Australia: Get to know the security of payment model for your construction project

Universities undertaking construction projects need to be aware of the impact of security of payment legislation in their state or territory on payments to contractors and consultants. A lack of awareness of the relevant legislation may result in considerable risks for a university from both a legal and commercial perspective. In this article we summarise the two distinct security of payment models, commonly known as the East Coast and West Coast models, and consider the key risks arising from the operation of these models.

East Coast model

The East Coast model applies in Queensland, New South Wales, the Australian Capital Territory, Victoria, Tasmania and South Australia. While there are differences between the legislation of these jurisdictions, the key features of the model are:

  • an interim payment regime that operates in conjunction with and, in certain circumstances, overrides the contractual payment regime for work done
  • a payment claim from the contractor or consultant, which the recipient is entitled to respond to with a payment schedule setting out the amount it will pay in response to the claim, and
  • the right of the claimant to have any dispute about the amount due determined, on an interim basis, through a fast-track adjudication process.

Universities undertaking construction projects in these states and territories need to know that:

  • The model will apply if the contractor or consultant identifies that its payment claim is made under the applicable legislation (except in NSW, where the legislation automatically applies).
  • If a payment schedule is not issued to the contractor or consultant in response to a payment claim that meets the requirements of the legislation within the earlier of 10 business days after receiving a payment claim or the time period required by the contract (see the exceptions below for Qld and SA), the recipient will be liable to pay the full amount of the payment claim. However, the recipient retains their right to dispute the claimant's entitlement outside of the adjudication process.
  • Any reasons for the recipient not paying the amount claimed need to be identified in the payment schedule, as additional reasons cannot be raised in the adjudication process (see the exception below for Qld).
  • The contractor or consultant is entitled to have its payment claim adjudicated by making an adjudication application within 10 business days after receiving the payment schedule (see below SA exception).
  • The recipient's only opportunity to respond to an adjudication application is by way of an adjudication response, which must be issued within five business days of the recipient receiving a copy of the adjudication application (see the exceptions below for Qld, ACT and Tas.).

The adjudicator is required to make a determination within 10 business days of receiving the adjudication response (see the exceptions below for NSW, Qld and Vic.). If an adjudicator determines that an amount is payable, the recipient must pay the determined amount within five business days after the determination is received.

Exceptions to the East Coast model

South Australian legislation provides for a payment schedule to be issued within the earlier of 15 business days after receiving a payment claim or the contract's time period.

The Queensland legislation draws a distinction between standard payment claims—being those for $750,000 or less—and all other payment claims, known as complex payment claims. The time period for providing a payment schedule in response to a complex payment claim is the earlier of the time period required by the contract and either 15 or 30 business days after receiving the payment claim. Whether the 15 business day or 30 business day period is applicable, depends upon when the payment claim was received in relation to the date from which the payment claim could be issued. In Queensland, an adjudication response for a complex payment claim may include reasons for withholding payment that were not included in the payment schedule.

In South Australia, the contractor or consultant has 15 business days after receipt of the payment schedule to make an adjudication application.

In Queensland, the recipient has 10 business day and 15 business day periods after receipt of the adjudication application to make an adjudication response for a standard payment claim and a complex payment claim respectively. With a complex payment claim, a respondent may apply to the adjudicator for up to an additional 15 business days to submit their adjudication response.

In NSW and Victoria, the adjudicator's determination must be made within 10 business days of the adjudicator's appointment acceptance. Queensland applies 10 business day and 15 business day periods after receipt of the adjudication response for the adjudicator to make the determination in relation to, respectively, a standard payment claim and, where additional reasons have not been included in the adjudication response, a complex payment claim. Where additional reasons have been included in the adjudication response for a complex payment claim, the claimant may give a response to those reasons within 15 business days after receiving the response and may apply to the adjudicator for up to an additional 15 business days to respond. If the claimant is entitled to give that response, the adjudicator's determination must be made within 15 business days of receiving that response.

The Victorian legislation places restrictions upon the contractor or consultant claiming payment for certain variations to the works or services and for entitlements under the contract upon the occurrence of events, including latent conditions, delay and legislative changes.

West Coast model

The West Coast model applies in Western Australia and the Northern Territory, with very little difference between the relevant legislation in the two jurisdictions.

As with the East Coast model, the West Coast model is an interim payment regime, leading to a fast-track adjudication process. Some key differences with the East Coast model include:

  • any party to a construction contract (not just a contractor or consultant) may bring an application for adjudication
  • there is no need for a payment claim to refer to the relevant legislation, and
  • there is no need for a rejection of a payment claim to include all reasons for rejection.

Universities undertaking construction work in these locations need to know that:

  • The model will apply to a broad range of contracts that some may consider not to be construction contracts, including potentially for landscaping works, cleaning, painting, surveying and soil testing.
  • The relevant legislation inserts implied terms into a construction contract where the contract does not include express terms regarding payment claims, their assessment and their payment. Often this includes a term that a failure to respond to a payment claim within 14 days, deems the whole of the amount claimed payable in full.
  • In WA, a party only has 28 days to bring an application for adjudication. In the NT, an applicant has 90 days.
  • A respondent, which will usually be the Principal under the contract, must respond within 14 days. The applicant generally has no right to reply.
  • An adjudicator then has a further 14 days to issue a determination, with the determination setting out how much is to be paid, including interest, and by when it must be paid.

Compliance is essential

Security of payment presents risks for universities that they need to be aware of and actively manage.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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