All construction industry businesses in Australia (developers, owners, contractors, subcontractors, project managers, architects, consultants, manufacturers and suppliers of related goods and services in construction) should have a basic understanding of the Security of Payment Laws (SOP laws) that operate in their State, and other States or Territories in which they do business.
Given the increasing popularity of pre-fabricated and modular components in the Australian construction market and increased cross-border activity within supply chains, understanding which SOP laws apply to the construction work performed (meaning which State or Territory legislation offers a remedy to a claimant) under your construction contract is of critical importance.
The recent Queensland decision in Lendlease Building Pty Ltd v BCS Airport Systems Pty Ltd & Ors [2024] QSC 164, follows earlier NSW authority and clarifies that it is not the source location of supplied items, or the location of manufacture of supplied components that is relevant, but the location of the building or structure where those items are used, or installed, that determines which SOP laws apply and offer a remedy to a claimant. For example, if components are manufactured in NSW and supplied to QLD for incorporation as fixtures in a building in QLD, the QLD BIF Act applies as the appropriate remedy to a claimant, and the NSW Security of Payment Act does not offer a remedy.
Security of Payment Laws enshrined in legislation across Australia enable fast track payment recovery for claimants seeking payment for construction work and related goods and services.
Troy Legal has extensive experience advising clients in respect of SOP laws across Australia, including in QLD, NSW & VIC both defending and enforcing SOP claims, and appealing adverse adjudication decisions to the Supreme Court of the relevant state or territory.
Below we summarise necessary fundamentals that provide an insight into the operation of SOP laws.
A valid payment claim is one that complies with the relevant state or territory SOP legislation.
Going back to the example above, if a NSW supplier seeks payment for the supply of items sourced from NSW and which are used in a building in QLD, the BIF Act in QLD offers that supplier a remedy as a claimant, not the NSW SOP Act. The NSW supplier will be required to issue a valid payment claim that complies with the BIF Act.
A valid payment claim attracts the relevant enforcement provisions in the SOP laws for the relevant state or territory legislation, including the jurisdiction of an Adjudicator to assess the amount payable in respect of a payment claim, and/or the jurisdiction of the Courts in that state or territory in respect of summary judgment applications and review of adjudication decisions.
It is common place across all jurisdictions, that the validity of payment claims are challenged on the basis that:
Unlike payment claims issued under NSW, ACT & VIC legislation, a BIF Act payment claim in QLD does not need to specify that it is a payment claim issued under the BIF Act, but it must otherwise satisfy the requirements in s68 & s75 of the BIF Act.
This includes that the payment claim must request payment of the amount claimed. Reference to the word “invoice” on the claim is deemed by the BIF Act to be such a request. Section 75 of the BIF Act also provides that a shorter 6 month time bar than the 12 month period in NSW & ACT, being 6 months from completion of the work the subject of the claim for interim payment claims and final payment claims must be given with the longest of either, the 6 month period, 28 days after the defects liability period or as otherwise provided by the contract.
A valid payment schedule is a document described by the SOP laws that must be issued within the time prescribed for responding to a valid payment claim and that complies with the SOP laws in the relevant state or territory.
Payment schedules are required to identify the subject payment claim it is responding to, the amount of the payment proposed to be made (i.e. the scheduled amount) and if the scheduled amount is less than the claimed amount, the reasons relied upon by the respondent for withholding payment.
Payment schedules must be given strictly within the time required by the subject contract or the relevant SOP laws, whichever applies.
A full and detailed outline of reasons for withholding payment with supporting material is a necessary and important feature of a payment schedule.
Payment schedules define the issues in dispute between the parties in respect of the amounts claimed in the payment claim and therefore must identify all reasons, including peripheral reasons, for withholding payment. These reasons often are supported by technical reports or expert evidence.
The consequences of not issuing a valid payment schedule within the time required are significant, the SOP laws in most states and territories operate to give rise to a statutory debt payable to the claimant for the fill claimed amount, which in may be recovered by the claimant by summary judgment application to the Court (in QLD - first requiring a s99 BIF Act warning notice), or will otherwise prevent a respondent from being able to submit an adjudication response at adjudication.
