In New South Wales, the Building and Construction Industry Security of Payment Act 1999 (NSW) (the “Security of Payment Act”) plays a vital role in ensuring that contractors and builders receive timely payments for construction work carried out or related goods and services supplied under a construction contract. However, navigating he Security of Payment Act can be complex.
In this article, we will explore the top five of these pitfalls to help you understand how to avoid them and when issuing payment claims under the Security of Payment Act. This is important especially if you regularly issue payment claims and in case of a payment dispute. The below is general in nature and may not apply in all cases. It is important to get specific legal advice from a construction lawyer tailored to your situation.
Pitfall 1: Lack of Documentation
Supporting documentation is the backbone of a successful payment claim under the Security of Payment Act. This is particularly important if a payment claim is disputed and it is referred to an adjudicator under the Act. Failing to maintain supporting documents in the event a claim proceeds to an adjudication under the Security of Payment Act can be a significant pitfall. To avoid this pitfall, ensure that you maintain written records of all relevant documents, including contracts, invoices, receipts, and correspondence. You should ensure that the items claimed in a payment claim can be supported by evidence that the work was carried out.
Pitfall 2: Incorrect Claim Timing
The Security of Payment Act has strict timeframes for submitting payment claims. Failing to adhere to these deadlines or submitting multiple payment claims within one period can make a payment claim invalid. It is crucial to understand the timeframes and submit your claims within them. Ignoring these timelines can lead to an invalid payment claim which may compromise your rights should you want to proceed to an adjudication under the Security of Payment Act to resolve payment disputes.
Pitfall 3: Inadequate Description of Work
Payment claims must adequately describe the construction work that has been completed or related goods and services that have been supplied. Failing to provide a description of the work that each party understands is another pitfall. Vague or incomplete descriptions leave room for interpretation, which can lead to conflicts down the track. To avoid this pitfall, adequately describe the work performed, including its scope, quality, and quantity in a payment claim. Providing photographs or diagrams can also help clarify the nature of the work. Should a payment claim refer to documents, unless that document is clearly identified, it should be included in the payment claim.
Pitfall 4: Calculation Errors
Accurate calculation of payment amounts is crucial. You should also indicate the total claimed amount (inclusive of GST) clearly on the payment claim and how that amount was calculated. It is also important to ensure that all relevant costs are included. Check and double-check your calculations to avoid calculation errors or underclaiming for your work.
Pitfall 5: Failure to state that the payment claim is made under the Act
The Act prescribes strict requirements in terms of formalities. One of those is that for a payment claim to be valid it must state that it is made under the Act. In New South Wales, it should state that it is made under the Building and Construction Industry Security of Payment Act 1999 (NSW). You should also ensure that the payment claim is addressed to the correct entity. Neglecting these requirements can invalidate your payment claim and compromise your rights if you decide to proceed to an adjudication under the Security of Payment Act.
In summary, the Security of Payment Act is a valuable tool for securing payments in the construction industry for construction work carried out or related goods and services supplied. However, it is essential to be aware of some of the potential issues when preparing a payment claim. We recommend seeking legal advice to ensure that a payment claim is valid particularly in cases where there is a payment dispute between the parties.
We, at CCS Legal, are here to assist you when preparing payment claims and can provide specific legal advice tailored to you, whether you are a contractor, builder or supplier. We regularly prepare payment claims and guide our clients through the Security of Payment Act process.
Please feel free to contact one of our team for assistance.