Property Law Report: Analysis of Security of Payment Act in NSW

This report provides a comprehensive analysis of the Building and Construction Industry Security of Payment Act 1999 No 46 in New South Wales. It begins with an introduction to the importance of clear rights and obligations in commercial transactions, particularly in the construction industry. The report then delves into the workings of the Act, detailing the steps involved in payment claims, payment schedules, and the adjudication process. It explains the objectives of the Act, which include providing a fast and cost-effective way to resolve payment disputes and ensuring timely payments to contractors and subcontractors. The report further examines how the Act interacts with regular court actions, outlining the roles of courts in enforcing payment claims and adjudication decisions. Additionally, it discusses amendments made to the Act, specifically those related to subcontractors, and their implications for the industry. The report concludes by emphasizing the significance of the Act in promoting fair payment practices within the construction sector.

Property Law
Running head: PROPERTY LAW 0
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Contents
Introduction........................................................................................................................3
How the act does works?...................................................................................................3
Why the act has been introduced?....................................................................................5
How act works regarding regular court actions.................................................................6
Amendments in respect to Sub-contractors......................................................................8
Conclusion.........................................................................................................................9
References.......................................................................................................................10

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Introduction
In the world full of commerce, rights and obligations of parties are required to be clear
under a transaction. This requirement becomes more crucial when more than two
parties are involved in a commercial transaction. In transactions related to business and
construction industry, many parties remain involved such as owner, contractor, and sub-
contractor and they face issues related to receipt of their payments many times. To
address such issues, a different state of Australia has enacted their legislation on the
payments of entitlements under a construction contract (Securityofpaymentsact.com.au,
2019). In New South Wales, Building and Construction Industry Security of Payment Act
1999 No 46 (hereinafter considered as an act for the purpose of this report) is there for
this purpose, which has been enacted in 1999. This report is to produce to property
council answering different questions conserving the said act. The way of working of the
act, objectives of the same, court actions, amendment for sub-contractors and aspects
related to the act will be discussed in this report under different headings.
How the act does works?
If to discuss the way of working of act, this is to state that the process can be divided
into various steps. In the very first step, parties are required to check whether the
invoice or claim has been issued under this act or not. It means firstly the applicability of
the act is required to be checked. The act provides rules concerning to payment claims
and payment schedules. As per section 13 of the act any person who is entitled to claim

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the progress payment under a construction contract may give the payment claim to the
person to whom such entitlement is due (Legislation.nsw.gov.au, 2019). The party who
provide such payment claim is considered as claimant of the case and the other party to
whom such claim is served is known as the respondent. The act provides a time frame
for various claims and payments. On receipt of a payment as per section 13, the
respondent gets an option to reply to such claim by serving a payment schedule. Such
payment schedule must be provided within the time mentioned in the construction
contract or 10 business days whichever is earlier. Further, such a payment schedule is
necessary to identify payment claim and schedule amount that a respondent propose to
make. It is called a first notice (Macindoe, 2015). Further, if the respondent does not
reply with payment schedule then claimant becomes eligible to submit second notice
where claimant shows his/her intention to use adjudication.
To initiate a claim under adjudication process, a claimant is required to ensure certain
factors such as construction contract exist in a case, goods are which are mentioned
underpayment claim has been charged at the agreed rates, a valid payment claim has
been provided and so on. Rules related to adjudication will further be discussed in detail
in the following part of the report. For the procedure of adjudication, an adjudicator is
required to be selected by the claimant. By following the adjudication process
appropriately and correctly, the claimant may reach up to a final settlement and can
receive the payment of the claim. The act works in practice in this whole manner. The
significant feature of the act is mentioned under section 5 where the definition of
construction work is provided. The section identifies the scope of the act and states that
construction also includes extension, alteration, maintenance, alteration and any other

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work forming part of land including telecommunication apparatus, road works, railways,
and others. It shows that the scope of the act is quite wide.
Why the act has been introduced?
On an everyday basis, organizations, as well as individuals, develop building and
construction contracts where overpayments, disputes arise many times. Such disputes
disturb working of parties and therefore are required to prevent or to resolve quickly.
The act has been developed to provide security that every person who serves goods or
services under a contraction contract, receive the payment that too on time
(Watsonandwatson.com.au, 2019). If to discuss the basic objective of the act then it is
to offer a cheap and fast way to resolve disputes related to a payment under
construction contract without the help of advocates. The act itself provides objectives of
the same under section 3. Subsection 3 of the act states that the motive of the act is to
ensure that every person who makes a payment claim is eligible to recover the amount
mentioned in such claim.
When the act was not there parties used to ask their due payments from defaulted
parties in a various manner which was quite confusing. In addition to this, many of the
times it was found that parties were not aware of their rights and failed to recover their
entitlements. The act let the parties of a construction contract know what their rights are
and how they can claim such rights. In conjunction with this many of the times, in the
absences of proper knowledge of the law, people were not used to including the clause
related to payment of dues in their contracts and later on used to fin inability to proceed

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with a claim. To deal with such a situation and to ensure to provide rights in such cases,
this act has been developed. One of the lead features of this legislation is mentioned
under section 3 (4) where it is mentioned that this act does not limit the right of the
claimant under a construction contract. Further, it also does not limit any remedy that
the innocent party may have otherwise. In this manner, the act provides security to the
claimant in addition to his/her contractual right. If to summarize the objectives of the act,
this would not be wrong to state that, the same is mentioned below:-
It provides specific entitlements to contractors (head contractor as well as sub-
contractors)
It provides a legal system to recover the progress payment (Turtons.com, 2019). Hence
to say that the respective act works efficiently as it reduces all the confusion and makes
the party aware of their liabilities as well as rights.
How act works regarding regular court actions
The act provides adjudication process in detail and prescribes the manner in which
court actions can be initiated under this act. Section 15 of the act is the one where
provisions related to court action has been identified for the first time. As discussed
above, it becomes liability of a respondent to give payment schedule to the claimant in a
given period whenever he/she receives a payment claim from claimant under section
13. The issue or dispute arises when respondents fail to do them accordingly. It means
when the respondent becomes unsuccessful in providing a payment schedule or
provides the same but the expiry of allowed periods then in such a situation, he/she