Payment schedules should also expressly deal with any jurisdictional issues that go to the validity of the payment claim. Although these are not strictly reasons for withholding payment, jurisdictional issues are carefully considered by any Court or adjudicator to ensure the subject payment claim is valid and the provisions of the SOP laws regarding enforcement come into play.
Since the High Court decision in Southern Han, the availability of a reference date to support the payment claim is a pre-condition to the issue of a valid payment claim. In the absence of an available reference date, the payment claim is invalid and will not trigger the operation of the legislation, including mechanisms for enforcement by adjudication or summary judgment.
https://www.troylegal.com.au/articles/bif-act-payment-claims-6-month-time-bar
https://www.troylegal.com.au/articles/bif-act-payment-claims-identifying-the-work-claimed
https://www.troylegal.com.au/articles/one-contract-rule
https://www.troylegal.com.au/articles/one-contract-rule-no-more
Adjudication is a fast track statutory process for the resolution of payment disputes. The issues in dispute are resolved on the papers submitted to an adjudicator for the assessment of a payment claim based on the operation of the relevant SOP laws. An adjudicator’s determination is an interim determination of money owed between the parties to a construction contract and which is subject to any final determination of rights and obligations by a Court.
Anyone in the construction industry that undertakes construction work and supplies related goods and services can make use of the adjudication process as a claimant to recover progress payments claimed to be owed under their construction contract (contractors, subcontractors, project managers, architects, consultants, manufacturers and suppliers of related goods and services).
The role of the adjudicator is to undertake a fast track assessment of the matters in dispute (defined by the issues identified in the payment claim and payment schedule) and issue a written determination as to the amount payable in respect of the payment claim.
The process is subject to the strict time limits outlined in the legislation of the relevant state or territory.
In QLD, adjudication applications are to be submitted within 30 business days of receipt of a payment schedule (or from when it should have been issued) or otherwise within 20 business days from the due date for payment of the subject payment claim. An adjudicator is required to be appointed within 4 business days, except where it is refused and it may be referred to another within a further 4 business days.
Assuming a right of response exists, a respondent may provide an adjudication response for simple claims (less than $750K) within 10 business days of receiving the application and for complex claims (over $750K) within 15 business days of receiving an application (with the right to apply for an extension of a further 15 business days) (response dates).
An adjudicator’s determination is due within 10 business days of the response date for a simple claim and within 15 business days of the response date for a complex claim, subject to the rules for seeking an extension with the consent of the parties. Typically, a determination is given within a few months from when the payment claim is served. Although there are variations to these time frames in the SOP laws of each state or territory, generally an adjudication determination is made within 2 to 3 months of issue of a payment claim.
https://www.troylegal.com.au/articles/nsw-sop-act-time-limits
https://www.troylegal.com.au/articles/payment-schedules-a-critical-step-not-to-be-missed
In NSW, where a respondent fails to issue a payment schedule within 10 business days after the payment claim is served, or the lesser time stated by the construction contract, a statutory debt arises in favour of the claimant for the amount claimed in the payment claim.
The statutory debt may be recovered by a claimant by summary judgment application to the Court, or the claimant may proceed to adjudication in the absence of a payment schedule, if it first issues a second chance notice under s17(2) of the NSW SOP Act allowing the respondent, a further 5 days after receipt of the second chance notice, to provide a payment schedule. Still, if no payment schedule is given to the claimant, the respondent will have no right to an adjudication response.
Given the uncertainty of adjudication outcomes, the fact that an application to the Court may proceed in the absence of a second chance notice in NSW, and the limited defences available to a respondent in that instance (see s15(4)), claimants may favour a resolution of the amounts in dispute by the Court.
In QLD, where a respondent fails to issue a payment schedule within 15 business days (as opposed to 10 business days in NSW) after the payment claim is given, or the lesser time stated by the construction contract, a statutory debt arises in favour of the claimant for the amount claimed in the payment claim, see s77(2) BIF Act.
Unlike NSW, the statutory debt may be recovered in QLD by a claimant by summary judgment application to the Court subject to s99 of the BIF Act, or by adjudication. If a claimant proceeds to adjudication, the respondent will have no right to an adjudication response.
