Residential builders and their claims under the Security of Payment Act

  1. Effective from 1 March 2021, the operation of the Building and Construction Industry Security of Payment Act 1999 (NSW) has been expanded due to an amendment made to the Building and Construction Industry Security of Payment Regulation 2020 (NSW) (collectively, ‘Security of Payment Laws’).
  2. The Security of Payment Laws now apply to ‘Owner occupier construction contracts’ in NSW entered into on or after 1 March 2021. Owner occupier contracts entered into before that date are unaffected by these amendments.

What are ‘Owner Occupier Construction Contracts’?

  1. ‘Owner occupier construction contracts’ are construction contracts for residential building work on any part of a premises, where the person for whom the work is performed resides or proposes to reside.
  2. For example: a homeowner engaging a builder to build a home they intend to live in, or a homeowner engaging tradespersons to renovate their home, under an owner-builder permit or otherwise.

Impacts of the changes

  1. Prior to these amendments, residential builders were unable to serve payment claims on homeowners, or enforce their claims under the Security of Payment Laws, which increased their risk of cashflow difficulties if the owners fell short on progress payments.
  2. This meant that residential builders were previously forced into lengthy and expensive dispute processes by having to commence proceedings at a court such as the NSW Civil and Administrative Tribunal.
  3. However, the amendments to the Security of Payment Laws mean that residential builders now:
    • have a statutory entitlement to receive progress payments, provided that the strict requirements for serving payment claims are adhered to; and
    • can use an efficient and effective dispute resolution system called ‘adjudication’ to enforce their entitlements to payment.
  4. Adjudication allows contractors and subcontractors to obtain an enforceable determination of their entitlements to payment within a matter of weeks, by making written submissions to an independent adjudicator.
  5. Adjudicators are nominated based on their experience in the construction industry.

What can be done?

  1. Residential builders not already familiar with the adjudication process should familiarise themselves with the remedies available under the Security of Payment Laws and be aware of the strict procedural requirements.
  2. Specifically, residential builders and subcontractors should seek advice on:
    • the various requirements for valid payment claims, including:
      • the specific requirement to include the phrase “This is a payment claim made under the Building and Construction Industry Security of Payment Act 1999 NSW” in each payment claim;
      • serving the prescribed supporting statement(s) with each payment claim; and
      • identifying in each payment claim the construction work carried out to date;
    • the critical dates and methods of service applicable to payment claims and payment schedules;
    • the relevant legal arguments that should be included in an adjudication application; and
    • how to respond to payment claims or adjudication applications made by subcontractors.

For further information on the Security of Payment Laws and how they can assist you (including the preparation of payment claims, payment schedules, or lodging an adjudication application, please contact Brett Vincent on (02) 9261 5900.