Disputed Progress Payment Claims

The Building and Construction Industry Security of Payment Act 2009 (SA) (“the Act”) is often referred to as a ‘pay now, argue later’ procedure entitling contractors and subcontractors to progress payments and quick resolution when disputes arise. However, there remains unfamiliarity with the processes, and key timing for those processes, when dealing with disputed payment claims made under the Act. Here’s a quick (as opposed to complete) list of the events (and associated timing) that unfold following receipt of a progress payment issued pursuant to the Act.

Progress Payments

1. A progress payment can be a:
   • Final payment;
   • One-off payment; or
   • Milestone payment.
2. The amount of a progress payment is determined in accordance with the contract, but if the contract does not specify the amount it will be assessed in terms of the value of the work carried out.

Payment Claim

3. To invoke the Act the person entitled to a progress payment must serve a payment claim on the person responsible for payment. That claim must:
   • identify the work to which the progress payment relates;
   • indicate the amount of the progress payment claimed to be due; and
   • state that they are doing so under the Act. For example:

“This is a payment claim under the Building and Construction Security of Payments Act 2009 (SA)…”

Payment Schedule

4. A person served with a payment claim may respond by providing a payment schedule either within 15 business days or the period specified in the contract, whichever comes first.
5. The payment schedule must:
   • identify the relevant payment claim;
   • identify the amount the person served with the claim proposes to pay; and
   • if the amount proposed to be paid is less than the payment claim, indicate why it is less and the reasons for withholding payment.

Payment

6. Where a person fails:
   • to respond to a payment claim within the earlier of the time required by the contract or 15 days; and/or
   • to pay the amount due and payable in accordance with either the progress claim or the payment schedule,

the progress claim can be recovered as a due debt in a court.

If proceedings are commenced, the recipient of the progress claim is not entitled to bring a cross-action (i.e. for defective works) or raise a defence (other than that the progress claim does not comply with the Act and therefore, no liability to make payment has arisen). Remember, it is a ‘pay now, argue later’ scheme.

Adjudication

7. Where:
   • a payment claim is disputed and a payment schedule is provided; or
   • payment is not made in accordance with a payment schedule by the due date; or
   • no payment schedule is provided, but the claimant otherwise decides, (as an alternative to proceedings)
   • where a payment schedule is provided that proposes to pay less than the claimed debt, within 15 days of receiving the payment schedule; or
   • where a payment schedule is provided, but the payment is not made by the due date, within 20 days after the due date of the payment.

8. Where no payment schedule is provided in response to a progress claim, the claimant can make an application for adjudication provided the claimant has notified the other party of his/her intention to make such an application:
   • within 20 business days immediately following the due date for payment of the progress claim; and
   • the other party was given an opportunity to provide a payment schedule within 5 business days of being notified by the claimant.
9. Following this, the people involved will be notified of the adjudicator’s appointment.

Response

10. The person served with an adjudication application claim can lodge a response within five business days of receiving the application or within two business days of receiving notice of the adjudicator’s appointment.
11. The response:
    • must be in writing;
    • must identify the relevant adjudication application;
    • may contain submissions relevant to the response; and
    • must be served on the person making the payment claim.
12. However, you cannot submit a response if you did not provide a payment schedule following receipt of the payment claim, or, alternatively, following receipt of notice of the claimant’s intention to refer the matter to adjudication.
13. The response cannot introduce new reasons for withholding payment, which further highlights the importance of preparing a payment schedule.

Obligations

14. The adjudicator is required to make a decision generally within ten business days of the response.
15. If the adjudicator determines an amount is payable, it must be paid within 5 days of the adjudicator’s decision.
16. If the adjudicated amount is not paid in the timeframe, the person claiming payment may request an adjudication certificate and serve notice of their intention to suspend the work (or supply of goods) to which the adjudicated amount relates.
17. The person owed the payment can file an adjudication certificate with the Court as a judgment which is enforceable.
18. If the person against whom a judgment is entered chooses to challenge that judgment, that person:
    • cannot bring a cross claim against the person seeking judgment;
    • cannot raise a defence in relation to matters arising from the construction contract;
    • cannot challenge the adjudicator’s decision; and
    • is required to pay the unpaid amount into the Court as security pending the final determination in those proceedings.
19. Once the adjudicated amount is paid, the aggrieved person can institute court proceedings to claim against the other party for any set off (by way of repayment) and/or costs of the defective works in the ordinary course.

For further information or advice on disputes under the Building and Construction Industry Security of Payment Act 2009 (SA) contact Joe De Ruvo.