Building and Construction Industry Security of Payment Act Analysis

This report provides a comprehensive overview of the Building and Construction Industry Security of Payment Act 1999 in Australia, focusing on its operational mechanisms and significance within the construction sector. It details the Act's role in regulating payment processes, safeguarding subcontractor rights, and providing mechanisms for dispute resolution, including adjudication. The report examines the Act's introduction, its function in relation to regular court actions, and recent amendments. Furthermore, it addresses the responsibilities and obligations of subcontractors, the conditions under which they may not receive payments, and the legal remedies available. The analysis also includes key cases that have shaped the interpretation and application of the Act, highlighting its importance in reducing construction industry insolvency and ensuring fair payment practices. Finally, the report also explains the process of adjudication under this act.

Running Head: BUILDING LAW 0
BUILDING AND CONSTRUCTION INDUSTRY SECURITY OF PAYMENT ACT 1999
AUSTRALIA
[DATE]
[Company name]
[Company address]

BUILDING LAW 1
Introduction
Through this report the discussions will be made upon the ownership council of NSW i.e. New
South Wales, in details along with the Building and Construction industry Security of Payment
Act 1999. It will further throw light on the subsequent matters in the used act such as those ways
in which this act conducts its works, the reason behind its introduction or emergence, the
working up of the act in connection with the actions of the regular court and the current
amendments done in the act, the conditions whether the subcontractor of hired by the builders are
not been adequately paid off by its builder and lastly the responsibilities and obligations of
subcontractor in connection with the owner of the property.
Working of the act
This act basically is governed by legislation of the separate state and territory. This in short
means that all the states and territories have their own actions and plans in consideration with the
current day Building and Construction Industry, SOP. Act. These acts are very clearly made
available on the websites of the state and its territory. This process is similar to all the states
though there may exist some differences which can only be identified by making comparisons
between the samples of adjudication1.
According to a report made by Robert Macindoe there are basically seven steps which are used
to guide the ways in which this act works2.
Step 1- Identification of the claim which is to be issued under this act and then the copy of the
act is obtained from the website of the state for acknowledging the progress and payments which
are to be incurred.
1 Philip Davenport, Adjudication in the Building Industry (3rd ed. Federation Press, 2010) 284.
2 Robert Macindoe, A Seven-Step Guide to using the Security of Payment Act (2015) <
https://aca.org.au/article/using-the-security-of-payment-act-a-seven-step-guide>.

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Step 2- it’s processing starts by obtaining a reference date agreed by both the parties to the claim
and only one claim can be settled per month and once the claim of payment is served the
respondent is given a time span of 14 days to serve the schedule of payment3.
Step 3- Here if the accused is not able to serve the required amount within the allotted time then
a second notice is sent to him which is to be served within 20 business days immediately after
the due paying date.
Step 4- the essential evidences are to be served for getting entitlements for the payments if the
contract is made within the meaning of this act, all the works related to payments of goods and
services of the goods and services must be completed and comply with the standards of the
markets and a valid claim for payment must be served.
Step 5- Adjudication must be made by the claimant for the payment within the due date and it
must be in writing form.
Step 6- an Authorized Nominating Authority must be selected which can also be found very
easily on the websites.
Step 7- the proper and adequate process of adjudication is also provided on the website which
helps in knowing the information about all the processes so that it may be helpful to the entire
population who wants to use this process in the future.
Provisions for imposing penalties for the defaulter are very well stated in this act.
Introduction of the Act
This act was presented for reducing the insolvency which is held up in the industries of
construction. This reduction process is done by giving specific rights to the contractors for their
protection, and also for prescribing a mechanism which can recover payments. Under section 7
3 Philip Loots and Donald Charrett, Practical Guide to Engineering and Construction Contracts (CCH Australia
Limited, 2009) 440.

