Analysis of NSW Building and Construction Security of Payments Act

This report provides a detailed analysis of the Building and Construction Industry Security of Payments Act 1999 (as amended) in New South Wales. It explains the Act's application to construction contracts, outlining the process for making payment claims and the rights conferred upon contractors, including the right to seek progress payments. The report examines the Act's introduction, highlighting its purpose of ensuring timely payments and resolving payment disputes efficiently through adjudication. It also discusses the Act's relationship with regular court actions, including how it provides a fast-track mechanism for payment disputes, and recent amendments, particularly those concerning subcontractors' rights when builders fail to pay. The analysis includes the rights of subcontractors against the principal contractor and the owner of the property, as well as the implications of these amendments for the construction industry. The report draws on legal precedents and legislative changes to provide a comprehensive overview of the Act's operation and impact.

Property Council of New South Wales on the Building and Construction
Industry Security of Payments act 1999 (as amended)

1. How does the Act work?
The Building and Construction Industry Security of Payments act 1999 (The NSW Act)
applies to the contract or agreement for the purpose to carry out the work of construction of
the activities related to the services and goods in New South Wales. It is not required to keep
the contract in writing. The agreement or the contract can be oral or written or it can be a
combination of oral and written.
The construction work is described in a broader manner and the exclusions are basically
limited to the operations related to mining. It involves alteration, construction, maintenance,
repair and demolition of the structures fixed to land. The NSW Act applies to the consultancy
agreements and contracts of most typical construction (NSW legislation , 2014).
The NSW Act mainly does not apply to the contract of construction:
 which forms part of a contract of guarantee, a loan agreement or contract of indemnity;
 for the work of residential building in case the owner intends to live or lives in the
building;
 when it is agreed in the contract that consideration payable will not be calculated through
referring the value of work undertaken or supplies related services and goods;
 under which the party carry out the construction work or the activities related to the
supply of the services and the goods as an employees;
 when the work of construction or the related services are undertaken outside NSW
(Roberts, 2018).
The Building and Construction Industry Security of Payments act 1999 applies even when the
contract of construction states that it is administered by another jurisdiction’s law. Contracts
cannot involve the provision of ‘pay when paid’, when a contractor makes its responsibility

to pay subcontractor is dependent upon payment received by the contractor from a principal.
It is impossible to eliminate the operation of NSW Act in the contract of construction upon
which it applies (Minter Ellison, 2018).
Rights that the legislation confer on the contractors
When the contractors have the right to make a claim: the claim of payments can be made
only from or on specified date in contract. When there is no such reference date, in that case,
it can be made on last date of every month. Significantly, for every reference date, one
payment can be served only. The claim for the payment cannot be made if not provided in the
construction contract, after 12 months of completion of the construction work or the related
services and goods to which claim were last supplied.
Process followed by contractor to make a claim of payment: the applicant makes a claim
of payment through serving payment claim upon the person liable to make payment under
contract of construction.
The claim of payment must:
 Recognize the work of construction or related services and goods;
 State the progress payment amount claimed by the applicant or claimant to be due.
In case, the head contractor is the claimant, being a person who undertakes the work of
construction for principal or for who the work of construction is undertaken in addition or as
a part of the work is performed for the principal by the head contractor then the claimant have
to provide with the supporting statement along with the claim of payment in the form that is
required by regulations related to the NSW Act. It is important for the head contractor to state
in the supporting statement that the due amounts have paid to the subcontractors.

The claims of payment made for the construction contracts which were entered before 21
April 2014 should also specify that the claim of payment was made under NSW Act. The
removal of requirement to specify that the claim of payment was made in accordance to NSW
Act was brought in April 2014.
Excluded payments: No payments are expelled from being claimed. Though, the claim of
payment should only include the payments related to the work of construction under the
contract. In a payment claim, the claims are not claimable unless the contract makes the
provision related to the payment of damages for the breach.
2. Why was it introduced?
The Building and Construction Industry Security of Payments act 1999 was introduced in
order to make sure that anyone who carries out the activities related to construction or anyone
who carries out supply related services and goods under the construction contract is
permitted to receive as well as able to progress, recover payments related to undertaking the
supplying and work of those services and goods (Brand & Uher, 2014).
This act ensures that a person is allowed to get a progress payment on the right time under the
contracts of the building. It is important for the parties that are involves in the dispute to act
on tight timetable. An injunction that is granted by the court, for restraining the filing of the
certificate of adjudication as a judgement not only offers the chance to prevent the
enforcement of the adjudication determination that a party has, is stated as void for not
complying with the requirements of the act. The party can apply for judgement in the court
whose judgement has already entered pursuant (ABI, 2010).
3. How does the act work in relation to the regular court actions?

The Building and Construction Industry Security of Payments act 1999 was intended to offer
inexpensive and fast mechanism in order to getting progress payments in the contract of
construction for maintaining the flow of cash among the contracting parties.
It operates in parallel to the contract of construction allowing the sub contractors and
contractors to claim the payment from their head contractor or the principal by the
adjudication process. It gives the ability to the subcontractors and the contractors to recover
the amount that is adjudicated as debt due.
The Supreme Court may have undermined the purpose of the Act that is ‘pay now argue
later’. The court granted a restriction in Principal’s favour restraining contractor from
transforming an adjudication certificate into judgement for allowing Principal to seek the
adjudication determination’s judicial review.
In this case, court held that balance of convenience granted restriction to prevent enforcement
of adjudication determination. Although, the court recognized that permitting the injunction
would disturb the Act’s purposes. It was held by the court that a real issue was tried in
judicial review proceedings of principal and it was argued by Principal that an error of law
was there on face of adjudication determination.
A party is allowed to seek the judicial review of arbitration determination that has an error of
law. It was determined that a party which seeks to the judicial review has specific time to do
so. Hence, the decision of the court states that a party who wants to seek the judicial review
have to do it before adjudication determination entered as a judgement (Cooke, 2016).
How does Act work in context to regular court actions
 The act offers a statutory rule for the progress payments’ recovery for the person who
undertakes the work of construction.

