Peter Sarlos, Architect, Lawyer & Chartered Building Surveyor examines Security of Payment and the right to be paid by examining the history since the 1980s and the Building and Construction Industry Security of Payment Act 1999 (NSW). He will delve further into this topic at his upcoming seminar Payment Disputes for Architects: Recovering Your Fees and Costs on Friday 23 October 2020.
The economic and structural changes impacting on the building and construction industry during the 1980’s resulted in an increasing volume of payment disputes during and after that decade. This was of concern to industry which after an inquiry in 1988 [1] conferenced the issue in 1988. The conference outcomes formalised a shift of power in the industry to the builders by transferring act quality assurance process away from the independence of a principal’s consultants to the contractor. The effect of this power shift was to allow the contractor or the principal, through a project manager to decide whether a contractor or a consultant had met project objectives and, through increasingly complex contracts, the rights to payment for the work or services provided. The removal of the traditional quality assurance process required the introduction of new quality assurance methodologies[2] which resulted in the formalisation with the self-certification processes of today.
The changes in industry structure did not resolve industry disputation. Its impact was to increase the fiscal power of the principal (head contractor) in a dispute. This change in the power structures within a construction dispute were reflected in increasing difficulties for sub-contractors and consultants in being paid for the works and services that they provided. The growing problem was addressed in the UK with the introduction of legislation[3] in 1996 and in NSW in 1999. During the consideration of the Bill the government expressed the view that the rights of contractors and consultants were significantly in the public interest[4].
The fundamental precept of Security of Payment[5] legislation is the right for a person doing construction work[6] or providing related goods and services[7] to be paid for work or services that it had provided under a contract to the principal identified in the contract. That right to applies whether the contract is in writing or is oral or is a loosely defined arrangement[8]. All that is necessary is that the basic ingredients of a contract simply articulated being present: – the work or services were requested, the work was performed, and, the client accepted the benefit provided[9].
The right to payment established by SOPA can override terms and conditions in an agreement[10] that are applied to take away from that right to be paid[11] rendering such a provision void in its entirety or to the extent that that term or condition interferes with the right. The application of this section applies not only to the words used, it can apply to the interpretation and the actions that a principal might take to reduce your fees. The original agreement is paramount.
Attempts at reduction of the value of the payment must consider the original fee value, payment rates, terms and conditions, payment periods are subject to review under the No Contracting Out provisions of the Act. It means that subject to the claimant’s – your – actions, any attempt by the principal to re-negotiate the value of the entitlement to payment can be voided. In a similar vein claims for variations to scope, delay and disruption, and contractual non-conformities can give rights to recover additional amounts using the SOPA.
The Building and Construction Industry Security of Payment Act 1999 (NSW) reinforces the Right to be Paid in several sections. To enhance this basic right to payment the act set limits on: –
- The period between claims (monthly)[12];
- The time for the principal to respond to a claim[13]
- the maximum time between a claim and payment[14];
- the time to make submissions[15]; and
- the time for an adjudicator to make a decision[16]; and
- the time for the adjudicator to determine the adjudication.
Another feature of the Act are provisions allowing a claimant to suspend[17]&[18]works until such time that the amounts claimed are paid. Where a principal responds to such a stop work order aggressively (i.e. with a vengeance) the Act allows the Claimant to recover loss and expenses incurred nor is any liability incurred for any loss or expense suffered by the principal.
The Act is more a contractual management tool than a legal tool – it is a statutorily endorsed interim dispute resolution method that provides quick access to payment for claimants entitlement to be paid for work or the related goods and services that were, and in some cases, will be provided.
[1] No Dispute – Strategies for Improvement in The Australian Building And Construction Industry The National Public Works Conference and National Building and Construction Council Joint Working Party Report 1989 – 1991
[2] ISO 9001 Family – Quality Management set of quality assurance standards
[3] Housing Grants, Construction and Regeneration Act 1996 (Construction Act 1996) which superimposed terms and conditions that replaced onerous clauses in construction (including consultant, related purchase agreements, etc) contracts
[4] Building and Construction Industry Security of Payment Bill (No 2) Legislative Assembly Hansard – 08 September 1999 “…Government is determined to rid the construction industry of such totally unacceptable practices. In doing so, there is a clear recognition by this Government that any action taken does not add unnecessary cost to industry, its participants and its clients…”
[5] Building and Construction Industry Security of Payment Act, 1999 (SOPA)
[6] s5 Definition of “construction work”
[7] s6 Definition of “related goods and services”
[8] In Lendlease Engineering Pty Ltd v Timecon Pty Ltd [2019] NSWSC 685, Ball J defined an arrangement that it “must give rise to a legally binding obligation, although, of course, that obligation need not be contractual in nature”
[9] An oral agreement can give rise to a conflict with other legislation. Where such a conflict arises the SOPA has been found in courts to override lesser legislation. For example, non-compliance with the requirement for contracts to be in writing in the Architects Act 2003 (NSW) regulations are overridden by the SOPA.
[10] In this paper these terms are referred to collectively as an “Agreement’.
[11] s34 No contracting out
[12] s13 Payment Claims
[13] s14 Payment Schedules
[14] S11 Due Date for Payment
[15] s17 Adjudication applications
s20 Adjudication Responses
[16] s21 Adjudication Procedures
[17] ss15(2)(b) Consequences of not paying claimant where no payment schedule & 16(2)(b) Consequences of not paying claimant in accordance with payment schedule.
[18] S27 Claimant may Suspend Work
Peter Sarlos, Architect; Lawyer; Building Surveyor; Construction Adjudicator; ADR Practitioner, Construction Adjudicator registered in New South Wales, Queensland, South Australia, Tasmania and Victoria. In addition, he is the founder and vice president of the Adjudication Forum Incorporated.
Peter’s present focus of activity involves the application of his skills and experience gained through over 45 years involvement in the building industry as an architect, Lawyer, expert, & construction adjudicator. Peter has actively participated in industry organisations where he, together with others addresses issues facing the industry including:
- Architects Registration Board of NSW
- NSW Chapter of the (R)AIA through participation in the Institute’s Chapter Council, Practice Committee, CPD Committee and Senior Counsellor Service.
- Building Regulation Advisory Council of NSW (BRAC)
- ABCB / NCC subcommittee on Condensation in Buildings
- Building Professionals Board Technical Reference Group.
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