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of this act it is very well determined that this act is going to cover up all the commercial
contracts of construction which are caught by the legislation, but all the building works of the
residence are completely excluded from this act4. The Building and Construction Industry, SOP.
Act is considered as that lawmaking body which is based on the rules of the States which can
regulate the payment of work delivered by the workers in this industry of building and
construction. This act basically helps the workers to properly understand their rights and also
obligations of the contractors while hiring them. Thus it could be stated that this act basically
provides or sets out all those rules and the procedures which are necessarily to be followed by all
the specialists like the head contractors, subcontractors and the other dealers in relation of
proceeding with the payments or claiming them back or withholding them.
Mostly this act was introduced to protect the rights of those weaker section of the society who
were not able to protect themselves i.e. the construction workers for receiving their payments for
the delivered goods and services and further more to ensure the workers who are binding beneath
an agreement to receiver and for recovery of the payment of progress of the work done by them
and also for supplying those goods and services5.
Entitlement to payment- under this act the contractors under the formation of the contract are
made to receive the amounts. The contractor can be a verbal or a written one. The progress
payment can only be claimed if contract if framed or else not. The progress payments here are
intended in terms of the amount of work done or supplies made in terms of the contract.
Arbitrators may also be engaged in this case so to decide over the disputes over the amount of
progress payment and it can be chosen by the contractor himself.
4 Darryl Royce, Adjudication in Construction Law (CRC Press, 2016) 442.
5 St, Surry Hills, What is the Security of Payments Act (NSW) (2010) <https://lawpath.com.au/blog/what-is-the-
security-of-payments-act-nsw>.

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Payments claim- under this head when the question raises regarding the progress payments owed
by the contractors and it is been claimed by the party owing it, then the payment can be made
within the particular time limit. It is 15 days’ time given to the principle after the claim is made
by the head contractor, 30 days to head contractor for that of nonresidential subcontractor and 10
days’ time for residential head contractor.
Schedule of payments-10 days’ time could be given to a person who is not able to pay off the
entire amount of the entitlement for preparing a schedule of payment, which can be considered as
a notion which has to be made in writing and must be adequately served to the applicant for
acknowledging him the intention of the borrower for not paying the claimed amount6.
The main objective behind introducing this act was to make sure that all the progress payments
and all retention monies which were due upon any party that are carried by the contracts carried
out for the works of construction or for the supplying up of the goods as well as the services
based upon the projects of private and public sections in the NSW. Thus the act provides the
applicant with that statutory right which can aid in making the claims for the progress payment
even in the circumstance where there are no provisions made in the contracts regarding progress
payment. Whereas if the respondent also has reasons for the claims of not repaying which are to
be very clearly set out by preparing out a payment schedule.
Working of this act in relation to the regular court actions
When there arises a dispute or a conflict which is unsolved and held between two parties
regarding the amount so claimed then, the parties may go to the court for attaining an
6 Cris Cureton, Incoming Amendments to the Building and Construction Industry Security of Payment Act 1999
(NSW) (2019) <https://www.squirepattonboggs.com/en/insights/publications/2019/07/incoming-amendments-to-
the-building-and-construction-industry-security-of-payment-act-1999-nsw>.

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adjudication or get engaged with the services of the adjudication7. The notice of intention must
be submitted by the claimant for claiming for the process of adjudication within or after passing
up of the 20 days of the due date.
In the case of Maxcon Constructions Pty Ltd v Vadasz8, the High Court had handed down its
decisions regarding the concerns of the legislations of the security of payments coming before it.
The claim of Maxcon was rejected and the verdict was passed in favor of Vadasz. This case was
related to the entitled for withholding certain amounts for the purpose of retention because they
were focusing upon the principle of pay when paid provisions and thus was contradicting s 12 of
the mentioned act. The decision provided by the judges in this case was a slight lengthy one so it
took over time to understand and follow it.
A very good decision was also made in the case of Probuild Constructions (Aust) Pty Ltd v
Shade Systems Pty Ltd 9 where the rights of the contractors and subcontractor was taken into
consideration. The clause of protection which was the main objective of the act was also taken
into consideration in this case. Importance of the Building and Construction industry Security of
Payment Act 1999 was very well settled down in this case10.
Very tough financial and penalties relating to the criminal offences can be imposed on the
accused who intentionally breaches any laws or the legislations made by this act. Adjudication
under this act is considered as that streamlined process which allows the contractors to overcome
or recover the disputes of unpaid progress payments. All the disputes are determined by the
independent adjudicators. Here mostly it is seen that the adjudicator is not a judge but an
advocate who is appointed by the nominating authority of independent nature.
7 Lexology, Security of Payments update: High Court affirms scope of review limited to jurisdictional error (2018) <
https://www.lexology.com/library/detail.aspx?g=f02e70d1-06c3-4109-983b-73c9804e0c6e>.
8 [2018] HCA 4; [2018] HCA 5.
9 [2018}HCA 4.
10 Robert McDougall, The Court view of security of payment legislation in operation (2012)
<http://www.austlii.edu.au/au/journals/NSWJSchol/2005/12.pdf>.

