BUILDING, CONSTRUCTION & INFRASTRUCTURE LAW

THE SECURITY FOR PAYMENTS ACT

An introductory guide to help construction professionals navigate the Security for Payments Act and avoid the pitfalls

Introduction:

This e-book is written for the purpose of assisting construction professionals to navigate the fundamentals of the Security for Payment Act regime in a clear and concise manner. This e-book is not intended or given as legal advice but is solely to provide general information that will hopefully enable you to avoid some of the common pitfalls that might prevent you from either getting paid on time or might force you to make payments you otherwise would not have to make.

The Security for Payment Act 2009 (SA) [SOPA] is one of several similar Acts found in each State and Territory of Australia. Knowing how important cash flow is to the construction industry, the purpose of these Acts is to enable quick adjudication of payment disputes in construction matters in a straightforward manner as a project progresses.

However, as time has passed and more cases have occurred, SOPA has become more complex and legally technical, with critical timeframes and procedural details that can easily trip you up if you aren’t careful and up to date. There are also differences in each Act that require advice and consideration of the wording of the contract and the location of the construction itself.

While this book will only cover the SA regime, at Ezra Legal we will help you work around the different States and Territories systems. Knowing which regime operates for your project can be crucial.

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Chapter 1:
Common pitfalls and important tips

FOR CLAIMANTS

What to put in the payment claim?

Always make sure your payment claim identifies the works, goods, and/or services you are claiming for.

State the amount claimed and remember, the more that amount is broken down (without making it too hard to understand) with reference to the works/goods /services you identified, the better.

While not always necessary, it is better to state that the payment claim is endorsed under the relevant Security for Payment Act.

What NOT to put in the payment claim?

Don’t claim for excluded works under SOPA. While this list is not exhaustive,  excluded works are primarily related to extracting oil, natural gas, and minerals and the associated works to do so.

Don’t claim for works that you performed or intend to perform after the reference date for that given payment claim.

When to send the payment claim?

While details of timeframes will be dealt with later, it is vital to NOT serve your payment claim before the reference date in the contract (or if your contract does not state one, the statutory one). In SA that’s the last day of the month work was done under the contract. Serving late can also cause issues.

Do I need to give notice before adjudication?

YES. After you have sent the payment claim, if the respondent has not paid the amount that you have claimed, you need to give them notice within 20 days of the due date of payment that you are intending to apply for adjudication.

Can I stop work if I’m not being paid?

In SA, if no payment schedule is returned, if the payment schedule is returned but the amount in that schedule is not paid, or if there has been an adjudication and the adjudicated amount is not paid, you must give the respondent a notice of intention to cease work TWO clear business days before you can suspend work if you want SOPA to protect you.

What if I’m unhappy with the adjudication result?

While you can challenge an adjudicator’s determination in Court for certain matters, you need to do so promptly.

There isn’t a strict timeframe but the Courts have found that even waiting 8 months is too long. If you are unhappy with an adjudication result, it is best to seek legal advice as soon as possible as to whether you have a prospective claim.

FOR RESPONDENTS

When do I have to send my payment schedule?

In SA you have 10 business days to respond with your payment schedule. If you get the payment claim end of a Friday, you’re still going to need that payment schedule back to the other side (in accordance with the contract’s method of service) by the Friday after next.

What do I put in my payment schedule?

The payment schedule should identify the payment claim it is responding to, the reference date by which the payment claim is bound to, and then state the amount you intend to pay.

If that amount is less than what is claimed, provide EVERY reason for each element you either intend not to pay for or intend to pay less for. You can’t rely on reasons you did not give in an adjudication in SA.

Paying the amount

You must pay the amount you have stated in your payment schedule within either the timeframe set out in the contract or SOPA.

In SA under SOPA it is 15 days after being served with the payment claim. After that date, interest will start to accrue under the higher % RATE set out in the contract or the Supreme Court Act.

What if I haven’t been paid by my head contractor?

Even if your contract has a “pay when paid” provision, in SA that clause will have zero legal effect. You will still need to pay the claimant what you put in your schedule, and you cannot use the absence of payment “up the chain” in the payment schedule or an adjudicator will find against you.

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Chapter 2:
Timing in Security for Payment Disputes

Moving past the ideal scenarios where you serve your Payment Claim, the other side serves their Payment Schedule, you both agree the amount, and the amount is paid on time, this section will help clarify the important timeframes in SOPA disputes.

FOR CLAIMANTS

Scenario One

Serve your Payment Claim (Claim) on the reference date as stipulated in the contract or SOPA. After 15 business days have expired from serving the Claim, if the Respondent has not both served a Payment Schedule (Schedule) and paid the money, you can suspend work with 2 business days notice and/or provide notice within 20 business days for the Respondent to give them a second chance to serve their Schedule.

