The Building and Construction Industry Security of Payment Act 1999 (NSW) (Act) provides options to recover outstanding money for those who undertake construction work under a construction contract. The Act is demanding as to its requirement both as to documents and notices prescribed by certain sections of the Act, and the timing of issue of those documents. The Court of Appeal in Brodyn Pty Ltd t/as Time Cost and Quality v Davenport and Anor [2004] NSWCA 394 described strict compliance with these as the “basic and essential” requirements of the Act. Non-compliance with these requirements can have the effect of invalidating the process under the Act or rendering an adjudication determination void. The document which initiates the processes and invokes the jurisdiction of the Act is the payment claim. Defective payment claims cost claimants both time and money, defeating the main purpose of the Act which is to ensure timely payment of progress claims.

It is not uncommon for a claimant to issue a payment claim and lodge an adjudication application only for it to be invalid on jurisdictional grounds. To minimise this occurrence, it is important to ensure that the relevant parts of the Act have been met before preparing and serving a payment claim. Claimants should also be certain that any documents received within the time prescribed under the Act for the service of a payment schedule, complies with the basic and essential requirements of a payment schedule. Claimants who erroneously make this assessment risk invalidating their adjudication application.

For contracts entered into after 21 October 2019, we have prepared the checklist below to assist in the process of ensuring a payment claim is issued validly.

For contracts entered before 21 October 2019, the checklist is similar save for the requirement to state that the claim is made under the Act. The principle of ‘reference dates' under the construction contract must also be carefully considered for earlier contracts.

Payment Claims

There is a construction contract between the parties which provides for construction work being undertaken (or the provision of related goods and services) for a sum of money.

A claimant must consider:

  • Who are the parties to the contract?

  • Is the contract written?

  • If no written contract, is the contract oral or can it be classified as an “arrangement” to carry our construction work as per Act definition (s.4)

  • If an oral contract or arrangement, what are the terms?

  • Is the respondent named in the payment claim identical to the name of the respondent in the construction contract?

  • Is the claimant named on the payment claim the same person/entity described in the construction contract?

  • If either party is a corporation, does the ACN/ABN identified in the construction contract match the ACN/ABN shown on the face of the payment claim?

  • Is the name of either party on the payment claim a trust or merely a business name such that they are not their own legal entity? If so, does that error originate from an incorrect naming of either party in the construction contract?

If any of these naming issues exist, it may be that the claimant needs to seek to formally amend the contract by agreement (if the error is typographical) or failing agreement, satisfy itself that it can prove to an Adjudicator's satisfaction, who the contracting parties are (by reference to letterhead or correspondence, banking details or other documents exchanged between the parties at the time the contract was formed).

A claimant should also consider if the construction contract includes any terms about payment claims (e.g. does it specify a specific person to whom the payment claim must be served on).

The payment claim identifies the construction work (or related goods and services) to which the progress payment relates. Does it:

  • Distinguish between labour and materials costs?

  • Describe when the work was said to be carried out?

  • Describe the basis on which amounts are claimed (i.e. % of contract performed, schedule of rates/lump sum etc.)?

  • Describe where the work is said to have been carried out – name of site/Project – if units/ apartments, what floor levels or apartment numbers etc.?

These are essential elements of a payment claim. The case of Multiplex Constructions v Luikens & Ors [2003] NSWSC 1140 makes it clear that precision and particularity is required to a degree reasonably sufficient to apprise the parties of the real issues in the dispute and must be understood readily by the parties themselves.

In circumstances where it is not the claimant's first claim, a claimant should check that the payment claim at least contains the same amount of description of previous claims, and consider whether the respondent complained of inadequate detail/description in earlier payment schedules.

John Holland Pty Ltd v Cardno MBK (NSW) Pty Ltd & Ors [2004] NSWSC 258 provides that a payment claim must adequately describe the basis of the claim that a respondent must meet. The details provided in a payment claim may be verified by supporting material (such as time sheets in relation to the labour hours claimed) that puts forward a basis to show how the claim is being made.

The payment claim indicates the amount of the progress payment that the claimant claims to be due (Claimed Amount).

Is the calculation of the claimed amount shown on the payment claim mathematically correct on its face? Payment claims are most commonly expressed in one of two ways:

  • “Top down” – showing the total contract sum, plus variations (adjusted contract sum) then “less paid” = Claimed Amount

  • “Bottom up” – the work claimed is described for the period being claimed only, and is not referable to previous claims i.e. a “stand alone” claim.

The common law position is that if a claimant wishes to take advantage of the special statutory rights offered by the Act, which override general contractual rights and place the claimant in a privileged position, the payment claim must on its face contain all the ingredients required by the Act (see Jemzone Pty Ltd v Trytan Pt Ltd (2002) NSWSC 395 at [41]). This is widely applicable to all the Act provisions relating to a payment claim but must be at the forefront of a claimant's mind when calculating and expressing the Claimed Amount.