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The application of the adjudication is considered as that document which is written in form and
has to be sent to the nominating authority within a specified period of time i.e. mostly 10
working days after the date when the schedule of payment was served on the head contractor or
the principle. But this is not the exact time span as that would depend upon the circumstances of
the case. Reply of any kind which is to be made for the adjudicating application should be done
within 5 business days of application so been received, or 2 days after getting the notice that the
adjudicator have received the appointment or whichever is longer.
The respondent here is not required or entitled to comprise up with any kind of reasons while
responding for withholding payments which were not mentioned in the schedule of payments
made by them. The application is to be determined by the adjudicator once if the responding time
is been crossed.
Adjudication is considered as the best method to resolve the raising disputes of the payments
under this act as the courts take a lot of time to resolve a dispute and sometimes the lives of the
people ends but the cases pending before the court are not completely resolved. Whereas the
adjudication method takes the time of some weeks to resolve the dispute and provide the right to
the party.
Under this act the judicial review can lie against it if it is done in bad faith or was declared as
fraud, or the one in which the process of adjudication has no power to interfere, or were made
without complying with the sections of this act, did not deal with all those cases remitted for or
under adjudication etc. 11
Recent amendments in relation where a subcontractor of the builder has not been paid by
the builder Rights of the subcontractor in relation to the owner of the property
Some of the major changes brought into this act are as follows:
11 Andrew Burr, International Contractual and Statutory Adjudication (Taylor & Francis, 2017) 386.

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Now the reference dates were no longer required for claiming the payment purposes as they are
now they are been able to be formed on and upon the last day of the month, is anyhow not
related to the varied terms of the contract12.
Upon termination of the contracts, the claim of the payment can be served on and from the
terminating date.
It must be clearly stated that the claims of the payments are made under the guidance of this act.
The duration of making the payment from the head contractor to the subcontractor was reduced
from 30 to 20 days.
The liquidating companies would not be able to depend upon the SOP Act for making a claim or
enforcing a payment.
Penalties are to be increased for offences like not able to provide a supporting or the false or
misleading statements.
The directors of the company are too prosecuted or must be held personally liable for the
offences done under the SOP Act.
The above mentioned changes would diversely affect those contracts which are entered on and
after October, 21.2019. Here the participants would have very little time to consider the
amendments and prepare themselves for the perspectives of the administrations. The period of
payment is shortened or reduced from 30 business days to 20 in case of catering down the
payment claims from the contractors to the subcontractors. All the endorsements required by the
parties to claim of payment are very clearly included under this act. Thus to conclude with the
amendments it can be stated that this act provides a huge amount of protection to the
12 Philip Davenport, Adjudication in the NSW Construction Industry: A Guide to the Building and Construction
Industry Security of Payment Act 1999 (Federation Press, 2000) 165.

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subcontractors in relation of the payments for the work done or services or goods provided by
them13.
The suffrage of slow payments or no payments in the industry of building and construction or
something which leads to the end of the contract can be resolved by the introduction of this act.
So the government of Australia has created the process of adjudication a rapidly growing system
for helping those people who are actually facing or undergoing the disputes of the payments.
Through this process they get paid for their rights in a period of few weeks’ time unlike that of
the court which may take years to resolve a dispute14.
Today in Australia adjudication is considered as the largest authority which is authorized by the
government to provide the aid to the participants of the construction and building industry. They
basically works to appoint the adjudicator who would take relevant decisions within the time
span of the week’s regarding the rights and obligation of the payments15.
Conclusion
Thus to sum up with the above report it can be determined that the Building and Construction
industry Security of Payment Act 1999 is a very influential act established or framed by the
Australian Government This act was basically framed to provide the remedy and is aiming to
provide the reformation of the payments in the building and construction industry. This act
ensures that none of the personnel is deprived up of its rights under the contracts of the
construction in New South Wales.
13 Constructionlawyersydney, Changes to the Building and Construction Industry Security of Payment Act 1999
(NSW) (2016) <https://www.constructionlawyersydney.com/256-2/>.
14 Great Britain, Andrew Arden and Caroline Hunter, The Housing Grants, Construction and Regeneration Act 1996
(Sweet & Maxwell, 1996) 180.
15 Baker McKenzie, Announcement of Building and Construction Industry Security of Payment Amendment Act
2018 Commencement Date (2019)
<https://www.bakermckenzie.com/en/insight/publications/2019/08/announcement-of-building-and-construction-
industry>.