Before a summary judgment application can be made to the Court by the claimant in QLD, it is required to issue to the respondent a s99 warning notice (within 30 business days of the due date for payment of the subject payment claim) and not take the intended action within 5 business days of giving the s99 warning notice.
Like NSW, a respondent in QLD has limited defences available to resist a summary judgment application before the Court (see s100(3) BIF Act).
For insights see our article on summary judgment applications.
A valid payment claim cannot be given in QLD & NSW where the contractor is unlicensed in respect of the work claimed in the payment claim.
In QLD, the unlicensed building work exclusion outlined in s42 of the QBCC Act directly excludes the operation of the BIF Act by invalidating the subject payment claim, subject to the exemption discussed below.
This unlicensed building work exclusion is however subject to the head contractor licensing exemption in s8 of Schedule 1A QBCC Act. This allows an unlicensed contractor to validly claim payment for work performed down the chain by licensed trade contractors, including by invoking the mechanisms in the BIF Act. The unlicensed contractor will need to demonstrate the work was performed by the licensed trade contractor in order for the amounts claimed in the payment claim to remain valid to the extent of that work.
Find out more in our dedicated article: Can Unlicensed Builders Make SOP Act Claims?
A valid payment claim cannot be given in QLD & NSW where there is no work claimed within the statutory time bar period, which in QLD is 6 months from when the work was last carried out and in NSW is 12 months from when the work was last carried out.
The fast track nature of the adjudication process under SOP laws is not meant to offer a remedy to claimants who sit on claims for many months without formally submitting payment claims under the Act.
See recent article about BIF Act time bars.
In NSW & QLD, where a payment claim is issued after termination of the subject contract, it is likely that one of the main issues in play is whether the subject payment claim is valid under the relevant legislation. The question of validity will likely centre on whether the payment claim is time barred, or whether the payment claim is supported by an available reference date.
The relevant legislation in NSW & QLD now provides that the only reference date available to a claimant after termination of the subject contract, for work performed just prior to the termination, will be the termination date. This invites a question in each instance, of whether that termination reference date is available to support the subject payment claim (i.e. whether any other payment claim (other than the subject payment claim) already occupies that reference date), and whether the from the date of termination (6 months in QLD and 12 months in NSW).
Many construction contracts provide for progress payments to be issued progressively upon the completion of nominated stages of work or milestones. This is particularly common in domestic building contracts.
Several cases in NSW & QLD have considered a claimants entitlement issue a valid milestone payment claim under Australian Standard contracts (such as AS4000).
The law regularly applied to the question of whether or not the stage of work or milestone is complete (and whether a reference date has arisen) has called for strict compliance before claimant is entitled to issue a payment claim for completion of the relevant stage of work.
Subject to the wording of the payment clause of the subject contract evidencing an intention of more than substantial compliance, there must be strict compliance in terms of completion of the relevant stage of work in accordance with the terms of the contract and project specifications (where the extent of non-compliance is “purely trivial” and while “extreme exactitude” is not envisaged “effective and satisfactory completion” is required Maples v Winterview Pty Ltd v Liu [2015] ACTSC 58, [77]).
This ties into the reference date issue discussed above. A payment claim issued for completion of a stage of work that is not in fact complete, will not be supported by the relevant contractual reference date, and based on the principles discussed in Southern Han, will be an invalid payment claim because it is not supported by an available reference date.
All construction industry businesses in Australia (developers, owners, contractors, subcontractors, project managers, architects, consultants, manufacturers and suppliers of related goods and services in construction) should, as a minimum, have a basic understanding of the SOP laws that operate in their State, and any other States or Territories in which they do business.
Given the increasing popularity of pre-fabricated and modular components in the Australian construction market and increased cross-border activity for supply chains, understanding which SOP laws apply to the construction work performed under your construction contract is of critical importance.
