The Building and Construction Industry Security of Payment Act 2009 (SA) imposes strict time frames for responses to payment claims and adjudication applications made under the Act. Failure to respond in those time frames will usually mean that a recipient of a payment claim loses their opportunity to dispute the claim, and must pay the claimed amount.
The holiday period is when cash flow is tightest for businesses. Claimants may (quite reasonably) seek to use the legislation to help manage their cash flow during this time.
Some claimants also see the holiday period as an opportune time to serve payment claims under security of payment legislation. 'Ambush' claims are notorious in the construction industry. Most businesses close or run on 'skeleton staff' over the holiday period, and some businesses 'shut down' until well into January. This makes it more likely that a recipient of a payment claim in that period may miss the deadlines under the Act altogether, or otherwise be poorly positioned to respond.
For these reasons, the Act provides some extra time for responses during the holiday period. But this protection is limited, and its extent is uncertain.
Head contractors, and principals engaging builders to perform commercial work, should take steps to ensure that they are not 'caught out' under the Act over the holiday period.
This article provides a summary of the relevant time frames and considerations when responding to payment claims. It deals with the requirements of the South Australian Act, but the same general principles apply to all security of payment legislation across Australia.
Time frames
Under the SA Act, if a respondent does not intend to pay the full amount of a payment claim, it must respond with a payment schedule within 15 business days after the payment claim is served (or earlier, if a shorter time frame is provided under the relevant construction contract).
Payment claims are not the only documents subject to these strict time frames. Parties should also be mindful of the possibility of being served with an adjudication application if they have responded to a payment claim within the last 15 business days, or if they have received a 'second chance' notice stating that the claimant intends to apply for adjudication under section 17 of the Act.
'Business day' and the holiday period
The relevant time frames under the Act are calculated by reference to 'business days'.
The term 'business day' is defined under the Act as any day other than Saturdays, Sundays, public holidays or 27 to 31 December (inclusive). This allows some protection over the holiday period.
Uniquely in South Australia, the definition of 'business day' also excludes any other day on which there is a 'Statewide shut-down' of the operations of the building and construction industry. Since the commencement of the SA Act, there has been some confusion and debate as to what constitutes a 'Statewide shut-down'. Some contend that this definition should include union rostered days off, and the entire two week holiday period during which most businesses are shut down (and not just public holidays and the specific days in December named in the Act).
If that contention were correct, then recipients of payment claim would have better protection under the Act. However, the position (and when the holiday period would cease to be a 'Statewide shut-down') is uncertain.
To avoid unnecessary arguments, the 'Statewide shut-down' exception should not be relied upon by businesses that do not reopen until January.
Service
To meet time frames under the Act it is critical to understand how a payment claim may be effectively served.
Payment claims can be validly served personally, by lodging it at your ordinary place of business during business hours, or by post or fax to your ordinary place of business.
Email service may also be effective, depending on the circumstances.
Further, service on your registered office may in some circumstances be effective service. You should ensure that office is monitored appropriately as well. Commonly, this will be an accountant's office, and it is not unusual for mail not to be monitored regularly during a Christmas shutdown.
Practical steps
To protect against surprise holiday payment claims, principals and contractors involved in construction work or providing related goods and services should:
review the status of your projects and identify any possible issues that may lead to payment claims and disputes;
identify progress claim 'reference dates' in the construction contract under which payment claims could arise, so that you understand when a payment claim might be made (under the Act, if no provision for a reference date is made under a contract, then the reference date will be the last day of the named month in which construction work was carried out);
ensure that your team (and in particular, any contract administrators) know how to identify a possible payment claim under the Act;
ensure that project managers on leave divert their emails to an address that is checked regularly during the holiday period;
ensure your fax machine (if any) and post at your ordinary place of business are also monitored regularly during the holiday period;
check that any other address for service of notices and claims nominated in your construction contract and ensure that it is regularly checked during the holiday period;
check what registered office you have nominated with ASIC and contact that office to ensure any payment claims will be identified and immediately redirected;
make sure that your team understands how to respond to a payment claim with a payment schedule that meets the requirements of the Act;
confirm the applicable requirements and time frames under the legislation that is in force where the work claimed was carried out (the time frames to respond to payment claims under security of payment legislation differ for each State and Territory, and in some States the relevant time frame to respond to a payment claim is only ten business days); and
if you receive a payment claim, your payment schedule must identify the payment claim to which it relates, and the amount of the payment that the respondent proposes to make, and be served on the contractor within the time required by the Act. This is not always straightforward and advice should be sought.
If you receive a payment claim in the lead up to, or during the festive season, our experienced construction team is on hand to assist you.
Claimants concerned about cash flow and seeking to rely on security of payment legislation should also be careful during the 'Christmas rush' to ensure that their claims actually meet the requirements of the legislation. We can assist with this too.
Please contact Adam Rosser or John Vozzo to discuss security of payment on (08) 8211 7955.