Using the SOP Act to ensure your cash flow remains constant: Part 1 – Making a claim

This article was published in the Hire and Rental Industry Magazine, February 2021 page 20.

Introduction

A pre-COVID-19 survey by McGrathNicol Advisory published in the Australian Financial Review on 4 November 2019, revealed that on average, engineering and construction companies were taking 3 months to pay their suppliers.

The survey went on to highlight that compared to previous results, engineering and construction companies were taking 12.4 days longer to pay (up to 87.6 days).

Whilst the Government has supported the industry remaining open here in NSW and flagged further support in the future, there is no certainty in these unprecedented times.

Construction Contractors and Project managers in NSW have been developing and implementing COVID-19 Safety Plans and practising social distancing where reasonably practicable ensuring construction workers and essential visitors to site maintain 1.5 metres physical distancing at all times, ensuring the wellbeing of construction workers and adopting good hand hygiene practices.

NSW has so far successfully avoided restrictions similar to the Stage 4 restrictions that were introduced in Victoria on 7 August 2020 which saw major construction sites restricted to operating with only 25% of the normal workforce allowed on site at any given time whilst small-scale sites such as residential construction sites are currently limited to a maximum of 5 workers on site at any one time.

However, ongoing or future disruption to the delivery of building and infrastructure projects in NSW, COVID-19 related or otherwise, will inevitably lead to an influx of delay claims and project cost blowouts in the coming months. This will adversely affect the cash flow of principals, contractors, sub-contractors and material and service providers to the building and construction industry.

It goes without saying that the flow of cash and prompt payment to industry contractors and suppliers is vital to the stability and survival of the construction industry, especially considering the impact the construction industry has on the strength of the Australian economy.

The Building and Construction Industry Security of Payment Act 1999 (NSW) (SOP Act) can help.

Contractors and suppliers who understand and correctly use the SOP Act significantly improve their chances of getting paid.

However our experience is that whilst most involved in the construction industry are aware of the SOP Act few use it properly, or at all.

In this three-part series, we will discuss:

1. Making a claim for a progress payment under the SOP Act;

2. Responding to a claim for a progress payment under the SOP Act; and

3. Next steps under the SOP Act if payment is not received.

Payment Claims

A person who is entitled to make a progress payment can serve a payment claim on the person who is liable to make payment.

However, to take advantage of the SOP Act, the contractor or supplier must serve a valid payment claim. In most cases, your tax invoice will be a valid payment claim.

To be valid, a payment claim:

• must identify the construction work to which the payment claim relates; and

• must indicate the amount of the payment claim; and

• if the construction contract was entered into after 21 October 2019, the payment claim must state that it is made under the SOP Act by the inclusion of the following notation.

“This is a Payment Claim made under the Building & Construction Industry Security of Payment Act.”

For construction contracts entered into after 21 Oct 2019, a claimant can serve a payment claim ‘on and from the last day of the named month in which the construction work was first carried out’. However, if the construction contract provides for an earlier date, then payment claims may be served ‘on and from’ that date.

Except as otherwise provided for in the construction contract, a claimant may only serve one payment claim in any one month

Further, in cases where the construction contract has been terminated, a payment claim can be served ‘on and from’ the date of termination.

For construction contracts entered into before 21 Oct 2019, a claimant can serve a payment claim “on and from each reference date”, with the ‘reference date’ being either:

• the date stated in the contract as being the date on which a claim for a progress payment may be made by a claimant in relation to work carried out or undertaken to be carried out under the contract, or

• if the contract provides no express date, the last day of the month in which the construction work was first carried out under the contract and the last day of each subsequent named month.

Nothing in the SOP Act prevents a claimant from including in a payment claim, any amount that has been the subject of a previous claim and which remains unpaid.

However a payment claim cannot be served more than 12 months after the construction work to which the claim relates was last carried out.

Where the claimant is a head contractor, the claimant:

• must not serve a payment claim on the principal unless the claim is accompanied by a supporting statement (in the form required by the SOP Act) that sub-contractors have been paid that indicates that it relates to that payment claim; and

• must not serve a payment claim on the principal accompanied by a supporting statement, knowing that the statement is false or misleading in a material particular. 

Service of Payment Claims

The payment claim will only be valid if it has been served correctly on the  person who is liable to make payment.

The SOP Act expressly provides that payment claims may be served on the person:

• by delivering it to the recipient personally; or

•  by lodging it during normal office hours at the recipient’s ordinary place of business; or

• by sending it via post, addressed to the persons ordinary place of business; or

• by email to an email address specified by the recipient for the service of documents of that kind; or

• in any other manner prescribed by the construction contract.

How Bartier Perry helped an excavator operator recover an outstanding debt from a home building contractor

Bartier Perry acted for an individual providing excavation and earthworks services.

He was engaged by a residential builder to provide excavation and levelling services.

A valid payment claim was served made up of 12 daily invoices for services provided.

The payment claim:

1. identified the construction work to which the claim related, specifying the bucket work and the hammer work undertaken; and

2. indicated the amount of the progress claim (claimed amount).

As the contract between the parties was entered into before 21 October 2019, the payment claim was not required to state that it was made under the SOP Act.

The residential builder did not serve a payment schedule and did not pay the progress payment by the due date.

Our client tried unsuccessfully to recover the debt before seeking our advice. The builder said the work carried out by the excavator operator was defective and threatened a cross claim for alleged damage to the boundary fence.

Bartier Perry reviewed the contract between the parties and our client’s payment claim and confirmed that our client had issued a valid payment claim.

Bartier Perry issued a letter of demand to the builder.

A draft NSW Local Court statement of claim was attached to the letter of demand and clearly pointed out to the builder that because he had not issued a payment schedule, the SOP Act prevented the builder from raising any defence or cross-claim in relation to matters under the construction contract.

Bartier Perry secured recovery of the majority of the debt without the need for any court action, thereby protecting our client from the cost and worry of commencing formal legal proceedings.

How Bartier Perry can help you

Bartier Perry’s Building and Construction team are experienced in assisting contractors and suppliers to use the SOP Act to make claims for payment and recoup unpaid invoices, by:

• reviewing the relevant contract and payment claims to ensure compliance with the SOP Act;

• drafting letters of demand for payment; and

• enforcing any rights under the SOP Act.

Please contact David Creais if you have any questions.

Authors: Mark Glynn, David Creais & Jack Williams

See also:

Using the SOP Act to ensure your cash flow remains constant: Part 2 – Responding to a claim

Using the SOP Act to ensure your cash flow remains constant: Part 3 - options available to unpaid claimants