Security of Payment: Your Biggest Power Tool
Security of Payment legislation was designed to give subcontractors and trade contractors (‘subcontractors’) the power to enforce non-payment quickly and to deal with disputes quickly out of court. The reasoning behind the legislation is that subcontractors basically funded the construction process, usually paying for the materials and labour for the work well before the subcontractors themselves were paid. As a result, the payers (builders and owners) higher up the contractual chain used the subcontractors as interest free finance.
Security of payment gives subcontractors the ability to:
- Separate disputes from unpaid debts;
- Use adjudication, which is a quick fire way of determining disputes out of court;
- Enforce unpaid debts in court without the payer being able to raise a defence or counterclaim and
- The ability to suspend works.
Used properly security of payment is a fantastic debt enforcement power tool. But like any power tool before it will be effective:
- You need to take it out of the tool box;
- Learn how to use it; and
- Use it to get the job (of getting paid) done.
All the states of Australia and New Zealand have their own versions of security of payment, so it is important to find out what your particular security of payment law requires. Security of payment works on the theory that cash flow is king and that speed of payment is crucial to the survival of subcontractors. Given this the time frames for security of payment are tight and you will need to build the time frames into your business processes.
As a general rule to trigger the protections of security of payment you must first send a payment claim. Without a valid payment claim, you cannot use security of payment.
Each jurisdiction has a different version of what is required in a payment claim. You can contain the requirements of a payment in your invoice. If you are using the SimPRO system to do your invoicing, you will need to tailor your invoices yourself to fit the requirements of the security of payment in your jurisdiction.
For example in Queensland the law requires that a payment claim:
- Identifies the construction work;
- States the claimed amount; and
- States that the payment claim is made under the Act.
However, this is about to change and we currently have a Bill before Queensland Parliament that changes the requirements for a payment claim so that it:
“(a) identifies the construction work or related goods and services to which the progress payment relates; and
(b) states the amount (the claimed amount) of the progress payment that the claimant claims is payable by the respondent; and
(c) requests payment of the claimed amount; and
(d) includes the other information prescribed by regulation.”
Because the protections provided by security of payment are so powerful, it pays to get early advice from a local law practice that specialised in building and construction law applicable in your jurisdiction to make sure you are complying with the requirements and that you build the time frames into your business processes.