What is the Security of Payment Act?

The Building and Construction Industry Security of Payment Act 1999 (NSW), commonly referred to as the Security of Payment Act, stands as a cornerstone in protecting the rights of contractors within the construction industry. Despite its longstanding presence, it is still surprising to see the number of industry players who remain unaware of its existence or who are not entirely aware of their entitlements under the Act.

Crucially, the Security of Payment Act provides contractors with statutory mechanisms to recover outstanding invoices. With cash flow being paramount within the construction industry, the Act aims to facilitate the movement of funds between project stakeholders in an effort to reduce insolvencies within the industry.

Each state within Australia has adopted its own version of the Security of Payment Act. In this article, we will be focusing on the rights applicable in New South Wales.

Right to issue a payment claim under the Security of Payment Act

Contractors have a statutory right, as per section 13 of the Act, to submit payment claims on a monthly basis for completed construction works. This provision offers a valuable avenue for regular invoicing, particularly in circumstances where the contract stipulates milestone invoicing or invoicing at the end of the project only.

Right to suspend works under the Security of Payment Act

The Act grants contractors with an entitlement to suspend works in response to non-payment of valid payment claims. There is a process which you will need to follow when suspending works, particularly the requirement of issuing a valid notice of intention to do so. If done properly, you will be protected from a claim for any loss associated with your suspension. Abboud and Associates Law Firm can assist in drafting compliant notices to safeguard your interests. 

Right to adjudication 

The Act describes a process of adjudication which presents a swift alternative to court proceedings for the recovery of outstanding invoices. Under this process, an appointed adjudicator assesses the payment claim and delivers a determination within a relatively short timeframe, typically between 6-8 weeks. The determination made by the adjudicator can then be registered as a judgment in Court.

The adjudication process stipulates very tight deadlines and failure to adhere to the deadlines will preclude you from the benefits of the adjudication process. Further, you will need to ensure that the payment claim subject of the adjudication process is a valid payment claim under the Act. If it is not valid, then you cannot proceed with an adjudication.

Abboud & Associates’ construction lawyers offer guidance on preparing valid payment claims and properly navigating the adjudication process. If you have recently issued a payment claim or have received a payment schedule, please consult with us urgently to ensure that you remain compliant with the deadlines for adjudication.

Removal of “pay when paid” provisions 

The Act voids any “pay when paid” provisions used in construction contracts. Accordingly, the common excuse of "I'll pay you when I get paid by the principal" is no longer viable. Despite the Act voiding these provisions, industry players still use this excuse in an effort to delay you in recovery of your outstanding invoices. This delay can significantly affect your rights under the Act, particularly if it means failing to adhere to adjudication timelines.

The Security of Payment Act is a very powerful tool for contractors within the construction industry. There are very specific requirements when relying on the Act and we encourage you to engage with our Sydney construction lawyers promptly to ensure compliance and to preserve your entitlements.