing a Payment Schedules,

• specify how work is to be valued when assessing the amount payable in relation to a progress payment,

• clarify the methods and means by which contractual notices and Payment Claims may be served,

• specify payment terms,

• recover interest should payment terms be breached,

• suspend work when payment is overdue,

• collect legal and debt collection costs in circumstances where a client breaches payment terms,

• obtain personal guarantees or other security for payment,

• limit liability and/or exclude liability for consequential loss,

• terminate the contract in certain circumstances, and

• have an independent expert make binding expert determinations in relation to defect related disputes.

Another common misconception with contracts in the building and construction industry is that terms and conditions on an invoice will form part of a contract for works completed. Once a contract is formed, which occurs when a written or verbal quotation (offer) is accepted, the terms of the contract cannot be altered without the consent from both parties. As such, terms on an invoice will not form part of the contract unless those terms had already been agreed at the time of the contract formation, for example, the acceptance of a quotation.

Further, by not having a written contract which specifies an agreed price for the works, or clauses that set out how the works will be valued, then a contractor is left only with a “quantum meruit” claim if the other party fails or refuses to pay their invoice.

A quantum meruit claim is a claim for payment of reasonable remuneration for work undertaken that cannot be recovered under an enforceable contract. This means that the contractor would, at best, be entitled to the reasonable market costs of the work undertaken, regardless of what the contractor’s assert was its actual or agreed costs for the works. Such claims come with risks.

All contractors in the building and construction industry should engage the assistance of Solicitors experienced in the building and construction industry to prepare proper contract documents and insist on those documents being signed prior to works being undertaken. This can include customised Construction Contracts for large projects or standard form contracts for everyday contracting.

The initial expense and effort are minor when compared to the stress and costs of litigation should a dispute arise between the parties. There are always risks associated with running a business, however, these risks are reduced when proper contracts are in place.

Common Misconceptions About Contracting in the Building and Construction Industry and What to do to Avoid Getting Caught Out.

by Amanda Crosbie


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