If they once again fail to serve a Schedule (within 5 business days of the second chance) you need to prepare and serve your adjudication application within 15 business days of that second chance period lapsing. Note that in circumstances where the Respondent did not provide a Schedule at all, they cannot respond to the adjudication application. The adjudicator will have to decide solely on the material you have provided.

If the Respondent takes the second chance to serve their Schedule, the path will morph into Scenario Two.

Scenario Two

Serve your Claim on the reference date as above. In this Scenario, the Respondent serves their Schedule within the timeframe but you dispute the scheduled amount. You then have 15 business days from receiving the Schedule to once again file your adjudication application. This time, however, the Respondent can serve an adjudication response within 5 business days of receiving the application, or 2 business days from receiving the adjudicator’s acceptance of the application, whichever is later.

Scenario Three

However you end up there, if you have obtained a favourable adjudication determination in which the Respondent has to pay an amount, including fees to the adjudicator and interest, if they do not, you once again can suspend work with 2 business days notice. After that you can apply for and obtain an adjudication certificate from the authorised nominating authority who selected the adjudicator and can have the Court Registrar enter judgment based on that certificate. After that it can be enforced through Court processes.

WARNING

Always check the contract, as certain elements of this timeline can be affected by the contract. If you have any doubts or questions, do not hesitate to call Ezra Legal on 8231 6100 and a quick consultation can be arranged to ensure you do not run into any costly issues.

FOR RESPONDENTS

Like the previous page, this will illustrate the timing requirements for responding to a Payment Claim (Claim) you dispute. There are less to comply with so this page will deal with some other things to consider.

At most, you have 15 business days from being served the Claim to provide your Payment Schedule (Schedule) setting out what you believe should be paid on the Claim and in what amount, and if less than what is claimed, EVERY reason why the amount has been reduced.

This might include reasons such as:

  • deficiency in the works;
  • inflated costs for things that were already incorporated into the initial price;
  • a failure to serve a proper payment claim;
  • a failure to serve a payment claim on the right day; and
  • recalculations of what is the proper amount owing for certain items.

The larger the disputed amount, the more important it is to make sure that the payment schedule is carefully prepared to provide you with the most “tools at your disposal” when the Claimant likely takes the dispute to an adjudication. While you can in some states like Victoria, which kicks off a last stage of responses by the Claimant, in SA you cannot include extra reasons you did not put in your Schedule.

Even if you believe the Claim is entirely invalid, always serve a Schedule, otherwise you can lose your chance to respond in any adjudication.

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Chapter 3:
Conclusion

While the best “cure” for construction disputes is to be detailed and on-top of your obligations under SOPA, getting robust legal advice as soon as you sense problems arising can make the difference between costly adjudication decisions that may require difficult, lengthy, and expensive litigation to redress and a headache free project. Similarly, if you have been served with a Payment Claim that you believe will result in a dispute, having an experienced construction lawyer review and assist in the preparation of your Payment Schedule can be vital in defending a costly adjudication application.

Careful documentation and following the timeframes set out in the SOPA and any relevant construction contract will not only save you money but the stress and uncertainty that comes with disputes, whether the dispute is through SOPA or the Courts.

Failure to comply with the time limits imposed under the Security of Payment legislation can have serious adverse consequences

Michael Fabbro
Principal
Ezra Legal
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Team at Ezra Legal

Chapter 4:

How can Ezra Legal help?

Should you find yourself needing legal advice, our team can help. We can work with you to develop strategies to avoid disputes, or resolve them once they materialise.

Our services include:

  1. Initial assessment of your risks and options under the Security of Payment Act;
  2. Expertise across all jurisdictions;
  3. Accurate, up-to-date and timely support.

We have outstanding experience in construction law, acting for claimants and respondents.

Experience Since 2005 Ezra Legal has been providing advice on all areas of commercial law

Expertise We have over 50 years combined experience in the area of construction law

Reliability We’ll help you weigh-up your options by giving you straight-up, no-nonsense advice

Trust We are honest and reliable, going the extra mile to ensure our clients are 100% satisfied

Everyday we help construction professionals to resolve disputes and provide timely advice to prevent them from occurring

Michael Fabbro

Contact Michael Fabbro

Email: mfabbro@ezralegal.com.au
Tel: (08) 8231 6100
Website: Ezra Legal – Services – Commercial Law 

When we entered in to a complex legal dispute with our contractors over a major construction project, the advice and support we received from Ezra Legal was invaluable

Matt Corby - CEO
Categories: Commercial, Ebook

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