Many businesses in the building and construction industry remain confused or are putting themselves at risk because they do not understand their rights and responsibilities regarding payment claims.
In the building and construction industry there are payment requirements that principals, head contractors, subcontractors and suppliers must follow. These are regulated by the Building and Construction Industry Security of Payment Act 1999. The Act is likely to be reviewed soon but, in the meantime, there have been important changes over the past couple of years that impact business’ bottom line.
All contractors providing goods or services as part of construction work have the right to receive ‘progress payments’ for work performed. Here are three common areas of misunderstanding.
1. Every claim for payment is claim under the Act
It used to be the case that invoices and payment summaries had to have a statement to say this is a payment claim made under the Act to be protected. This is no longer the case. Every claim for payment is a payment claim under the Act and invokes strict time requirements for responses by way of a Payment Schedule.
2. Maximum payments are set
I often hear of contractors and principals trying to stretch payment terms to sub contractors to 60 and 90 days, and say it’s normal. This is illegal. The Act sets down maximum payment terms.
|Payment claim||Payment deadlines|
|Payment by principal to head contractor||15 business days after claim is made|
|Payment by head contractor to subcontractor (non-residential)||30 business days after claim is made|
|Payment by head contractor to subcontractor (residential)||10 business days after claim is made|
These deadlines are maximum timeframes. Your contract can specify shorter deadlines, so you should always check your contract first.
3. Read the contract. Contract with the main contractor.
I have had subcontractors recently come to me after having lost hundreds of thousands of dollars because the main contractor has set up a project company or shelf company in the contract with subcontractors. It is a deliberate trap. The subcontractor tries to invoke the payment requirements under the Act but the company in the contract is valueless and is often wound up so it cannot be pursued for payment. The Act offers no protection at the moment in this regard.
It is important to read any contract carefully to determine the exact parties to the contract. Do searches on the companies in the contract. Better still, get an experienced lawyer or business advisor to do this for you.
You can find out more about this important area plus get some tips on tax structures from SiDCOR at a free seminar I am holding on October 26.
KEYS TO SUCCESS BREAKFAST SEMINAR
When | Wednesday October 26
Time | 7.30 – 8.45am
Where | SiDCOR, 50 Hunter St, Newcastle
RSVP | Bookings essential by Oct 21: [email protected] or 4915 9950