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becomes responsible to provide claimed amount to the claimant. In such situations, the
claimant becomes entitled to recover the claimed amount in any court of competent
jurisdiction. He/she also has an option to go ahead with the adjudication process
mentioned under the act itself. Before providing any judgment in the favor of the
claimant, the above-mentioned court ensures that claimant has such entitlement in
actual.
The act also mentions the regular courts in respect to those situations where the
respondent does not make the payment of amount mentioned in payment schedule or
make the payment of the difference amount. Section 16 of the act says that the claimant
may recover the unpaid amount of claim in any court of competent jurisdiction. Further,
a claimant may choose to ask the claim using the adjudication process where the same
has to make an adjudication application. Another role of regular courts is mentioned in
section 25 of the act. Subsection 1 of this section states that whenever a claimant
chooses adjudication process and receives adjudication certificate under the same then
he/she can file such certificate as judgment debt before any court of related jurisdiction.
The court plays an important role here as the respondent becomes liable to pay the
unpaid amount of schedule payment as a security to the said court. In this manner,
regular courts provide protection to the interest of the claimant in respect to the unpaid
amount of claim. Section 34A of the act states that local court can deal with the
proceedings related to an offense under this act. In this manner, this is to state that the
act provides the manner in which regular courts plays their role under a construction
contract. It is to state that where act provides rights to claimant, courts ensure delivery
of the same.

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Amendments in respect to Sub-contractors
Amendments are part of every act where the related authority makes changes in the
current provisions, by addition, deletion, or alternation in the same. In the past, many
amendments have been done in the studied act and some more amendments are
proposed to be made in October 2019 (Redlich, 2019). In year, 2013 some
amendments related to the interest of sub-contractors have been made. While making
these amendments it has been thought that the building and construction industry of
Australia consist of many small firms and a large number of external service providers
are necessary to be there. These external service providers are generally known as
sub-contractors. As sub-contractors plays such as important part of this industry and
therefore requires some additional security in respect to their payment. To provide these
securities, new amendments have been developed. Sometimes, instead of paying
payments to downstream people, head contractor use the money received from the
owner in making payments to different creditors (Davenport, Brand and Kim, 2015). The
rights identified under this amendment are mentioned hereunder:-
Section 11:- Significant changes have been made in section 11. This section provides a
time limit for the due payment of sub-contractors. As per section 11 a progress payment
becomes due for a sub-contractor on the date occurring after 30 business days when a
payment claim made or a date mentioned in a construction contract whichever is earlier.
Such determination of time helps subcontractors to ask their payment in a standard and
fast manner.

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Section 12A:- The section that regulations can develop provisions related to trust money
whereby head contractors will be liable to retain money for subcontractors in trust. Such
money in trust account would work as security of payment for a subcontractor.
Section 13- As per the provisions of this act, every head contractor has obligation to
submit a supporting document with the payment claim to the principal. Here supporting
document refers to a statement where head contractor is required to make a declaration
that no payment is due in the favor of sub-contractors in relation to the concerned
construction work.
Sometimes, sub-contractors get certain rights against owner. These are the situations
where head contractors take all the activities under a contractors and also carries works
used to be done by sub-contractors.
Conclusion
Conclusively to state that the studied carry act carry various features. It has been
developed for the security of payment for different innocent parties and scope of the
same is also wide. By using the provisions mentioned under this act, remedies can be
granted under regular courts. Some amendments have been done in 2013 to makes the
situation of subcontractors better and parties should consider provisions of this act while
drafting their construction contract.

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References
Brand, M.C. and Davenport, P., 2012. Adjudication in Australia: An analysis of the
amendments introduced by the Building and Construction Industry Security of Payment
Amendment Act 2010 (NSW). International Journal of Law in the Built Environment,
4(3), pp.189-202.
Building and Construction Industry Security of Payment Act 1999 No 46
Legislation.nsw.gov.au. (2019) Building and Construction Industry Security of Payment
Act 1999 No 46. [online] Available from:
https://www.legislation.nsw.gov.au/#/view/act/1999/46 [Accessed on 21/09/2019]
Macindoe, R. (2015) A Seven-Step Guide to using the Security of Payment Act. [online]
Available from: https://aca.org.au/article/using-the-security-of-payment-act-a-seven-
step-guide [Accessed on 21/09/2019]
Redlich, H. (2019) Confirmed: New amendments to NSW's security of payment
legislation set to commence on 21 October 2019. [online] Available from:
https://www.lexology.com/library/detail.aspx?g=880e10f7-369b-4916-93d5-
ec34420758de [Accessed on 21/09/2019]
Securityofpaymentsact.com.au. (2019) Security Of Payments Act. [online] Available
from: https://securityofpaymentsact.com.au/
Turtons.com. (2019) Security Of Payment In NSW. [online] Available from:
https://www.turtons.com/security-of-payment-act-nsw-everything-you-need-to-know

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Watsonandwatson.com.au. (2019) Building Security for Payment Appeals – Security of
Payments. [online] Available from: http://www.watsonandwatson.com.au/document-
113/building-security-for-payment-appeals-security-of-payments [Accessed on
21/09/2019]