In tough economic times, maintaining cash flow to your business can become more difficult. The Building and Construction Industry Security of Payment Act 2002 can assist suppliers, contractors and subcontractors in the building industry to get paid more quickly and avoid expensive disputes.

Making sure the Act applies to you

The Act’s reach is broad, applying to all contracts, both written and oral, for building and construction work or for the supply of related goods or services within Victoria.

Despite the Act’s broad reach, there are several exceptions to the Act. For example, the Act does not apply to domestic building contracts (as defined in the Domestic Building Contracts Act 1995), except when work is carried out for a person who is in the business of building domestic residences, and the contract is entered into in the course of or in connection with that business.

The Act covers a wide range of claims commonly made in the building industry. These include progress claims, final payments, milestone (key event) payments and certain variation claims. The Act does not apply to claims for damages, delay costs, latent condition claims and certain variation claims.

How to make a payment claim

The Act does not apply automatically and in order to make a claim under the Act a certain procedure must be followed. The procedure is initiated by the making of a “payment claim” by the person claiming payment, known as the claimant. The payment claim must state “this is a payment claim under the Building and Construction Industry Security of Payment Act 2002.”

A payment claim must also clearly describe the work carried out or the goods or services supplied up to the date of the claim and the amount and method of calculating the claim. These seem to be obvious points but are often missed or not stated clearly on a payment claim.

If you are thinking of making a payment claim it is important that you act promptly in making the claim as time limitations apply and these vary depending on the type of claim being made.

What happens if you receive a payment claim?

After the payment claim has been served on the respondent there is then a tight timeframe in which certain things must be done. The tight timeframe is one of the benefits of using the Act in that an outcome can be achieved in a relatively short space of time.

After a payment claim is submitted, the respondent has the shorter of either 10 business days the  return period if specified in the contract, in which to dispute the claim by serving a “payment schedule” upon the claimant.

If the respondent provides a payment schedule but the amount in the schedule is less than the amount in the payment claim, or the respondent fails to make full payment by the due date, then the claimant may apply for adjudication. Again, strict timeframes apply to the adjudication process. An adjudicator, being a person with expert knowledge in the relevant area, will determine the amount of a claim (if any) that should be paid.

If no payment schedule is received within the timeframe allowed and no payments are made, the claimant can subsequently make an application to the court to recover the amount as a debt. With the claimant now having the benefit of a court judgment in its favour against the respondent, payment can then be enforced in a number of ways.

Benefits and warnings

When used correctly, the Act can reduce the cost of expensive claims by enabling contractors to secure payment, with a corresponding improvement in cash flow. However, serious consequences can occur for the respondent if time limits are missed or ignored.