Security for Payment Act 2009 (SA)

South Australia's building and construction industry will join the rest of Australia when its new Building and Construction Industry Security of Payment Act 2009 (SA) (the Act) comes into operation later this year.¹

The essence of the Act is to give construction and related service contractors a statutory mechanism to recover money owed to them in a relatively quick and inexpensive way, rather than relying on the more lengthy and cumbersome processes of debt recovery in the courts, via arbitration or by obtaining a worker's lien.

Principals and contractors will be significantly affected by the granting of additional rights to contractors and subcontractors respectively, including:

(a) a statutory right to payment of progress payments regardless of whether the contract provides for them; and
(b) a right to rapidly seek an adjudication determination for unpaid payments.

A key feature of the Act is the draconian consequence of missing a deadline for a response and payment. For example, if a recipient of a payment claim fails to respond in time, an immediate and binding obligation to pay the claim on an interim basis arises. In effect, the Act establishes a 'pay now, argue later' scheme. Principals and contractors alike must be aware of the regime so that payment claims are recognised, acted upon and challenged if necessary in accordance with the legislative regime, or, in limited circumstances through the Courts.

One of the features of the Act is that it provides for the principal and contractor to agree the timing of reference dates and due dates for progress payments, and the method for quantifying progress payments. It also provides that payment schedules will be due on the earlier of 15 business days or the period specified in the contract. As such, contractual regimes for submission and payment of progress claims should be reviewed, with particular regard to the timelines for submission, review and response to payment claims and the method for quantifying payment claims.

Short summary of the Act

The Act essentially covers three areas:

(a) progress payments and payment claims — the Act provides a statutory right to regular progress payments and provides that persons entitled to a progress payment can make a payment claim for payment;
(b) payment and payment schedules — the Act provides that the recipient of a payment claim must either make payment by the due date, and/or issue a payment schedule that complies with the Act; and
(c) adjudication options and court assistance — the Act imposes a rapid adjudication process in the event that a progress payment claim is not responded to or disputed, and a claimant can enforce an adjudication determination in a relevant court.

In the first two areas, the Act gives recognition to the terms negotiated by the parties in their construction contracts, in that the contract is the starting point for most timelines and contractor rights. Where the contract is silent, the Act imposes timelines and key dates. It is not possible to contract out of the Act.

How will the Act affect you?

Prior to the scheme coming into operation in South Australia, principals and contractors should be mindful of several implications of the regime:

(a) Future construction contracts should take account of clauses that can be impacted upon by the Act. For example, clauses specifying when payment schedules are due ought to leave enough time to allow progress claims to be identified, assessed and responded to with reasons. Similarly, contracts should specify the way in which progress payments are to be valued and when they become due, as well as the timing within which progress claims can be made, to ensure the default provisions in the Act do not apply.
(b) Procedures should be in place to ensure that the principal or contractor can recognise when a payment claim or adjudication application is made; and can respond within the rapid time frames required by the Act. It is imperative that payment claims are responded to within time and include all reasons for withholding payment, so they are not later negatively impacted in the adjudication process.

Contractors and subcontractors should be aware that they have the right to make progress claims and to seek an adjudication determination for the recovery of any disputed progress payment.

Key features of the Act

Progress Payments

The Act entitles all persons who have undertaken to carry out construction work or to supply related goods and services to progress payments (s 8). Construction work and related goods and services are broadly defined in the Act (ss 5–6), such that most construction contracts and the supply of related goods and services will be covered by the new legislative regime.

The right to a progress payment arises on a 'reference date', which if the relevant contract does not specify, is the last day of the month in which work was first carried out and the last day of each subsequent month (s 4). A progress payment can be a final payment, a one-off payment or a milestone payment (s 4). The quantum of a progress payment is calculated by reference to the terms of the contract, or in the absence of any relevant terms, by reference to the value of the work carried out (ss 9–10).

A person entitled to a progress payment must serve a payment claim on the person liable to pay (s 13(1)). The claim must identify the construction work, or goods or services to which it relates; indicate the amount claimed to be due; and state that the claim is made under the Act with the words "This is a payment claim under the Building and Construction Security of Payments Act 2009 (SA)" (s 13(2)). A progress payment becomes due at a time determined in accordance with the terms of the contract, or within 15 business days after a payment claim is made (s 11).

A person on whom a payment claim is served must respond by providing a payment schedule on the earlier of 15 business days or the period specified in the construction contract (s 14(4)). The payment schedule must identify the relevant payment claim, set out the amount the respondent proposes to pay and give reasons if the amount the respondent proposes to pay is less than the payment claim (ss 14(2)-(3)). The respondent will be liable to pay the full claimed amount:

(a) on the due date for the progress payment if the respondent fails to respond to a payment claim within the earlier of the time required by the contract or 15 days (s 15); or
(b) on the due date in the payment schedule if the respondent fails to pay the amount in the payment schedule (s 16).

Adjudication Option

Where a progress claim is disputed, no payment schedule is provided, or payment is not made in accordance with a payment schedule by the relevant due date, the person who has served the payment claim can serve a notice of intention to apply for adjudication (s 17). The application must be in writing to an authorised nominating authority (ANA); be within the strict time limits specified in the Act; identify the relevant payment claim and payment schedule; be accompanied by the application fee; and contain submissions the claimant chooses to include (s 17). The adjudication application must be served on the respondent (s 17(5)).

The ANA nominates an adjudicator without the parties input, and the adjudicator notifies the parties of his or her acceptance of the nomination (ss 18–19). The respondent can lodge a response within five business days of receiving the application or within two business days of receiving notice of the adjudicator's acceptance (s 20). The adjudication response must be in writing; identify the relevant adjudication application; contain submissions relevant to the response; and be served on the claimant (s 20).

There are two key limitations on the adjudication response:

(a) no response is allowed if no payment schedule was provided (s 20(3)); and
(b) no new reasons for withholding payment can be introduced into the adjudication response, meaning that a respondent is bound by the reasons it gives in the payment schedule (s 20(4)).

The adjudicator is required to make a decision within a very short timeframe — generally within ten business days of the response (s 21). The paying party must pay within five days of the adjudication determination (s 23(2)), and the claiming party can file an adjudication certificate as a judgment for debt in a court (s 25(1)). As such, the process can occur quickly and may have serious consequences for respondents.

Principals and contractors should put procedures in place to ensure:

(a) payment claims and adjudication notices made under the Act are identified when received;
(b) employees know what to do when they are received; and
(c) employees are aware of the consequences of inaction or not complying with the Act.

Legal advice should be sought as soon as an adjudication application is received, to minimise the risk of having to make a 'pay now, argue later' payment under the Act.

The implementation of the Act in South Australia will be guided by the large body of case law and commentary on the operation of the legislation in other states and territories of Australia.²

---

¹ The Building and Construction Industry Security of Payment Act 2009 (SA) was passed by the South Australian Parliament on 3 December 2009. It is anticipated that it will come into operation later this year once the regulations have been finalised.
² Similar legislation has been in operation in New South Wales since 1999 and Victoria since 2002, with the other states and territories implementing legislation between 2002 and 2009.