It includes a statement that “this is a payment claim made under the Building and Construction Industry Security of Payment Act 1999 (NSW).” Important considerations:

  • Was the work carried out in the state in which the Act is said to apply? (A claim cannot be made under the Act of one state if the work was carried out in another state – this is particularly important for pre-fabricated construction elements which are constructed in one state and then shipped across state borders to where they are delivered)

  • Does the payment claim reflect word for word the Act endorsement? (The Act endorsement should not have any typographical errors, missing words, abbreviations, omission of the year of enactment or mistake that the document is anything other than a “payment claim”).

In Leighton Contractors Pty Ltd v Campbelltown Catholic Club Ltd [2003] NSWSC 1103 at [58], the court's position was that there is no room for ambiguity of any type, and it is critical that the recipient of a payment claim be made aware of the terms of that claim that the provisions of the Act have been engaged.

The appropriate test is an objective one in that “it must be clear on the face of the document that it purports to be a payment claim under the Act. In deciding the meaning conveyed by a notice a court will ask whether a reasonable person who had considered the notice as a whole and given fair and proper consideration would be left in any doubt as to its meaning” (Walter Construction Group Ltd v CPL (Surry Hills) Pty Ltd [2003] NSWSC 266 at [82]). A claimant should consider whether it meets this test before issuing a payment claim.

The payment claim will be or has been served within a period specified by the terms of the construction contract OR 12 months after the construction work to which the claim relates was last carried out (whichever is later). Note only part of the works claimed must have been performed in the 12 month period prior to the claim, it is not relevant what proportion of the overall claim that constitutes the claim is still valid.

It is the only payment claim that will be or has been served in the named month for construction work carried out (unless the construction contract provides otherwise).

  • Does the payment claim contain items which have been claimed in previous payment claims (as permitted by section 13(6) of the Act)?

  • If yes, then the claimant will need to consider if any items previously claimed have been valued/ decided by an Adjudicator under previous adjudication proceedings. If the answer to this is also yes, then the claimant is not permitted to include those items in the payment claim as it is prevented by issue estoppel (see Dualcorp Pty Ltd v Remo Constructions Pty Ltd [2009] NSWCA 69). Whether an adjudicator has “decided” a matter must be assessed as a matter of substance, and not of form. It may otherwise be deemed to be an abuse of power to re-make a payment claim which has earlier been made and adjudicated upon. The second claim, to the extent that it seeks to do so will not be a payment claim within the meaning of the Act (see University of Sydney v Cadence Australia Pty Ltd [2009] NSWSC 635).

Is the payment claim prepared by a head contractor for service on a principal? (If no, then skip this item).

  • The payment claim must be accompanied by a supporting statement that indicates it relates to a payment claim and, in an approved form, declares that subcontractors (if any) have been paid all amounts due and payable for the construction work.

    The Act defines a ‘head contractor' as the person who is to carry out the construction work or supply related goods and services for the principal under a construction contract (the main contract) and for whom construction work is carried out or related goods and services supplied under the construction contract as part of or incidental to the work or goods and services carried out or supplied under the main contract.

The time for service requirements of the Act and contract are being complied with.

  • The Act provides timing provisions as to when a payment claim may be served.

  • For construction contracts that have not been terminated, a payment claim may be served on and from the last day of the month in which the construction work was first carried out and each subsequent named month or if the contract specifies an earlier date, it may be served on and from that date instead.

  • If the construction contract has been terminated, a claimant has only one last opportunity to serve a payment claim on and from the date of termination.

The method for service requirements of the Act and contract are being complied with.

Service of documents must be in accordance with section 31 of the Act. A claimant may consider the most appropriate method of serving its payment claim. Some considerations may include:

  • If being served by email, have emails been sent to the recipient of the email previously? If an email bounces back, service will not be deemed to be affected. A prudent claimant should turn on read and delivery receipts and keep records of these.

  • If being served by registered mail, is it being sent to the recipient's ordinary place of business or another address specified in the contract? If no one is available to sign for the registered mail, the mail will be taken to the post office for collection. If the mail is not collected, the claimant is exposed to an argument that the payment claim was not received and service was not affected.

  • If being served by facsimile, does the recipient have a facsimile machine? Fax machines are not as common in the present age.

  • If being served by courier, request that the courier provides a delivery slip or run sheet confirming delivery.

We encourage claimants to carefully consider and ensure that a payment claim is compliant with the relevant version of the Act before it is served.

The checklist above should be used as a guide only. Claimants should always review relevant sections of the Act for completeness to determine how the provisions impact their particular circumstance and to monitor for any amendments to the Act which occur after the date of this article.

If you have any questions or concerns about the validity of your payment claim, the building and construction team at Bartier Perry can assist. Watch this space for our checklist on Payment Schedules.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.