The Building and Construction Industry Security of Payment Act 2002 (Vic) made simple

Western Suburbs Law AssociationTuesday 4 June 2013

Michael Heaton QC

Purpose and object of Act

Reasons for Act

Dual regime

Precedence of Act over contract

Interim measure

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Introduction

S.9(2)(a((i): date under the contract on which a claim for a progress payment may be made [in relation to specific items of construction work]

S.9(2)(a)(ii): date under the contract by reference to which amount of payment claim is calculated in relation to specific items of construction work

In effect, date under contract for making of claims for progress payments

S.9(2)(b): if contract does not make express provision then 20 business days after construction work was first carried out and for second and subsequent Reference Dates, 20 days after the previous Reference Date

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Reference Date

S.9(2)(c): single or one-off payment

S.9(2)(d): final payment

Reference Date is critical because entitlement to make a claim for a progress payment is on and from each Reference Date

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Reference Date continued…

Class 1 variations: s.10A(2)

Class 2 variations:

o work was carried out

o work was requested or directed

but no agreement as to entitlement value, method of valuing or time for payment

Subject to s.10(4), if contract price $5million or less - can claim: s.10A(3)(d)(i)

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Claimable Variations

Subject to s.10(4), if contract price greater than $5million and contract does not contain a dispute resolution clause – can claim: s.10(3)(d)(ii). But if contract does contain dispute resolution clause – cannot claim. Dispute resolution clause must be compulsory and determinative.

S.10A(4): if Class 2 variations at any time exceed 10% of the contract price then $5million is read as $150,000.

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Claimable Variations continued…

If variation not a claimable: s.10B(2)(a)

Any amount other than a claimable variation due to:o latent conditionso time related costso changes in regulatory requirementss.10B(2)(b)

Damages for breach of contract or any other claim for damages arising under or in connection with the contract: s.10B(2)(c)

A claim arising at law other than under the construction contract: s.10B(2)(d)

Any amount of a prescribed Class: s.10B(2)(e)

Reasons for s.10A and s.10B – protect VicRoads7

Excluded Amounts

Date a progress payment is payable under the contract

If no express provision, 10 days after payment claim is made

Interest payable under s.2 of Penalty Interest Rates Act or at rate specified under contract

Cash flow

Pay when paid provisions have no effect: s.13

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Due date for payment

Request or direction to change render Statutory Declaration requirements under construction contracts

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Examples of dual regime and precedence of the Act

Payment claim:

o identify the construction work or related goods and services

o amount of progress payment claimed

o State made under Building and Construction Industry Security of Payment 2002: s.14(2)

o the same payment claim may serve as a payment claim under the contract and under the Act

o must be served within the period determined by the contract or 3 months after the Reference Date in s.9(2): s.14(4)(a) and (b)

o claimant cannot serve more than one payment claim in respect of each Reference Date: s.14(8)

o claimant can claim in a payment claim, an amount not previously paid under a payment claim: s.14(9)

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Payment claims and payment schedules

Payment schedule – must identify payment claim to which it relates

o amount of payment respondent proposes to make – scheduled amount

o identify any amount alleged to be an excluded amount

o if scheduled amount is less state why

o payment schedule to be made within time required by contract or 10 business days after payment claim is served, whichever is the earlier

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Payment claims and payment schedules continued…

Respondent liable to pay claimed amount on the due date for payment

If no payment of whole or any part of claimed amount, or the whole or any part of a scheduled amount – the amount becomes a debt due to claimant

Claimant can then bring summary proceedings or make an adjudication application

In summary proceedings respondent not entitled to raise any defence under construction contract: s.16(4) and s.17(4)

Claimant is entitled to significant judgment under the Act on payment claims even though respondent may have good defence under the contract, still have to pay

o dual regimes and precedence of Act12

Failure to deliver payment schedule or pay claimed amount

Scheduled amount less than claimed amount: s.18(1)(a)

No payment schedule and no payment of the whole or any part of the claimed amount: s.18(1)(b)

Application must be made within 10 business days of receipt of payment schedule: s.18(1)(a)

Under s.18(1)(b) – 10 business days after due date for payment or 5 business days after time for respondent to respond under s.18(2)

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Adjudication Applications

Made to ANA chosen by claimant

If 3 ANA set out in contract claimant must choose one of them

Adjudication application may contain submissions relevant to the application

Must be accepted by adjudicator within 4 business days after application made to ANA

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Adjudication Applications continued…

Within 5 business days after receipt of adjudication application or 2 business days after adjudicator’s notification of acceptance of adjudication, whichever is the later

Effectively, 5 business days to respond

Can contain submissions relevant to the response

Can only lodge adjudication response if payment schedule has been provided

If adjudication response contains reasons for withholding not in payment schedule, adjudicator has to give notice to claimant and give 2 business days to claimant to respond – possible ambush

If adjudication response out of time, not to be considered by adjudicator15

Adjudication Responses

10 business days subject to extension of up to 15 business days with agreement of claimant

Adjudicator must consider only:

o provisions of Act and any Regulations

o subject to Act provisions of construction contract

o payment claim and submissions in support

o payment schedule and submissions in support

o results of any inspections carried out

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Adjudications

Act provides for only very limited reference to the contract

Reasons to be provided

Eastlink project

Costs – as agreed or fair and reasonable. If one party refuses to pay, other party may elect to pay the non-paying party’s share and that amount is added to the adjudicated amount

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Adjudications continued…

If respondent fails to pay adjudicated amount, claimant can request adjudication certificate from the ANA: s.28Q

Where ANA has provided adjudication certificate the claimant may recover as a debt due, the amount in any Court of competent jurisdiction

Claimant to lodge adjudication certificate with an affidavit stating the whole or any part of the amount payable has not been paid at the time the certificate is filed: s.28R(2)

Judgment may be entered for the amount not paid: s.28R(3)

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Enforcement

Quick summary procedure

If respondent applies to set aside judgement, respondent not entitled to raise any cross claim or defence under the contract or challenge adjudication determination except that the adjudication determination included a non claimable variation: s.28R(6)

Provision for claimant to go against principal if respondent does not pay

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Enforcement continued …

Act creates a dual regime. Dual regime may be inconsistent with contractual regime

The regime under the Act takes precedence on an interim basis

A progress claim can be made under the Act and under the contract in the one claim

The regime under the Act promotes cash flow, the lifeblood of the industry

Builders, contractors and subcontractors, that is, persons carrying out construction work, ought make more use of the regime under the Act

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Conclusions