Security of payment law: why strict time limits matter for construction contractors
An unpaid invoice and no clear next step
A subcontractor finishes the work, invoices, follows up and receives excuses. The invoice sits unpaid while the next job starts. Eventually it either gets written off or handed to a lawyer whose fees may exceed the debt.
Security of payment legislation in New South Wales provides construction contractors with a statutory payment process that does not require ordinary court proceedings. The Building and Construction Industry Security of Payment Act 1999 (NSW) applies to subcontractors, suppliers, consultants and others providing construction work or goods under a contract.
The legislation has been in force in NSW since 2000, yet the statutory process remains unfamiliar to contractors who could use it.
Source: Building and Construction Industry Security of Payment Act 1999 No 46
What security of payment law does
The Act establishes a statutory entitlement to progress payments and a procedure for recovering them. The process involves serving a payment claim, receiving a payment schedule from the paying party and, if the amount is disputed or unpaid, applying for adjudication.
Adjudication is an interim determination by an independent adjudicator. It is not court. The adjudicator reviews the claim, the payment schedule and supporting material, then decides what amount is payable and when. The determination is binding unless later challenged in court or arbitration on the underlying contract.
The process can move within weeks rather than months or years. An adjudicator must determine an adjudication application within ten business days after the respondent lodges a response or the period for lodging a response expires. Payment of the adjudicated amount is due within five business days of the decision.
Source: Building and Construction Industry Security of Payment Act 1999 (NSW), ss 21(3), 23(1)
Why the paperwork matters
A payment claim under security of payment law is not the same as an ordinary invoice. The claim must identify the construction work or goods, indicate the amount claimed and state that it is made under the Act. For a residential subcontractor, the claim must include the statement: 'This is a payment claim made under the Building and Construction Industry Security of Payment Act 1999 NSW'.
A claim that does not meet the statutory requirements is not a valid security of payment claim. It remains an ordinary invoice, and the statutory process and deadlines do not apply to it.
The paying party must respond with a payment schedule within ten business days or the time required by the contract, whichever is earlier. If no payment schedule is provided and the amount is not paid, the claimant can pursue the debt in court or, after giving notice, apply for adjudication. If a payment schedule is provided but the amount is less than claimed, the claimant can apply for adjudication within ten business days of receiving the schedule.
Time limits that close the door
A payment claim may be served within the period stated in the contract or within twelve months after the work was last carried out or the goods were last supplied, whichever is the later. Missing that deadline removes the ability to use the security of payment process for that work.
Once a claim is made, the deadlines for responding, applying for adjudication and paying an adjudicated amount are measured in business days. The window to apply for adjudication after receiving a disputed payment schedule is ten business days. If the respondent fails to pay by the due date, the application window is twenty business days from that due date.
These are statutory deadlines. Extensions are not available simply because the claimant was busy or did not know the rules. Miss the deadline and the security of payment path for that claim is closed.
Source: Building and Construction Industry Security of Payment Act 1999 (NSW), ss 13(4), 17(3)
Common practical obstacles
The legislation is not taught on site or during an apprenticeship. Contractors often learn about it only after an invoice has gone unpaid for months and the statutory deadlines have already passed.
Others know the legislation exists but are uncertain about the paperwork or assume the process is too complicated or expensive. When a claim is prepared correctly and lodged within time, it offers a faster and often less expensive route than starting court proceedings.
Some contractors attempt to prepare a claim themselves without checking the statutory requirements, the wording that must appear on the claim, the deadlines that apply or whether the contract falls within the scope of the Act. A claim prepared without that knowledge may be invalid, leaving the contractor with an unenforceable document and no remaining time to fix it.
Check the contract, the dates and your position
Before deciding whether to make a security of payment claim in NSW, confirm the contract is a construction contract within the meaning of the Act and gather the contract, invoices, delivery records, site instructions and correspondence about payment.
Check when the work was last carried out or the goods were last supplied. Calculate the twelve-month period and any deadline in the contract, and identify which is later. If that deadline has passed, security of payment adjudication may no longer be available for that work.
If a valid claim can still be made, prepare it in the required form, ensure it includes the statutory statement and serve it in the manner required by the contract or the Act. Keep proof of service and a copy of everything sent.
What to do now if an invoice is unpaid
If someone owes you money for construction work already done, do not wait to see whether they eventually pay. Check whether a security of payment claim is still available, what the applicable deadlines are and whether the claim would be valid.
Gather the records that establish what was agreed, what work was done, what has been invoiced and what response, if any, has been received. Obtain advice on whether the security of payment process is appropriate for your situation, whether the paperwork is correct and what other recovery options exist.
The security of payment process is not a guarantee of payment. It provides a mechanism for obtaining a determination quickly. Whether that determination can be enforced and whether the debtor has the capacity to pay are separate questions. A clear view of the position and the available options is the starting point for any recovery decision.
CRP works with construction businesses, subcontractors and suppliers dealing with unpaid debts, cash flow pressure and disputed accounts. Use the contact form below to explain your situation.