Security of Payments Act 1999 Essay - Law Assignment Help

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The Building and Construction Industry Security of Payments Act was first introduced in 1999 as a legislation which insured progress payments were made to individuals/companies which provided goods and or services under a construction contract.
Since the introduction of the act, Parties which undertook in work or provided goods under a construction contract were able to follow a proper procedure to ensure that progress payments were made by the client.
The Act covers anyone in NSW partaking in works in the construction industry, including but not limited to; Architects, Engineers, Project Managers, Contractors and Sub-Contractors.
This Essay will outline in greater detail why the act was introduced, after which the workings of the act will be discussed. Thirdly, this essay will discuss how the act works in relation to regular court actions. Finally, this essay will outline the recent amendments made to the act, more specifically division 2, section 26a through to 26f.
The Building and Construction Industry Security of Payments Act was introduced in 1999. The Act was first introduced to ensure any person/company who has undertaken construction work, by either supplying goods or providing a service, is able to recover progress payments from their debtors. Prior to 1999, debtors would often be able to refuse and delay progress payments through court cases and continuances.
Primarily the reason this was introduced was because,
It is all too frequently the case that small subcontractors, such as bricklayers, carpenters, electricians and plumbers, do not get paid for their work. Many of them cannot survive financially when that occurs, with severe consequences to themselves and their families.
The quote above, made by a judge in the supreme court states, the reason the act was introduced was to essentially protect the small subcontractors from not getting paid, this was a frequent occurrence prior to 1999. However, because of the introduction of the Security of Payments Act the smaller contractors/suppliers are able to claim progress payments when they are due.
During the 2015 – 2016 period this act was used roughly 530 times throughout all of NSW, 424 of those adjudication applications were made in the Sydney region. Furthermore, Adjudications within the Sydney region are divided into smaller areas, the Inner-Sydney region has majority of the applications, with 30% of applications lodged, this is followed by 12% of applications lodged in the eastern suburbs.
The above is an example of how this act is being utilised to ensure progress payments are made in a timely manner. Essentially, 530 debtors were forced into making payments which may have been withheld without the introduction of this act.
Hypothetically if this act did not exist, smaller companies/individual contractors would have been denied payments by a much wealthier owner/client. If the owner/client was able to withhold payments long enough for the contractor to go into liquidation the debtor would not need to pay the contractor/smaller company. However, the Building and Construction Industry Securities of Payments Act 1999 clearly outlines the procedures and rules that claimants must follow to attempt to receive their progress payments.
Essentially, the Building and Construction Industry Securities of Payments Act was introduced in 1999 to ensure payments were made in a timely manner. This was done through outlining procedures and rules for possible scenarios, the act ensures that architects, suppliers, sub-contractors etc. are aware of the proper procedures that must be followed. Additionally, this act also clearly sets time limits and deadlines so debtors cannot wait for the smaller contractors to go into receivership.

