What To Do To Resolve Payment Disputes in Construction Contracts

What To Do To Resolve Payment Disputes in Construction Contracts 2

The building and construction industry commonly sees disputes regarding payments for a wide variety of reasons including building delays, under payments, non payments, design and planning errors and others.

Such disputes can be extremely disruptive for the contractors and builders as it can affect cash flow, which could impact their ability to buy materials, support other projects and even pay their employees.

In Australia, every state and territory have legislation in place that offers payment protection for the building and construction industry.  This legislation is commonly known as the Security of Payment Act, and it grants the building contractor an entitlement to progress payments during a building project.

The Security of Payment Act also provides information regarding how payment claims for construction work can be made by building contractors, as well as how disputed claims are adjudicated, and how payments can be recovered. The Act helps to make resolving payment disputes a lot easier. 

Construction work, payment claims and payment schedules

Payment disputes can occur between a variety of different people, but usually they are between the person or people performing the construction work and the client who has hired them to do the work. This means that it could be a contractor and a homeowner; a subcontractor and a contractor or project principal; or even a supplier and a contractor.

The Security of Payment Act allows the person performing the work to make a payment claim against the person they were hired by to complete the work.

They do this by sending a statement of claim to the person that is obligated to pay under the construction contract, and it must:

  • Be in writing;
  • Contain information regarding the contract it relates to;
  •  Identify the work and time period that the claim relates to;
  •  The claimed payment amount;
  • How this payment amount was calculated; and
  • A due date for the payment.

Payment claims are commonly issued by a contractor, subcontractor, or supplier on a monthly basis, unless their work contract indicates otherwise. 

In order to be able to make a payment claim, work on the project must have commenced, or goods must have been supplied (if a supplier is making the payment claim). The definition of “construction work” is somewhat broad and can be defined as work that is carried out in connection with a construction project, such as: 

  •  the construction, alteration, alteration, repair, restoration, maintenance, extension, demolition or dismantling of buildings or other;
  • the installation of heating, lighting, air conditioning, ventilation, power supply, drainage, sanitation, water supply, fire protection, security, and communications systems;
  •  the cleaning of buildings, structures and works as part of construction work;
  • any operation necessary to complete the above work (such as site clearing, excavation, the laying of foundations, and the use of scaffolding); and/or
  • painting or decorating.

Under the Acts, regular and timely payments in construction projects is provided for. This is to protect all workers and to ensure a project can continue and be completed as expected.

If a payment claim is submitted then the client/payer must respond in a timely manner – time limitations may differ from state to territory, for example, the payer must respond within 15 days of the payment claim. The payer can respond by either paying the amount of the claim in full, or by issuing a payment schedule and paying a lesser amount.

A payment schedule identifies the payment claim, the amount that will be paid and the reasons that this amount is less than the amount claimed. This must be supplied to the claimant in writing and usually within 15 days of the claim being received or by the due date outlined in the contract (if there is one). 

What if they still don’t pay?

While the Security of Payment Act does encourage payment and provide means for workers to claim payments for their work, there are still instances where a respondent does not pay. The Security of Payment Act also provides means for the claimant to recover the money. These means are court action or adjudication. 

Court action can be costly and time consuming, whereas adjudication can be a cost-effective and efficient alternative. 

Adjudication involves the claimant making an application to the relevant commission – for example, in Queensland the commission is the Queensland Building and Construction Commission. An arbiter will be appointed, and it is their job to review the evidence and documentation that the parties have provided. 

How does the adjudication process work? 

The respondent (the person the claim is made against), will receive a copy of the application as part of the adjudication process, and they are given time to respond. The timeframe for their response can differ from state and territory and may be between 5-15 business days. The claimant receives a copy of the respondent’s response. 

The adjudicator then has between 10-15 business days (may differ depending on location and complexity of the matter) to reach a decision. As part of their decision-making process, the adjudicator can request further information and conduct informal conferences with the parties involved. The adjudicator must also notify any relevant person who may have contractual or financial interest in the particular claim. 

The adjudicator will decide regarding the claim, including the amount that is to be paid, when it is to be paid and if there is any interest payable. It is also possible that they may find that the respondent isn’t required to pay anything. 

If a decision has been made that the respondent is required to pay the claimant, then this must be done within the provided time frame. If it is not, then the claimant may take further action, which could include:

  • suspension of work or supply of goods and services
  • making a payment withholding request to a party that is higher in the contractual chain;
  • applying to a court for a judgment debt;
  •  making a statutory claim over the property.

While the Security of Payments Act has been designed to reduce the instances and consequences of payment disputes, understanding your rights in construction law can be difficult.

Seek legal advice from experienced construction dispute lawyers to ensure you resolve your dispute issues effectively and quickly.

Source: Gibbs Wright Litigation lawyers

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