Troy Legal has assisted construction industry businesses across Australia to navigate the SOP laws that apply to their projects. For advice or assistance, contact our director, Julian Troy on 0439207579 or julian@troylegal.com.au
All construction industry businesses in Australia (developers, owners, contractors, subcontractors, project managers, architects, consultants, manufacturers and suppliers of related goods and services in construction) should have a basic understanding of the Security of Payment Laws (SOP laws) that operate in their State, and other States or Territories in which they do business.
Given the increasing popularity of pre-fabricated and modular components in the Australian construction market and increased cross-border activity within supply chains, understanding which SOP laws apply to the construction work performed (meaning which State or Territory legislation offers a remedy to a claimant) under your construction contract is of critical importance.
The recent Queensland decision in Lendlease Building Pty Ltd v BCS Airport Systems Pty Ltd & Ors [2024] QSC 164, follows earlier NSW authority and clarifies that it is not the source location of supplied items, or the location of manufacture of supplied components that is relevant, but the location of the building or structure where those items are used, or installed, that determines which SOP laws apply and offer a remedy to a claimant. For example, if components are manufactured in NSW and supplied to QLD for incorporation as fixtures in a building in QLD, the QLD BIF Act applies as the appropriate remedy to a claimant, and the NSW Security of Payment Act does not offer a remedy.
Security of Payment Laws enshrined in legislation across Australia enable fast track payment recovery for claimants seeking payment for construction work and related goods and services.
Troy Legal has extensive experience advising clients in respect of SOP laws across Australia, including in QLD, NSW & VIC both defending and enforcing SOP claims, and appealing adverse adjudication decisions to the Supreme Court of the relevant state or territory.
Below we summarise necessary fundamentals that provide an insight into the operation of SOP laws.
A valid payment claim is one that complies with the relevant state or territory SOP legislation.
Going back to the example above, if a NSW supplier seeks payment for the supply of items sourced from NSW and which are used in a building in QLD, the BIF Act in QLD offers that supplier a remedy as a claimant, not the NSW SOP Act. The NSW supplier will be required to issue a valid payment claim that complies with the BIF Act.
A valid payment claim attracts the relevant enforcement provisions in the SOP laws for the relevant state or territory legislation, including the jurisdiction of an Adjudicator to assess the amount payable in respect of a payment claim, and/or the jurisdiction of the Courts in that state or territory in respect of summary judgment applications and review of adjudication decisions.
It is common place across all jurisdictions, that the validity of payment claims are challenged on the basis that:
Unlike payment claims issued under NSW, ACT & VIC legislation, a BIF Act payment claim in QLD does not need to specify that it is a payment claim issued under the BIF Act, but it must otherwise satisfy the requirements in s68 & s75 of the BIF Act.
This includes that the payment claim must request payment of the amount claimed. Reference to the word “invoice” on the claim is deemed by the BIF Act to be such a request. Section 75 of the BIF Act also provides that a shorter 6 month time bar than the 12 month period in NSW & ACT, being 6 months from completion of the work the subject of the claim for interim payment claims and final payment claims must be given with the longest of either, the 6 month period, 28 days after the defects liability period or as otherwise provided by the contract.
A valid payment schedule is a document described by the SOP laws that must be issued within the time prescribed for responding to a valid payment claim and that complies with the SOP laws in the relevant state or territory.
Payment schedules are required to identify the subject payment claim it is responding to, the amount of the payment proposed to be made (i.e. the scheduled amount) and if the scheduled amount is less than the claimed amount, the reasons relied upon by the respondent for withholding payment.
Payment schedules must be given strictly within the time required by the subject contract or the relevant SOP laws, whichever applies.
A full and detailed outline of reasons for withholding payment with supporting material is a necessary and important feature of a payment schedule.
Payment schedules define the issues in dispute between the parties in respect of the amounts claimed in the payment claim and therefore must identify all reasons, including peripheral reasons, for withholding payment. These reasons often are supported by technical reports or expert evidence.
The consequences of not issuing a valid payment schedule within the time required are significant, the SOP laws in most states and territories operate to give rise to a statutory debt payable to the claimant for the fill claimed amount, which in may be recovered by the claimant by summary judgment application to the Court (in QLD - first requiring a s99 BIF Act warning notice), or will otherwise prevent a respondent from being able to submit an adjudication response at adjudication.