The Building and Construction Industry Security of Payments Act 1999 works in a simple seven step process. The first step is identifying if the act applies, after which notices are served. Thirdly, adjudicator is selected, and an adjudication application is filled. Finally, the adjudication is started.
Firstly, the claimant must ensure that the work that was completed classifies as construction work, the act is only applicable to Construction work (and supplying goods for a construction project). Construction work is defined as ‘Construction, alteration, repair, restoration, maintenance, extension, demolition or dismantling of buildings or structures forming or to form, part of a land’. With the exception of drilling and excavation of gas/oil. Additionally, this act covers any related goods or services, being of construction nature i.e. components, materials to a building or machines or other plant equipment used in the erection, dismantlement or excavation of earthworks for a building.
The second step of this act is to serve the first notice. After the reference date has passed the claimant may serve the debtor with a payment claim. When served the debtor has 14 days to provide a payment schedule to the claimant. If the debtor does not respond within 14 days with a payment schedule or the full amount, the claimant can move onto step 3, the Second notice.
The second notice is essentially a notification to the debtor of the claimant’s future actions, applying for adjudication. The second notice is served under section 17(2), where it states, ‘the claimant must give notice to the respondent within the period of 20 business days immediately following the due date for payment’.
The fourth step is to ensure that the adjudicator agrees with the claimant’s entitlements. In order to do this the claimant must show the adjudicator evidence as to why the claimant deserves the money, the claimant may do this by; proving the contract is a construction work contract, there are no defects in the work, valid payment claims were made and the fee being charged is to the standard industry market rate.
The next two points are the adjudication application and the selection of an adjudicator, the adjudication application must be written, and must nominate an adjudicator. When the adjudicator is selected the claimant must pay an upfront fixed fee, however if the claimant is successful the debtor is liable to reimburse the adjudicator’s fee.
The final step is the adjudication process itself, similar to a court case the adjudicator will hear both sides of the story and pass down a verdict. If all the information is correct and the process was followed correctly typically the claimant will be entitled to the moneys owed and be reimbursed for the adjudicator’s fees. If the process was not followed correctly or there are faults in the work completed the case may be awarded to the debtor.
The process mentioned above is typically how the act works. This essentially guides the claimant onto a path to which they can recover money that is owed to them. Before this act there was no legislative process so the courts would often deal with this, however with this process it allows claimants an easier, quicker and cheaper way to claim their money. Often if done correctly the Security of Payments Act process would take at the most 3 months, when a court case may typically last upwards of one year.
The Building and Construction Industry Security of Payment Act 1999, works in a seven-step process, beginning with identifying whether the claim applies using the definitions provided in the act, leading through to the adjudication process. When the process is completed correctly the claimant is able to receive the money owed from the respondent much quicker than if it were to go through the court systems.
Typically, the Building and Construction Industry Security of Payments Act 1999 is only used to claim progress payments that have been wrongfully withheld from claimants by the respondents. This is done through the adjudication process. An adjudication process is defined as a dispute resolution method without resorting to court appearances, which may take longer and be more expensive. However, the act can be used in tandem with court cases. When the project is completed the parties can request a judge to review the contract in the setting of court appearances, this is typical if the respondent or the claimant feels the adjudicator had produced the wrong decision.
The Building and Construction Industry Security of Payment Act 1999 is enforced, by either claiming progress payments through the adjudication process (as mentioned above) or by forcing the principal contractor to withhold money from the respondent (as discussed below).
After the contract has ended, a judge may be asked to review said contract under the direction of either party involved. This can be seen in a case from 2002, Jemzone v Trytan, the two parties had their construction contract reviewed after the plaintiff claimed that the delays incurred from the project resulted in a loss of revenue and damages were taken out of the final progress amount. Prior to the court action, the claimant had won an adjudication process and was awarded the progress payment that had been requested.
However, once the final progress payment was requested the respondent only payed a partial amount, withholding majority of the amount as damages due to the delays of the project. The court action was made on behalf of the claimant as he felt that the delays that were incurred were allowed as discussed in the contract. The judge had to read the contract in its entirety to decide whether the delays that were incurred were allowed under the contract, and if not, what penalties would the claimant have to pay.
The above is essentially how the act can be used as a court action; the adjudication process must be used primarily, after which the parties can ask for the contract to be reviewed. Using this act as a court action is only recommended as the party must be sure that the adjudication was wrong. In summary the act is primarily used to assist in the quick retrieval of progress payments, after the job is completed the court may be asked to review the contract, as is the case in Jemzone v Trytan.

