Submitting a payment claim is an important step when money is owed for construction work or related goods and services. But sending the claim is not the end of the process. What happens next depends largely on how the respondent responds and whether the amount claimed is paid in full.
For contractors and subcontractors in NSW, understanding the process can help avoid missed deadlines and unnecessary disputes. The security of payments act provides a framework for dealing with payment disputes and gives claimants a way to pursue progress payments without having to wait for a lengthy court case.
Here is what generally happens after a payment claim is submitted.
The respondent reviews the payment claim
Once the payment claim has been served, the respondent needs to consider the amount claimed and decide whether it will be paid in full.
A respondent who does not intend to pay the full amount should generally provide a payment schedule. Under the NSW process, a payment schedule must identify the payment claim, state the amount the respondent proposes to pay and give reasons if that amount is less than the amount claimed. The schedule must reach the claimant within the required timeframe.
This stage is important because the payment schedule can affect what arguments the respondent can later rely on if the dispute proceeds to adjudication.
The payment may be made in full
The simplest outcome is that the respondent accepts the claim and pays the amount due.
For claims covered by the NSW legislation, statutory payment timeframes can apply. The NSW Government currently identifies different payment periods depending on where the parties sit in the contractual chain. For example, payment from a principal to a head contractor is generally due 15 business days after the claim, while different periods apply to payments from head contractors to subcontractors. The contract should also be checked because it may contain relevant provisions and shorter timeframes can apply in some circumstances.
If the full amount is paid on time, there may be no need to take the matter further.
The respondent may issue a payment schedule
A more complicated situation occurs when the respondent disputes some or all of the amount claimed.
For example, the respondent may believe that certain variations were not properly authorised, that some work was incomplete or that the value of the work is lower than claimed. Rather than simply ignoring the claim, the respondent should set out its position in a payment schedule within the required timeframe.
The reasons matter. If the dispute later reaches adjudication, the respondent generally cannot introduce entirely new reasons for withholding payment that were not included in the payment schedule.
For a contractor receiving a payment schedule that proposes less than the claimed amount, this is usually the point where the payment dispute becomes more formal.
What if the respondent does not provide a payment schedule?
Failing to provide a payment schedule can have serious consequences.
Under the NSW process, if the respondent does not provide a payment schedule within the required period, it can become liable for the full amount claimed. If the amount is still not paid, the claimant may have options including applying for adjudication or commencing court proceedings, depending on the circumstances.
This is why both sides need to keep accurate records of when a payment claim was received and when the relevant response is due.
The claimant may apply for adjudication
If the payment schedule proposes less than the claimed amount, or the respondent fails to pay an amount that is due, the claimant may be able to apply for adjudication.
Adjudication is designed to provide a relatively quick way of resolving a progress payment dispute. It is not the same as a full court trial. An independent adjudicator considers the relevant documents and determines the amount, if any, that should be paid.
There are strict deadlines for making an adjudication application. For example, where a claimant receives a payment schedule for less than the claimed amount, the application generally needs to be made within 10 business days after receiving the schedule. Other situations have different deadlines.
Missing the applicable deadline can affect a claimant's ability to use the adjudication process, so dates should be treated seriously.
What documents are considered?
An adjudication application normally needs to include important documents relating to the payment dispute. These can include the payment claim, payment schedule, construction contract and supporting information.
The claimant should provide clear evidence supporting the amount claimed. Depending on the dispute, this might include invoices, progress reports, variation documents, photographs, correspondence, timesheets, delivery records or other project records.
Good documentation can make a significant difference. A payment claim supported by clear project records is generally easier to understand than one relying on broad statements about work completed.
The adjudicator makes a determination
After considering the material submitted by the parties, the adjudicator makes a written determination.
The determination sets out the amount of the progress payment, if any, that the respondent is required to pay. The adjudicator's decision is intended to resolve the immediate payment issue under the statutory process rather than determine every possible dispute arising from the construction contract.
If an adjudicated amount is payable, the respondent must make the payment within the applicable timeframe.
What if the adjudicated amount is not paid?
A determination does not necessarily mean the money automatically appears in the claimant's bank account.
If the respondent fails to pay the adjudicated amount, the claimant has enforcement options. The NSW Government explains that a claimant can obtain an adjudication certificate and use it to seek a judgment debt through the court. The resulting judgment can then be enforced in the same way as other court judgments.
There may also be other recovery options depending on the circumstances, including certain lien rights or mechanisms under the Contractors Debts Act.
Can work be suspended?
In some circumstances, a claimant may also have the right to suspend construction work when payment remains outstanding.
NSW Government guidance states that a claimant can suspend work after giving the required notice where specified payment obligations have not been met. There are particular requirements around notice and timing, so contractors should not simply stop work without first checking that the statutory requirements have been satisfied.
Stopping work without following the correct process could create a separate contractual dispute.
Keep track of every deadline
One of the biggest mistakes after submitting a payment claim is assuming there is plenty of time to decide what to do next.
Security of payment procedures involve several time-sensitive steps. These can include the payment due date, the deadline for receiving a payment schedule, the deadline for giving notice of an intention to apply for adjudication and the deadline for lodging an adjudication application.
The NSW Government publishes specific timeframes for these stages, but the applicable deadline depends on the circumstances of the claim.
Final thoughts
Submitting a Security of Payment claim is the start of a process, not necessarily the end of a payment dispute. The respondent may pay the claim, issue a payment schedule disputing part of it, or fail to respond altogether. Where payment remains disputed or unpaid, adjudication can provide a faster avenue for determining the amount that should be paid.
For contractors and subcontractors, the safest approach is to keep detailed project records, monitor every deadline and respond promptly when a payment dispute arises. Where significant amounts of money are involved or the position is unclear, getting appropriate legal advice before taking further action can help avoid costly mistakes.
This article provides general information about the NSW security of payment process and is not legal advice. The legislation, contract terms and circumstances of each project should be considered before taking action.
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