NSW Security of Payment Legislation

What is the Security of Payment Act?

The Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act) is a powerful statutory tool that allows those who carry out construction work or that provide construction related goods and services in New South Wales to claim payments due to them under their contracts. It can be used by head contractors, subcontractors, hire companies, materials suppliers and consultants who provide related goods or services to claim payments due to them.

The stated purpose of the SOP Act is to facilitate cash flow down the contractual chain, to stop the common practice of the larger players using those down the contractual chain to fund their projects. The SOP Act only provides this cash flow on an interim basis, it doesn’t prevent a final determination of the merits in a Court, but it does allow a successful claimant the cash flow to continue its business in the interim.

How does it work?

If a claim for payment is disputed, a claimant can choose to have the claim independently adjudicated relatively quickly and cheaply, with the process from claim to payment taking approximately 40 business days.

The SOP Act does not create an entitlement to be paid where one doesn’t exist in the contract, rather, it operates in conjunction with the contract. It also has strict, short and inflexible deadlines for payment claims and responses. Missing a deadline is usually fatal to the claim or response. The combined effect is that the preparation of claims and responses needs to be done with close attention to both the SOP Act and the contract.

The main steps in the SOP Act payment claim process can be summarised as follows:

1. the person seeking payment (Claimant) issues a payment claim, which must comply with the SOP Act
2. the person who received the payment claim (Respondent) must:
   • pay the full amount of the claim, by the due date for payment, or
   • if proposing to pay an amount less than that claimed, issue a payment schedule within 10 business days of the claim, indicating the amount the Respondent proposes to pay and giving reasons why the amount is less
3. if a payment schedule is not issued within 10 business days, the Respondent becomes liable to pay the entire amount claimed to the Claimant by the due date for payment
4. if the scheduled amount is less than the claimed amount, or the scheduled amount is not paid in full by the due date for payment, the Claimant may apply to have the payment claim adjudicated by submitting an adjudication application
5. the adjudication application must be lodged by the Claimant with an Authorised Nominating Authority (ANA) within 10 business days of receiving the payment schedule
6. a copy of the application must also be served on the Respondent
7. the ANA will arrange the appointment of an adjudicator and notify the Claimant and Respondent
8. the Respondent has 5 business days from receipt of the adjudication application, or 2 business days receiving notice of the appointment of appointment of the adjudicator (whichever is later) to lodge an adjudication response with the adjudicator
9. the adjudicator must determine the amount of any progress payment to be made and the due date for that payment within 10 business days after:
   • the date on which the respondent lodges the response or, if a response is not lodged, the end of the period within which the respondent was entitled to lodge a response, or
   • in any other case – the date on which notice of the adjudicator’s acceptance of the application is served on the claimant and the respondent
10. the adjudicated amount must be paid within 5 business days after the date on which the respondent is served with a copy of the adjudication determination by the Adjudicator.

There are very limited avenues to appeal a determination. If a party seeks to have a determination set aside, it will need to make an application to the Supreme Court.