Amendments to acts are shown through the alpha-numeric value prior to the section title, for example, amendments made to the Building and Construction Industry Security of Payments Act 1999 include section 12a, 26a – 26f, 34a, 36a and 36b. Specifically in this essay, division 2A of the act will be discussed, also known as sections 26a through to 26f. Division 2A was first implemented in 2010 and is split into 6 sections (26a, 26b, 26c, 26d, 26e and 26f), division 2A primarily discusses the claimant’s rights against the principle contractor, in other words the subcontractor’s rights regarding the owner of the site.
Section 26a is titled ‘Principal contractor can be required to retain money owed to respondent’. If the claimant (Sub-contractor) has not received their progress payment, and has filed an adjudication application, the principle contractor (owner) may be requested to withhold payment. How this can be arranged is through serving the principle contractor a payment withholding request. A payment withholding request is a written request made to the principal contractor by the claimant, stating that they are owed money by the respondent (Contractor).
Section 26b is titled ‘Obligation of principal contractor to retain money owed to respondent’. This section states that the principle contractor who is served with a payment withholding request must retain money which they owe to the respondent. This section notes that the money that is being withheld from the respondent is the money which is actually owed to the respondent by the principle contractor, this section also states that the payment withholding request is made null and void when specific scenarios occur. The scenarios being; the adjudication application is withdrawn by the claimant or the amount that is owed is payed by the respondent to the claimant.
Section 26c is titled ‘Contravention of requirement by principal contractor’. This section states that if the principal contractor pays the respondent, after receiving the payment withholding request, they too are jointly and severally liable in regard to the debt which the respondent owes the claimant. Within this section the principle contractor may pay the claimant and clear the debt owed to the claimant, after which the principle contractor can request the respondent to reimburse the money that was payed to the claimant.
Section 26d refers to the protections of the principal contractor, when they are fulfilling the payment withholding request, in regards with division 2A. in essence this section states that the principle contractor has an obligation to retain money that they owe to the respondent until the respondent pays the claimant in full. If for some reason the claimant were to withdraw the adjudication application, the claimant is required to give written notice of the withdrawal to the principal contractor. If the respondent gives written notice to the principal contractor of either the adjudication process is being withdrawn or the money owed to the claimant is paid in full to the respondent, then the principal contractor may take this in good faith and pay the retained money to the respondent. This section of division 2A acts as a set of guidelines for the principal contractor, it outlines what the principal contractor can do, and what the other involved parties may do regarding the principal contractor.
Section 26e allows the claimant to ask the respondent for the information of the principle contractor. This can happen at the request of the claimant or under the request of the adjudicator in connection with an adjudication application. Under Section 26e the respondent must comply with the adjudicators request. It is important to note that the respondent must not provide misleading or overall false information about the principle contractor.
The final section, Section 26f, is titled ‘other rights of claimant not affected’. As the title suggests this section states that this entire division, will not affect the claimant’s rights to enforce payment claims or adjudication determination. Which essentially means that this division will not affect possible outcomes and future decisions if the claimant decides to pursue other methods to claim the money owed by the respondent.
The above division was introduced to provide a claimant with another method to attempt to claim the money owed to them by the respondent. It can be viewed as the eye for an eye method, where the claimant who was being refused pay by the respondent, can force the principal contractor to withhold money from the respondent. Which in essence will try to force the respondent to pay the claimant. This method was primarily introduced to give the claimant leverage when disputing pay with the respondent.
In summary, the recent amendments made in relation to claimant’s rights with the principal contractor, are provided in the building and construction industry Security of Payments Act. The amendments are divided into six sections and in essence allow the claimant to request the principal contractor to withhold payments to the respond, whilst the adjudication process is concluded.

In conclusion the Building and Construction Industry Security of Payments Act 1999 was introduced to protect anyone partaking in construction work in NSW. The act was primarily introduced to prevent debtors from withholding payments when the claimants have earned their money. Furthermore, the act provides a system where the claimant may be able to receive payment without resorting to expensive court trials. The Act works in a simple seven step process, starting at identifying if the situation is covered under the act (primarily checking the definition of construction work). Following this the claimant must serve first and second notices, continuing on the claimant must then prepare their defence and finally proceed to the adjudication process. The act is primarily used to receive progress payments – after a progress payment is made and after the project is completed the contract can be reviewed by the courts. Finally, the act has received many amendments, some of which where examined within this essay, such as the claimant’s rights against the principal contractor.

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