The Building and Construction Industry Security of Payment Act 2009 (SA) (the Act) comes into force on 10 December 2011. It will have wide application to contracts for construction work or related goods and services in South Australia and it is not possible to contract out of the Act.
The Act sets out tight timeframes and procedures that must be followed. Failure to comply can impact the rights of both principals and contractors.
What does the Act do?
The Act presents another way for contractors to claim for payment, in addition to the processes under their contract and in the Worker's Liens Act 1893 (SA). It sets out a statutory process for how payment claims can be made, the form that those claims must be made in and how those claims can be disputed.
Under the Act, a contractor can:
- claim for payment and enforce that claim in court, regardless of what the contract says;
- suspend works for non-payment;
- claim a lien over unfixed plant and materials for non-payment; and
- refer payment disputes to adjudication.
The Act will not apply to a very limited category of contracts, including contracts for employment, contracts for domestic building work where the paying party will live at the site, and contracts where the contractor is not paid by reference to the value of the work done.
It is not possible to contract out of the Act and any attempt to do so will be struck down. Moreover, any 'pay when paid' provisions in a contract will be invalid.
Finally, because the Act operates in parallel with any contractual arrangements between the parties, contractual rights and statutory rights may run together.
How does the Act affect you?
The Act sets out tight timeframes and procedures that, if not followed, can result in a summary judgment against the principal for the contractor's full claim (regardless of the merit of that claim).
If you are the contractor, failure to comply with the Act may mean you lose your statutory rights to be paid, to suspend work, to secure unfixed plant or materials or to apply for adjudication.
What we recommend
- All construction contracts should be drafted to ensure that the Act does not derail the deal, regardless of whether you are the principal or the contractor.
- Internal payment procedures and business strategy should be aligned with the new statutory processes. Management of claims and timeframes under the Act are critical, especially if you have multiple or large projects on the go.
- The parties, their contract managers, accounts/finance personnel and in-house counsel should be trained and become familiar with the impact of the Act on their respective roles.
While the Act is modelled on security of payment legislation in the Eastern states (particularly the New South Wales legislation), it is specific to South Australia and has some key differences in relation to the time limitations imposed, circumstances in which a new adjudication application may be made, and the rate of an adjudicator's fees. Accordingly, the Act should be treated on its own merits.
We have been assisting clients to prepare their business and contract documentation to comply with the Act and mitigate the impacts that the Act may have on their claims and project management systems. We have also delivered training for clients on issues arising from the Act that call for changes to business strategies.