When’s a good time to ask for money?

Navigating the complex timeframes for making a payment claim under the Building and Construction Industry (Security of Payment) Act 2009 (ACT).

The Building and Construction Industry (Security of Payment) Act 2009 (ACT) (the Security of Payment Act) was enacted to facilitate builders getting paid for the work that they have performed in a timely manner. Unfortunately, however, the timeframes set under the Security of Payment Act for making a payment claim have been complicated by conflicting case law. We have been involved in a number of matters recently where a payment claim has been invalid due to non-compliance with the statutory timeframes. This has meant that the claimant cannot refer the dispute to adjudication or commence proceedings to recover the amount claimed as a debt owing under the Security of Payment Act and must start the process again by issuing another payment claim at the next reference date (provided that there is another reference date and they are not out of time).

Set out below is what you need to know to make sure that the payment claims you issue comply with the timeframes set out under the Security of Payment Act.

When does the Security of Payment Act apply?

The Security of Payment Act will apply if you have performed construction work, or supplied related goods and services, in the ACT pursuant to a construction contract (whether that contract is in writing or oral, or partly in writing and partly oral) that is covered by the Act.

A construction contract is covered by the Security of Payment Act provided that it:

  • is not:
    • part of a loan agreement, guarantee or indemnity, or contract of insurance;
    • a residential building contract to which a resident or intended resident is a party; or
    • a contract where the amount paid is worked out in some other way than with reference to the value of the goods, and
  • does not include provisions to the effect that:
    • a party undertakes the construction work as an employee of the person for whom the work is to be carried out;
    • a party undertakes the construction work as a condition of a loan agreement; and
    • a party loans, guarantees or indemnifies another party or agrees to repay a loan.

When do I have a right to issue a payment claim?

If the Security of Payment Act applies, you have a right to progress payments “on and from each reference date”.[2] If the contract provides specific dates for making progress claims, those dates are the “reference dates”. If the contact does not provide specific dates, the “reference dates” are the last day of each month, starting with the month in which construction work was first carried out or related goods and services were first supplied.

The matters that we have been involved in where a payment claim has been deemed to be invalid have generally been a result of builders and/ or contractors issuing claims that purport to be made pursuant to the Security of Payment Act after certain parts of work have been completed, with no regard to the relevant reference date.

The risk that a payment claim will be invalid for non-compliance with the statutory timeframes arises where there is no system in place to ensure that:

  • only one payment claim is made pursuant to each reference date; and
  • the payment claim is issued on or shortly after the reference date.

What if I issue more than one payment claim in relation to a reference date? Only the first payment claim issued will be valid (assuming that it complies with the other formal requirements of a payment claim). Any subsequently issued payment claims will not be enforceable under the Security of Payment Act.

What if I issue a payment claim after the relevant reference date? A claim can be made on or after each reference date although it will arguably be invalid if it is made after one reference date, and before the next reference date, but includes work done since the last reference date. For example, if the relevant reference date is 31 July, a claim issued after 31 July but before 31 August and which includes work done after 31 July will be arguably invalid.

The case law concerning whether such a claim is invalid, or merely a claim made early in respect of the next reference date, which will become a payment claim upon the arrival of the next reference date, is unsettled.[4]

What if I issue a payment claim before the relevant reference date? If you have issued a different payment claim in relation to the last reference date, a payment claim made before the next reference date is arguably invalid (as you can only make one claim in relation to each reference date), unless it can be said to be a payment claim made early in respect of the next reference date. As stated above, the case law concerning whether such a claim is invalid, or whether it becomes valid upon the arrival of the next reference date, is unsettled.

Is there a “cut off” time for issuing a payment claim under the Security of Payment Act? Yes. Any claim made under the Security of Payment Act has to be made before the later of:

  • The date in the contract for giving the last progress claim; or
  • 12 months after the latest work performed/ goods and services supplied that is the subject of the progress claim.

What does all of this mean for me?

If you have been issuing claims that purport to be made under to the Security of Payment Act whenever you have completed certain parts of work, without regard to the relevant reference dates under the contract, it is likely that at least one, and possibly many, of your payment claims are arguably invalid. Considering that previous payment claims can impact upon the validity of future payment claims (as only the first in respect of each reference date is valid) it is necessary to consider all claims previously made to determine whether a current claim is valid.

What should I do if I’m not sure when I can make a payment claim under the Security of Payment Act?

If you do not have a system in place to ensure that the payment claims you are issuing are issued at the correct times under the Security of Payment Act, you should simply issue normal invoices or progress claims and avoid issuing any claims that are purported to be made under the Act. If you are having trouble getting paid, you should seek legal advice on issuing a payment claim under the Security of Payment Act.

Please note that there are formal requirements other than the timing of making a payment claim (such as the content of the claim and service of same) that can also affect the validity of a payment claim.

If you would like to know more about the Security of Payment Act and how to ensure that you comply with its provisions, we are very happy to provide you with assistance.

For more information or assistance, please contact:

Alisa Taylor — Partner — Construction Dispute Resolution
(02) 6279 4388
alisa.taylor@mvlawyers.com.au

Kate May Senior — Lawyer — Construction Dispute Resolution
(02) 6279 4403
kate.may@mvlawyers.com.au