Fake disputes: when payment is delayed by invented problems

The pattern you recognise

You finish the work. The site runs without incident. No defect is raised, no complaint is made and no one asks you to return to fix anything.

Then the invoice goes in. A week passes. You follow up. That is when the builder tells you there is a problem with the waterproofing, or the concrete mix, or the finish. The complaint appears for the first time after payment is due.

The builder is not refusing to pay outright. They say the dispute needs to be sorted out first. It sounds procedural. Underneath, it is often a delay tactic designed to manage the other party's cash position or avoid the debt altogether.

Why late defect claims are a warning sign

A genuine defect is usually identified during the work or shortly after completion. The site supervisor notices it, a principal's representative raises it or the builder sends a written notice.

A defect that appears only after an invoice is submitted, with no prior mention and no supporting evidence, is a different matter. It may be real, but the timing and the absence of earlier communication both justify scrutiny.

The risk is that the delay becomes indefinite. The longer a dispute sits unresolved, the harder it becomes to recover payment and the more likely the debtor's financial position deteriorates.

Document the position now

Stop treating the claim as genuine until you have seen evidence. Ask for the defect allegation in writing. Ask what standard was not met, when the problem was first noticed and who identified it.

Record every conversation, email and message from this point. Note the date, the person you spoke to and what was said. If the builder refuses to put the complaint in writing or cannot explain the detail, that strengthens your position.

Gather your own records: the contract, any scope variations, site instructions, progress reports, approvals and photographs. If the work was inspected or signed off during the job, keep that evidence together. This material is what you will rely on if the matter is disputed formally.

Security of Payment rights in New South Wales

In New South Wales, the Building and Construction Industry Security of Payment Act 1999 provides a process for resolving payment disputes quickly. If you have served a payment claim under a construction contract and the respondent disputes the amount, they must provide a payment schedule within ten business days after the claim is served.

If no payment schedule is provided within that time and the amount is not paid, the respondent becomes liable for the full claimed amount. You may then apply for adjudication or commence court proceedings. If a payment schedule is provided but you dispute it, you may apply for adjudication within ten business days of receiving the schedule.

Adjudication is faster and cheaper than court. The adjudicator must make a determination within ten business days after accepting the application. Payment of the adjudicated amount is due five business days after the determination is served.

Other Australian states and territories have equivalent Security of Payment legislation with different timeframes and procedures. The deadlines are strict. If you believe you have a payment claim under construction work, seek advice promptly to preserve your rights.

Source: NSW Government: Making a payment claim under Security of Payment laws

Formal demand and statutory demand options

A formal letter of demand sets a clear deadline, creates a record that you pursued the debt properly and may prompt payment without further action.

If the debt is at least four thousand dollars, the debtor is a company and the amount is due and payable, a statutory demand under section 459E of the Corporations Act 2001 may be an option. The demand must be in the prescribed form and served correctly. The company then has 21 days to pay the debt, secure it to your reasonable satisfaction or apply to set the demand aside.

If the company fails to comply and does not apply to set aside the demand within 21 days, it is presumed to be insolvent. That presumption can be relied upon in a winding-up application within three months.

A statutory demand is a serious step with strict formal requirements and potential consequences if the debt is genuinely disputed or the demand is defective. Obtain legal advice before issuing one.

Source: Federal Court: Winding up proceedings based on an unsatisfied Statutory Demand

Act early, before options close

The biggest mistake is waiting. You want to preserve the relationship. You hope the builder will come good. Three months pass and the debt is harder to recover, the builder's financial position may have worsened and your available remedies have narrowed.

Gather your contract, invoices, correspondence, approvals and site records now. Confirm the amount outstanding and the legal entity you contracted with. Decide on a proportionate next step: a clear follow-up, a formal demand, advice on Security of Payment rights or another recovery pathway.

If you see signs of financial difficulty, the builder has gone quiet, stopped paying other creditors or is the subject of administration rumours, seek advice immediately. The time to act is while the debtor is still trading and assets remain available, not after a liquidator is appointed.