Payment schedules should also expressly deal with any jurisdictional issues that go to the validity of the payment claim. Although these are not strictly reasons for withholding payment, jurisdictional issues are carefully considered by any Court or adjudicator to ensure the subject payment claim is valid and the provisions of the SOP laws regarding enforcement come into play.
Since the High Court decision in Southern Han, the availability of a reference date to support the payment claim is a pre-condition to the issue of a valid payment claim. In the absence of an available reference date, the payment claim is invalid and will not trigger the operation of the legislation, including mechanisms for enforcement by adjudication or summary judgment.
https://www.troylegal.com.au/articles/bif-act-payment-claims-6-month-time-bar
https://www.troylegal.com.au/articles/bif-act-payment-claims-identifying-the-work-claimed
https://www.troylegal.com.au/articles/one-contract-rule
https://www.troylegal.com.au/articles/one-contract-rule-no-more
Adjudication is a fast track statutory process for the resolution of payment disputes. The issues in dispute are resolved on the papers submitted to an adjudicator for the assessment of a payment claim based on the operation of the relevant SOP laws. An adjudicator’s determination is an interim determination of money owed between the parties to a construction contract and which is subject to any final determination of rights and obligations by a Court.
Anyone in the construction industry that undertakes construction work and supplies related goods and services can make use of the adjudication process as a claimant to recover progress payments claimed to be owed under their construction contract (contractors, subcontractors, project managers, architects, consultants, manufacturers and suppliers of related goods and services).
The role of the adjudicator is to undertake a fast track assessment of the matters in dispute (defined by the issues identified in the payment claim and payment schedule) and issue a written determination as to the amount payable in respect of the payment claim.
The process is subject to the strict time limits outlined in the legislation of the relevant state or territory.
In QLD, adjudication applications are to be submitted within 30 business days of receipt of a payment schedule (or from when it should have been issued) or otherwise within 20 business days from the due date for payment of the subject payment claim. An adjudicator is required to be appointed within 4 business days, except where it is refused and it may be referred to another within a further 4 business days.
Assuming a right of response exists, a respondent may provide an adjudication response for simple claims (less than $750K) within 10 business days of receiving the application and for complex claims (over $750K) within 15 business days of receiving an application (with the right to apply for an extension of a further 15 business days) (response dates).
An adjudicator’s determination is due within 10 business days of the response date for a simple claim and within 15 business days of the response date for a complex claim, subject to the rules for seeking an extension with the consent of the parties. Typically, a determination is given within a few months from when the payment claim is served. Although there are variations to these time frames in the SOP laws of each state or territory, generally an adjudication determination is made within 2 to 3 months of issue of a payment claim.
https://www.troylegal.com.au/articles/nsw-sop-act-time-limits
https://www.troylegal.com.au/articles/payment-schedules-a-critical-step-not-to-be-missed
In NSW, where a respondent fails to issue a payment schedule within 10 business days after the payment claim is served, or the lesser time stated by the construction contract, a statutory debt arises in favour of the claimant for the amount claimed in the payment claim.
The statutory debt may be recovered by a claimant by summary judgment application to the Court, or the claimant may proceed to adjudication in the absence of a payment schedule, if it first issues a second chance notice under s17(2) of the NSW SOP Act allowing the respondent, a further 5 days after receipt of the second chance notice, to provide a payment schedule. Still, if no payment schedule is given to the claimant, the respondent will have no right to an adjudication response.
Given the uncertainty of adjudication outcomes, the fact that an application to the Court may proceed in the absence of a second chance notice in NSW, and the limited defences available to a respondent in that instance (see s15(4)), claimants may favour a resolution of the amounts in dispute by the Court.
In QLD, where a respondent fails to issue a payment schedule within 15 business days (as opposed to 10 business days in NSW) after the payment claim is given, or the lesser time stated by the construction contract, a statutory debt arises in favour of the claimant for the amount claimed in the payment claim, see s77(2) BIF Act.
Unlike NSW, the statutory debt may be recovered in QLD by a claimant by summary judgment application to the Court subject to s99 of the BIF Act, or by adjudication. If a claimant proceeds to adjudication, the respondent will have no right to an adjudication response.
