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Focus: ACT security of payment legislation

18 December 2009

In brief: Legislation recently passed in the ACT brings it into line with the rest of Australia by giving contractors the right to receive regular progress payments, whether or not they are provided for in the relevant contract. Partner Leighton O'Brien (view CV) and Lawyer Patrick Brown explain.

How does it affect you?

From 1 July 2010:

  • Principals should be aware that contractors completing work under affected contracts will now have the right to progress payments, regardless of whether or not the contract provides for them.
  • Contractors should be aware that the legislation provides a robust and quick system via adjudication for the recovery of progress payments.
  • Principals and contractors should be aware that the opportunity to appeal an adjudication decision is limited.
  • Principals and contractors should be aware that contractors now have the right to suspend work, in certain circumstances, if the progress payments are not paid.
  • The regime for the recovery of payments by contractors in the ACT will be broadly congruent with the approach in New South Wales (save that a process for judicial review of adjudication determinations is set out in the Act).

Background

The Building and Construction Industry (Security of Payment) Act 2009 (ACT) (the Act) was assented to on 26 November 2009.  In part, the Act is a response to the recommendations to institute rapid adjudication to ensure security of payment for contractors by the 2003 Cole Royal Commission into the Building and Construction Industry.  The Act will commence on 1 July 2010, and repeal the Contractors Debt Act 1897 (ACT).

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Right to receive progress payments

As a means of ensuring timely payment for persons that 'carry out construction work' or 'supply related goods or services', and in line with equivalent legislation in New South Wales, the Act grants an entitlement to progress payments, regardless of whether or not a contract provides for them.  'Construction work' and 'related goods and services' are defined broadly by sections 7 and 8 respectively, and the Act applies to contracts whether they are written or oral.

In s10, progress payments are mandated as payable on one of two dates:

  • in cases where progress payments have already been agreed to under an existing contract, the agreed date when a claim for a progress payment can be made; or
  • if there is no contractual date, on the last day of the month in which the construction work was first carried out, and on the last day of each subsequent month.

The amount of the progress payment is the contractual amount, or an amount based on the value of the work carried out.

Progress payments are payable on either:

  • the date set out in a contract; or
  • in cases where no contractual entitlement exists, 10 business days after a payment claim is made.

Some construction contracts contain 'pay when paid provisions', which make the liability of one party to another contingent on the receipt of payment from a third party.  Section 14 of the Act negates the effect of such provisions.

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The procedure for recovering progress payments

The procedure for recovering progress payments under the Act is as follows:

  • The claimant makes a payment claim identifying the work completed and the amount claimed.
  • The respondent must then provide a payment schedule that states the amount that the respondent proposes to pay.  If the amount is less that the amount stipulated in the payment claim, the respondent must indicate why the amount is less.  The schedule must be provided within 10 business days of the payment claim being served, or the respondent becomes liable to pay the amount in the payment claim.
  • If agreement is not reached by the parties through this exchange, a claimant may apply for adjudication. 

This procedure for recovering payments is very similar to the regimes in New South Wales, Victoria and Queensland.

The process of adjudication is prescribed by the Act between ss 19 and 25, and is designed to be quick and efficient.  To this end, any conference between the adjudicator and the parties must be conducted informally, and the parties are not entitled to legal representation at the conference.

Under s27 of the Act, an adjudication certificate may be filed as a judgment for a debt, and can be enforced in any court of competent jurisdiction.

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Judicial review of adjudication decision

In s43, the Act provides that a court does not have jurisdiction to set aside or remit an adjudication decision unless an appeal is made on a question of law.  If an appeal is not made with the consent of the parties, the court is able to grant leave to appeal if:

  • the decision 'substantially affect[s]' the rights of a party; and
  • there is a 'manifest error of law on the face' of the decision or there is 'strong evidence' that the adjudicator made an error of law and that determination of the question may add 'substantially' to the certainty of the law.

This test is consistent with the uniform commercial arbitration acts.  In line with Queensland's legislation, the process for review is mandated by the Act.  The basis for review differs however.  In the Queensland legislation, review is carried out by a regimen set out in the legislation, whereas the Act provides for limited judicial review.

Section 44 of the Act provides that the Supreme Court has jurisdiction to determine a question of law arising in an application if the adjudicator consents, or if the parties agree.  This section is subject to the provisos that the determination of the question 'might produce substantial savings in costs to the parties', and that the question of law is one 'in respect of which leave to appeal would be likely to be granted' in s44.

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Claimant's right to suspend construction work

Consistent with the approach in the equivalent legislation in New South Wales, the claimant may suspend carrying out its work in the following circumstances:

  • when no payment schedule is provided, as set out in clause 17;
  • when the claimant is not paid, in accordance with a payment schedule, as set out in clause 18; and
  • if there is a failure by the respondent to pay the adjudicated amount, as set out in clause 26.

Under s29(4), the claimant is not liable for any loss or damage to the respondent resulting from a suspension under the Act.

For further information, please contact:

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