If you are a subcontractor and you are not issuing valid payment claims, you may be working for free.
So, what is a valid payment claim?
For a payment claim to be valid under the Building and Construction Industry Security of Payment Act 1999 (NSW) (‘the Act’), it must include the following mandatory elements:
(a) identify the construction work to which the progress payment relates;
(b) indicate the amount of the progress payment that the subcontractor claims to be due; and
(c) state that it is made under this Act.
If the claim is not compliant, you may lose your ability to adjudicate the claim, suspend work, or enforce payment through the statutory process. This often proves to be a costly mistake, because the work has been done but the legal right to recover the payment has not been preserved.
The three-payment claim traps every subcontractor should know
1. Missing the time limits for serving a payment claim
A payment claim may be served only within:
(a) the period determined by or in accordance with the terms of the construction contract, and
(b) the period of 12 months after the construction work to which the claim relates was last carried out.
We note that notwithstanding the Acts prevalence to the terms of the construction contract (in relation to the time for claiming payments, etc) at Baybridge, the sought standard is to explicitly codify our client’s rights in the relevant agreement, to avoid unnecessary disputes over interpretation.
2. Not using the Act when payment is not made (and losing the right to suspend work)
A subcontractor may suspend the carrying out of construction work under a construction contract if at least 2 business days have passed since the subcontractor has provided notice of their intention to do so to the contractor, and pursuant to the following requisite steps being satisfied:
In order for a subcontractor to employ their rights to stop work, the following criteria must be met:
(a) A valid claim must be issued by the subcontractor;
(b) The contractor provides a payment schedule, or otherwise fails to do so within 10 business days, the latter omission certifying the amount owing in the subcontractors claim; and
(c) The contractor fails to pay the whole or any part of the claimed amount on or before the due date for the progress payment.
3. Not “identifying the work” in a payment claim
As previously noted, the subcontractor can rely on the Act for protection, but this will generally be triggered when a dispute arises. As a result, we always suggest our subcontractors go into a project complying with the contracts payment claim provisions, to avoid unnecessary disputes, delayed payments, and possibly adjudication and/or litigation.
At Baybridge, we assist subcontractors by:
- Reviewing payment claims before they are issued to ensure compliance with the requirements of the Act, giving you confidence that your statutory rights are properly triggered when you claim;
- Reviewing your contract and identifying critical dates and claim windows so you can set reminders and avoid missing statutory deadlines; and
- Responding to payment schedules to protect your entitlement and maintain leverage.
Case Study: Nepean Engineering Pty Ltd v Total Process Services Pty Ltd (In Liquidation) [2005] NSWCA 409
What does “identify the work” actually mean?
The Court confirmed that the element of ‘identifying the work’ is capable of being satisfied where:
(a) The payment claim gives an item reference which, in the absence of evidence to the contrary, is to be taken as referring to the contractual or other identification of the work;
(b) That reference is supplemented by a single line item description of the work;
(c) Particulars are given of the amount previously completed and claimed and the amount now said to be complete; and
(d) There is a summary that pulls all the details together and states the amount claimed.
Perfection is not required but vagueness is fatal.
This article was written by Jack Coles, Senior Associate and Georgia Beddow, Law Graduate.
