The Building and Construction Industry Security of Payment Act 1999 (NSW) (Act) applies to building contractors that carry out construction work under a construction contract. Under the Act, building contractors are entitled to issue progress payments in relation to their work.

In circumstances where a respondent disputes any progress payments, the Act provides an adjudication process for referral of disputes.

What are the benefits of adjudication?

Adjudication is designed to be a quicker and cheaper process than recovery via courts or by arbitration. The adjudication process has strict timeframes that both parties must follow. Adjudication encourages prompt payment and determinations can be enforced by courts as a judgment debt.

Payment claims

Prior to the adjudication process beginning, a payment claim must be issued to the respondent by the building contractor. The payment claim needs to follow requirements set out in s13(2) of the Act to be valid for adjudication:

  1. Goods or services must be clearly identified;
  2. The amount being claimed must be indicated; and
  3. The payment claim must state that it is made pursuant to the Act.

Payment schedule

Once a payment claim has been received by the respondent, the respondent must make any payment in accordance with the payment claim by the respective due date. If the respondent isn't satisfied by the contents of the payment claim, they may dispute it. This dispute must be made within 10 business days of receiving the payment claim.

Under s14(1) of the Act, the form of dispute is through a payment schedule. The schedule must:

  1. Identify the payment claim to which it relates; and
  2. Indicate the amount of the payment that the respondent proposes to make.

Adjudication application

Should the respondent fail to send a payment schedule and pay the claimed amount by the due date, the building contractor may serve a written notice. This notice must be served on the respondent within 20 business days after the due date of the payment. The respondent is then provided with five business days to respond with a payment schedule. If no payment schedule is served, the building contractor can make an adjudication application within 10 business days after the five-day period has expired.

If the respondent provides a payment schedule but the scheduled amount is less than the claimed amount in the payment claim, the building contractor can file an adjudication application. This must be filed within 10 business days from when the building contractor receives the payment schedule.

Where the respondent has issued a payment schedule but has failed to pay the whole or part of the schedule amount, the building contractor can file an adjudication application. This must occur within 20 business days after the payment due date.

The adjudication application needs to follow the requirements set out in s17(3) of the Act. The adjudication application:

  1. Must be in writing;
  2. Must be made to an authorised nominating authority;
  3. Must identify the payment claim and the payment schedule which it relates;
  4. Must be accompanied by an application fee determined by the authorised nominating authority; and
  5. May contain submissions relevant to the application.

An adjudication application must be served on the respondent in accordance with the terms of the contract.

Adjudication response

If a payment schedule was provided by the respondent in the appropriate time period, they may lodge an adjudication response within five business days after receiving the application, or two business days after receiving notice of an adjudicator's acceptance of the application - whichever time expires later.

The adjudication response:

  1. Must be in writing;
  2. Must identify the adjudication application to which it relates; and
  3. May contain submissions relevant to the response that the respondent chooses to include.

Adjudication determination

After the period to lodge a response has expired, or the respondent has lodged a response, the adjudicator will make a determination.

Once a determination is made, the respondent must pay any adjudicated amount within the time specified. Failure to pay in accordance with the determination will allow the building contractor to request an adjudication certificate from the authorised nominating authority under s24(1) of the Act. This certificate can then be filed with a court to become a judgment debt.

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.