 The Act offers a fast track mechanism for the disputes of payment’s adjudication on a
temporary basis, and offering the subcontractors and the contractors with a mechanism
for easing their problem related to the flow of cash and obtaining the payments on time
with no involvement of the option of litigation. This assumes that the adjudicators get it
right mostly which is not mandatorily a safe assumption (CBP, 2010).
 The fact is that the adjudication frequently involves the complex questions of fact as well
as law with payment, as in a number of cases, millions of dollars are spend on
determination of adjudicator not having required legal experience or the qualifications or
enough time for ensuring that determination is consistent and reasonable and in
accordance with the acceptable legal principles.
 That the problem has been composited by reluctance of Court in order to become engaged
even after it is stated that the determination is flawed (CBP, 2010).
4. What recent amendments have been made to the Act where a subcontractor of the
builder has not been paid by the builder and in particular what rights has the
subcontractor in relation to the owner of the property?
The amendment offers a subcontractor with the rights against the principal contractor for
securing the payments due from contractor. The principal contractor can hold back the money
from the contractor, when the subcontractor places the application of adjudication against the
contractor in order to resolve the matter of pending payment. Along with this, the amendment
helped in reducing the issue of timing that can help in reducing the usefulness of Contractors
Debts Act 1997 (NSW) (BANNON & GILLARD, 2011). In case of contractor’s insolvency,
this issue is related. Under Contractors Debts Act 1997, the responsibility of principal
contractor related to payment to contractor can be allocated to the subcontractor, for the
purpose to satisfy the judgement attained by sub contractor in opposition to contractor. CDA
will not help the subcontractor in case when all the due money has been paid to the contractor

by the principal contractor before the time, the subcontractor is able to get a judgement in
opposition to contractor and provide debt certificate on principal contractor. The
subcontractor has the ability to allocate money that has to be paid by principal contractor to
the contractor, by the help of the amendment through serving payment withholding request
on principal contractor. Although, debt certificate or judgement is important for the request of
payment withholding, an adjudication application is also important for this process
(BANNON & GILLARD, 2011).
The money payable by the contractor should be withheld by the principal contractor when the
principal contractor gets a request of payment withholding. The exact amount that is stated in
the request should be withheld by the principal contractor that is waiting in the adjudication
determination. The principal contractor is liable for debt payable to subcontractor with
contractor, when the principal contractor does not comply with the request. It shows that
amendment may be utilized for three contracting parties - subcontractor, sub-subcontractor,
head contractor (BANNON & GILLARD, 2011). It is important for the participants of the
construction industry to review their contracts and identify the implications of amendment
associated to matters like:
 Risks to contractor’s cash flow as a consequence of false requests of payments
withholding from the subcontractors, that can affect the successful output of project;
 Ability of the principal contractor to male recovery of payments that are made to the
subcontractors through project security or under the contract;
 Whether amendment might provide the ability to the subcontractor to jump in line, in case
contractor is going into liquidation (BANNON & GILLARD, 2011).
In November 2013, the Building and Construction Industry Security of Payments amendment
Bill 2013 was passed by NSW Parliament. These reforms are a piece of the response of NSW

Government to the recommendations related to Independent enquiry into the Construction
Industry Insolvency that is announced in April month of 2013. A change to the Act is
removal of the section 13(2)(c) that required the contractors to specify that the claim of
payment was made under the Act.
The changes in the act mean, it is important to submit the claim for the payment but, it is not
necessary to include the statement describing that the claim is requested under the Act (NSW
Government, 2014). Although, it is important to comply with all the requirements under the
section 13(2) that are:
 Identifying the work of construction to which the claim of payment is related
 Specifying the payable and the due amount
If a claim for the payment is received, then it is important to evaluate it on its merit because it
may not include the words “This claim of payment is made under The Building and
Construction Industry Security of Payments act 1999” (NSW Government, 2014).
Bibliography
ABI, 2010. NSW Building and Construction Industry Security of Payment Act 1999 &
Contractors Debts Act 1997 Discussion Paper, s.l.: ABI.
BANNON, F. & GILLARD, M., 2011. Subcontractors gain direct rights against principal
contractors under NSW Security of Payment Act, s.l.: Clayton Utz.
Brand, M. C. & Uher, T. E., 2014. Review of the performance of security of payment
legislation in New South Wales, s.l.: The University of New South Wales .
CBP, 2010. Legal update, s.l.: CBP.

Cooke, R., 2016. Is the Security of Payment Act truly a ‘pay now, argue later’ regime?.
[Online]
Available at: https://www.rigbycooke.com.au/latest/is-the-security-of-payment-act-truly-a-
pay-now-argue-later-regime
Minter Ellison, 2018. SECURITY OF PAYMENT LEGISLATION NEW SOUTH WALES.
[Online]
Available at: http://www.constructionlawmadeeasy.com/SecurityofPaymentNSW
NSW Government, 2014. The Building and Construction Industry Security of Payments act
1999 , s.l.: NSW Government.
NSW legislation , 2014. The Building and Construction Industry Security of Payments Act
1999. [Online]
Available at: https://www.legislation.nsw.gov.au/#/view/act/1999/46
Roberts, S., 2018. Security of Payment Guide , s.l.: Roberts Legal.