Residential builders now covered by Security of Payment Act

Residential builders now covered by Security of Payment Act

Residential builders who contract directly with owner occupiers will benefit from now being covered by the Building and Construction Industry Security of Payment Act 1999 (Security of Payment Act). Owner occupiers were exempt from the Act until March 1, 2021. That changed when the NSW Government released the Building and Construction Industry Security of Payment Regulation 2020 (the Regulation).

What is the Security of Payment Act?

The Act sets out payment requirements in the building and construction industry that Principals, Head Contractors, Subcontractors and suppliers must follow. All contractors providing goods or services for construction work have the right to receive progress payments for work delivered. It sets down maximum payment deadlines and the option of adjudication if payment is not made on time.

How does the Act benefit Residential Builders?

The Act will help many residential builders improve cashflow by being to obtain more regular payments. It will also help to solve payment disputes more easily and cost effectively. The Act gives Residential Builders the right to make a claim for payment from owner occupiers on the last day of each month from when work commences.

This is a useful tool for Residential Builders as under Housing Industry Association (HIA) and Master builders Association (MBA) Standard Contracts Builders can usually only claim payment after completing certain stages of work. Owner occupiers must respond with a payment schedule within 10 business days (or an earlier time frame set out in the contract) setting out the amount they propose to pay and, if the amount is less than the full amount of the claim for payment, their reasons why.

If builders do not receive a payment schedule within that time they can suspend works by giving two days notice in writing. They also have two other options.

  1. Create a statutory debt and take legal proceedings to recover the money. The owner-occupier cannot raise any defence or cross-claim about matters arising out of the contract.
  2. Give the owners five more business days to respond with a payment schedule or proceed to adjudication.

If a builder receives a payment schedule from an owner occupier that they disagree with, they have 10 business days to apply for adjudication of their claim through an authorised nominating authority (such as Adjudicate Today). Adjudication is generally much quicker and less expensive than recovering payments through the Courts or the NSW Civil and Administrative Tribunal (NCAT).

An enforceable determination usually takes three to four weeks after lodging the Adjudication Application.

What do residential builders have to do to be covered under the Act?

To be covered by the Act, Builders’ claims for payment must state that they are being made pursuant to the Act and accurately describe the works. Builders should include these words on their invoice: This is a payment claim made pursuant to the Building and Construction Industry Security of Payment Act.

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