Before a summary judgment application can be made to the Court by the claimant in QLD, it is required to issue to the respondent a s99 warning notice (within 30 business days of the due date for payment of the subject payment claim) and not take the intended action within 5 business days of giving the s99 warning notice.
Like NSW, a respondent in QLD has limited defences available to resist a summary judgment application before the Court (see s100(3) BIF Act).
For insights see our article on summary judgment applications.
A valid payment claim cannot be given in QLD & NSW where the contractor is unlicensed in respect of the work claimed in the payment claim.
In QLD, the unlicensed building work exclusion outlined in s42 of the QBCC Act directly excludes the operation of the BIF Act by invalidating the subject payment claim, subject to the exemption discussed below.
This unlicensed building work exclusion is however subject to the head contractor licensing exemption in s8 of Schedule 1A QBCC Act. This allows an unlicensed contractor to validly claim payment for work performed down the chain by licensed trade contractors, including by invoking the mechanisms in the BIF Act. The unlicensed contractor will need to demonstrate the work was performed by the licensed trade contractor in order for the amounts claimed in the payment claim to remain valid to the extent of that work.
Find out more in our dedicated article: Can Unlicensed Builders Make SOP Act Claims?
A valid payment claim cannot be given in QLD & NSW where there is no work claimed within the statutory time bar period, which in QLD is 6 months from when the work was last carried out and in NSW is 12 months from when the work was last carried out.
The fast track nature of the adjudication process under SOP laws is not meant to offer a remedy to claimants who sit on claims for many months without formally submitting payment claims under the Act.
See recent article about BIF Act time bars.
In NSW & QLD, where a payment claim is issued after termination of the subject contract, it is likely that one of the main issues in play is whether the subject payment claim is valid under the relevant legislation. The question of validity will likely centre on whether the payment claim is time barred, or whether the payment claim is supported by an available reference date.
The relevant legislation in NSW & QLD now provides that the only reference date available to a claimant after termination of the subject contract, for work performed just prior to the termination, will be the termination date. This invites a question in each instance, of whether that termination reference date is available to support the subject payment claim (i.e. whether any other payment claim (other than the subject payment claim) already occupies that reference date), and whether the from the date of termination (6 months in QLD and 12 months in NSW).
Many construction contracts provide for progress payments to be issued progressively upon the completion of nominated stages of work or milestones. This is particularly common in domestic building contracts.
Several cases in NSW & QLD have considered a claimants entitlement issue a valid milestone payment claim under Australian Standard contracts (such as AS4000).
The law regularly applied to the question of whether or not the stage of work or milestone is complete (and whether a reference date has arisen) has called for strict compliance before claimant is entitled to issue a payment claim for completion of the relevant stage of work.
Subject to the wording of the payment clause of the subject contract evidencing an intention of more than substantial compliance, there must be strict compliance in terms of completion of the relevant stage of work in accordance with the terms of the contract and project specifications (where the extent of non-compliance is “purely trivial” and while “extreme exactitude” is not envisaged “effective and satisfactory completion” is required Maples v Winterview Pty Ltd v Liu [2015] ACTSC 58, [77]).
This ties into the reference date issue discussed above. A payment claim issued for completion of a stage of work that is not in fact complete, will not be supported by the relevant contractual reference date, and based on the principles discussed in Southern Han, will be an invalid payment claim because it is not supported by an available reference date.
All construction industry businesses in Australia (developers, owners, contractors, subcontractors, project managers, architects, consultants, manufacturers and suppliers of related goods and services in construction) should, as a minimum, have a basic understanding of the SOP laws that operate in their State, and any other States or Territories in which they do business.
Given the increasing popularity of pre-fabricated and modular components in the Australian construction market and increased cross-border activity for supply chains, understanding which SOP laws apply to the construction work performed under your construction contract is of critical importance.
Troy Legal has assisted construction industry businesses across Australia to navigate the SOP laws that apply to their projects. For advice or assistance, contact our director, Julian Troy on 0439207579 or julian@troylegal.com.au
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