SECURITY OF PAYMENT LEGISLATION

AUSTRALIAN CAPITAL TERRITORY



The security of payment legislation in the ACT is:

Building and Construction Industry (Security of Payment) Act

2009 (ACT) (ACT Act)



When does the legislation apply | What rights does the legislation confer on contractors? | What must a principal do when faced with a claim? | Contractor's rights if not paid - how to enforce its rights | NSW and ACT security of payment compared


When does the legislation apply?



The ACT Act applies to construction contracts entered into after 1 July 2010.

The ACT Act applies to any contract or other arrangement to carry out construction work (or supply of related goods and services) within the Australian Capital Territory (construction contract). There is no requirement for the contract or arrangement to be in writing. It can be written or oral, or a combination of both.

'Construction work' is defined very broadly, and exclusions are essentially limited to mining operations. It includes construction, alteration, repair, maintenance and demolition of most structures that can be fixed to land. Accordingly, the ACT Act will apply to most typical construction contracts and
consultancy agreements.

The ACT Act applies even if the construction contract specifies that it is governed by the law of another jurisdiction.

However, the ACT Act does not apply to a construction contract:


  • that forms part of a loan agreement, a contract of guarantee or a contract of indemnity;
  • for residential building work if the owner lives or intends to live in the building;
  • where it is agreed that the consideration payable is not calculated by referring to the value of the work carried out or the goods and services supplied (for example an agreement for lease) under which a party undertakes to carry out construction work, or supply related goods and services, as an employee; and
  • to the extent the construction work or related services are carried out outside of the Australian Capital Territory.

Contracts cannot include a 'pay when paid' provision, which is where a contractor makes its liability to pay a subcontractor dependent on payment to the contractor by a principal.

It is not possible to contract out of the ACT Act.


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What rights does the legislation confer on contractors?



When can contractors make a claim?



A claim for a progress payment (payment claim) can only be made on the date specified in the contract (reference date). If there is no reference date, then on the last day of each month. Importantly, only one payment claim may be served for each reference date.

Unless the construction contract provides otherwise, a payment claim cannot be made 12 months after the construction work is finished or related goods and services to which the claim relates were last supplied.



How does a contractor make a payment claim?



A claimant makes a payment claim by serving the payment claim on the person who is liable to make the payment under the construction contract (respondent).

A payment claim must:


  • identify the construction work or related goods and services;
  • specify the amount of the progress payment claimed (claimed amount); and
  • state that it is made under the ACT Act.


What type of payments are excluded?



No type of payments are expressly excluded from being claimed.

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What must a principal do when faced with a claim?



Respondent to serve payment schedule



If a respondent is served with a payment claim it must respond by serving the claimant with a payment schedule setting out the amount that the respondent proposes to pay.


When to serve a payment schedule



The respondent must serve the payment schedule within 10 business days of receiving the payment claim or any shorter time that is stated in the contract.


What must be included in the payment schedule?



To comply with the ACT Act, the payment schedule must:

  • identify the relevant payment claim;
  • indicate how much the respondent proposes to pay (scheduled amount); and
  • if the scheduled amount is less than the claimed amount, explain why and any reasons for withholding.


What amount must be paid?



If the respondent does not provide a payment schedule within the time limit, it must pay the full amount of the payment claim.

If the respondent does provide a payment schedule, it must pay the scheduled amount.



When is payment due?



A progress payment becomes due and payable on:

  • a date determined in accordance with the construction contract; or
  • if the contract does not specify a particular date, payment is due 10 business days after service of the payment claim.


Right to interest on unpaid amount



Interest is payable on the unpaid amount of any progress payment at whichever rate is the greater of:

  • the rate specified under the contract.

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Contractor's rights if not paid - how to enforce its rights



Obtaining a summary judgment



The claimant may enforce its right to a progress payment by applying to the court for summary judgment:

  • in the amount of the payment claim, where the respondent fails to serve a payment schedule in accordance with the ACT Act; or
  • in the amount of any unpaid scheduled amount which remains unpaid on the due date for payment.


Right to lien



A claimant may exercise a lien over any unfixed plant or materials which the claimant has supplied for use in the construction work for the respondent, where a progress payment becomes due and payable but remains unpaid.


Right to suspend work



A claimant may suspend construction work being carried out or related goods and services being supplied (with at least 3 business days notice).

If the principal fails to pay the amount of the debt, the subcontractor may sue the principal for the amount as if there had been no assignment.

In bringing an action, the principal may raise any defence that would have been available against the contractor as if there had been no assignment, other than a defence based on anything done by the principal after service of the notice of debt.



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NSW and ACT security of payment compared



The ACT Act is very closely modelled on the NSW Act.

Differences between the ACT Act and the NSW Act are:


  • the ACT Act does not expressly state an intention to bind the Commonwealth. This means that the ACT Act will not bind the Commonwealth. This position could be altered by:
  • Commonwealth policy; or
  • contractual agreement between the Commonwealth and contractors on a case-by-case basis,
to apply the ACT Act to construction contracts entered into by the Commonwealth;
  • the ACT Act expressly entitles a party to appeal an adjudication decision to the Supreme Court where the Supreme Court considers that certain questions of law are satisfied; and
  • the NSW Act did not repeal the NSW Debts Act.

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Updated 10 August 2011