Securing Payment in the Building Industry: Using Adjudication during COVID-19 Pandemic

The Building and Construction Industry Security of Payment Act 2002 (VIC) – or, as most people call it ‘Security of Payment Act’ (the Act), is a legislation that is intended to reduce the incidence of insolvency in the construction industry by promoting the flow of money to subcontractors.

This Act can be a useful tool to secure payment including during these difficult times affected by the COVID-19 pandemic.

The Act provides legislative protections for those seeking payment. It does this by:

  • providing specific rights and protections for contractors; and
  • prescribing a statutory mechanism for recovering progress payments.

Does the Act apply to you?

The Act applies to any company, business or individual who commences construction work or the supply of related goods and services under a construction contract.

In practice, any contractor, subcontractor, consultant or supplier working within the construction industry, will fall within the Act’s jurisdiction.

Importantly, pursuant to Section 7(b) of the Act, residential building work is excluded where the principal resides in, or proposes to reside in, the premises where the work is carried out.  Recent Supreme Court authority in Victoria has cleared the path for claims to be made against one-off property developers including residential property owners.

What are the general protections given to contractors?

The main protections given to contractors in Victoria are:

  • a statutory right to make regular payment claims, and maximum periods of time for principals to respond to those claims (failing which the claim will be payable in full);
  • default payment terms (10 business days);
  • a statutory right to suspend work following non-payment; and
  • a prohibition on contracting out of the Act

How do you issue a payment claim under the Act?

Payment claims can be claimed at any stage of the construction process and can be either a one-off single payment, a milestone payment or a final payment.

There are three key points to be aware of when issuing a payment claim: the timing of when payment claims can be made;

  1. the timing of when payment claims can be made;
  2. the content which must be outlined in payment claims; and
  3. how the payment claim is to be served on the other party

Payment or payment schedule

The Respondent has two options upon being served with the Payment Claim:

  1. pay the claim in full; or,
  2. if the claim is disputed, provide the Claimant a Payment Schedule

A Payment Schedule provides the Respondent an opportunity to demonstrate:

  1. how much the Respondent is willing to pay; and
  2. why discrepancies exist between the alleged amount owed

Respondents are obligated to provide a Payment Schedule within 10 business days of service or however stipulated by the contract. Failure to do so will make the Respondent liable to pay the full amount claimed. Therefore, it is imperative that parties are aware of the imposed time limits.

Adjudication process

Adjudication is a streamlined process that allows a contractor to recover a disputed or unpaid progress payment. The dispute is determined by an independent adjudicator. Adjudicators are continuing to operate through the COVID-19 pandemic.

After accepting nomination, the adjudicator has 10 business days (or up to 15 business days by agreement) to determine the matter.

Determinations may include:

  • whether a debt exists at all;
  • how much the debt is; and
  • what is a reasonable payment period

This process is designed to be a swift and effective method of dealing with construction payment disputes. The short turnaround timeframes required under the Act, mean determinations are made not long after the work has been completed.

Court assistance

Although the Act’s purpose is to avoid the need for legal assistance, a Claimant can elect to bring an action in Court to resolve the dispute rather than apply for adjudication.

Debts can also be enforced through Court proceedings and through usual debt recovery procedures.

Our services

Should you wish to serve or have been served with a Payment Claim or an Adjudication Application now is the time to act.

If you are not satisfied with your determination or have not received payment after a determination has been made, please contact Oldham Construction Lawyers to seek assistance with receovering the payment.  

Should you require any assistance in clarifying your obligations, or require specific advice on construction matters, please contact our Director, Daniel Oldham on (03) 9640 0002, or via email info@oclawyers.com.au.