A Survival Course

4th February 2010 at Master Builders Association
Level 1 Training Rooms, 47 South Terrace, Adelaide

On the new

Building and Construction Industry Security of Payment Act 2009 (SA)
Presented by Robert Fenwick Elliott

Course Contents

Course Powerpoint Presentation

  • Introduction
    • The History of the Legislation around the world
    • Key Features of the East Coast Model
    • The Scheme of the Act
      • What is in and what is out
        • Suppliers
        • Related services
        • Oil & Gas
        • Mining
        • Banks
        • Domestic
  • The Flowchart
    • Payment claims
    • Payment schedules
    • Adjudication
    • Enforcement

How to Prepare Payment Claims

The requirements for a payment claim are set out at section 13(2).

(2)      A payment claim—

(a)      must identify the construction work (or related goods and services) to which the progress payment relates; and

(b)      must indicate the amount of the progress payment that the claimant claims to be due (the claimed amount); and

(c)      must state that it is made under this Act.

There have been a number of cases as to the extent to which the payment claim must provide detail. In Coordinated Construction Co Pty Ltd v Climatech (Canberra) Pty Ltd (2005) NSWCA 229 at [25] Hodgson JA said:

“In my opinion, the relevant construction work … must be identified sufficiently to enable the respondent to understand the basis of the claim”

In Nepean Engineering Pty Ltd v Total Process Services Pty Ltd (in liq) [2005] NSWCA 409 Santow JA observed that the requirements underlying s 13(2)(a) are satisfied by “a relatively undemanding test” although, as his Honour added, “still one with some content” and that it is an objective and not subjective test as to whether the payment claim sufficiently identifies the construction work the subject of the claim. The evaluation of the sufficiency of the identification takes into account the background knowledge of each of the parties derived from their past dealings and exchanges of documentation.

In Protectavale Pty Ltd v K2K Pty Ltd [2008] FCA 1248. Finkelstein J observed:

… a payment claim must be sufficiently detailed to enable the principal to understand the basis of the claim. If a reasonable principal is unable to ascertain with sufficient certainty the work to which the claim relates, he will not be able to provide a meaningful payment schedule. That is to say, a payment claim must put the principal in a position where he is able to decide whether to accept or reject the claim and, if the principal opts for the latter, to respond appropriately in a payment schedule. … That is not an unreasonable price to pay to obtain the benefits of the statute.

In that case, the court decide that a progress claim was not a valid payment claim under the Victorian Act because it was made on the usual contractual basis (i.e. total sum due minus payments to date) but did not identify which work had been paid for. The same result was found in Neumann Contractors P/L v Peet Beachton Syndicate Limited [2009] QSC 376.

The effect of these two cases appears to be that a progress that satisfies all the contractual requirements may nevertheless fail to satisfy the requirement of a payment claim under the Act. If a payment claim fails to satisfy the requirements of the Act, it is a nullity; Brookhollow Pty Ltd v R & R Consultants Pty Ltd [2006] NSWSC 1.

This point represent a real problem for a claimant, since virtually all construction contract provide progress payments to be calculated on the basis of the whole of the work done to that point in time, with credit being give to what has been certified and paid, or just paid.  An example illustrates the problem:

  • The contract starts in January.  In the June application, the contractor applies for $1,224,567.87.
  • Suppose that the respondent certifies and pays, or just pays $1,200,000.00, without giving any explanation as to where it is that he has knocked off the $24,567.87.
  • In July, the contractor puts in his claim for $1,224,567.87, giving credit for the $1,200,000.00 paid, seeking the balance of $24,567.87.  The Newman and Protectavale cases appear to be saying that any payment claim made on this basis is a nullity, because it does not identify what work the claim is being made for.  It is worth looking at the precise form of the payment claims made in those cases.

The Protectavale Payment Claim

9              Lorne Bay served a revised invoice on 2 May 2008. In terms it purports to be a payment claim for the purposes of the Payment Act. The invoice identifies the construction contract between the parties and contains a revised claim of $635,448.06. The invoice states that the “construction work in respect of which this Payment Claim is made and the amount claimed … is listed below in the table (and attached Schedule[s])”. The table reads:

Contract Sum $6,295,000.00

Variations (See the attached Schedule 1) $232,772.45

Prolongation claim (See the attached Schedule 2) $129,058.00

Adjusted Contract Sum $6,656,830.05

Less

Retentions (0.125% of the Contract Sum – $6,300,000 …) $78,750.00

Payments Received $6,000,400.00

Subtotal $6,079,150.00

Claimed amount … (Adjusted Contract Sum – Subtotal) $577,680.05

GST $57,768.01

Claimed amount (incl GST) $635,448.06

The two schedules give details of the variations and prolongation claims.

The Neumann Payment Claim

The payment claim, leaving out the formal parts at the top of the document, provided:

Contract Summary

Amount

Original Contract Sum

$ 4,250,601

Add – VARIATIONS

$ 715,660

Adjusted Contract Sum (to date) (excluding GST)

$ 4,966,261

Plus 10% GST

$ 496,626

Adjusted Contract Sum (including GST)

$ 5,462,887

Payment Claim Summary

Amount

Value of Work Completed to Date

$5,320,019.94

Less Retention

Nil.

Less Previous Claim (ex. GST)

$5,239,710.58

Payment Claim No. 12 Sub-Total

$ 80,309.36

Add previously claimed & unpaid

$ 467,775.37

AMOUNT NOW DUE (excluding GST)

$ 548,084.73

Plus 10% GST

$ 54,808.47

TOTAL AMOUNT THIS PAYMENT CLAIM (including GST)

$ 602,893.20

This is a payment claim made under the Building and Construction Industry Payments Act 2004 (QLD) ”

What the court had to say was this:

[28] In Protectavale Pty Ltd v K2K Pty Ltd,[24] a decision under the  Building and Construction Industry Security of Payment Act  2002 (VIC), s 14(3) of which is the same as s 17, Finkelstein J observed:[25]

“… a payment claim must be sufficiently detailed to enable the principal to understand the basis of the claim. If a reasonable principal is unable to ascertain with sufficient certainty the work to which the claim relates, he will not be able to provide a meaningful payment schedule. That is to say, a payment claim must put the principal in a position where he is able to decide whether to accept or reject the claim and, if the principal opts for the latter, to respond appropriately in a payment schedule. … That is not an unreasonable price to pay to obtain the benefits of the statute.”

The invoice under consideration in that case indicated the amount claimed to be due by taking the contract sum and making a number of adjustments. Whilst certain items were set out in sufficient detail, his Honour concluded that what was noticeably absent was:

“… any identification of the work previously completely and paid for and the work (apart from the variations) to which the invoice relates.

… The only information provided is that the amount is referable to the “Contract Sum” and “Payments Received””.[26]

[29] A similar observation might be made of this payment claim. Because the past payments by Peet have been made on the certificate of the superintendent on receipt of each invoice, Peet would have had to go to considerable effort to reconstruct the previous 11 claims so as to prepare a responsive payment schedule. As Daubney J observed in Baxbex Pty Ltd v Bickle[27] applying the approach of McDougall J in Isis Projects v Clarence Street[28] and Palmer J in Multiplex Constructions Pty Ltd v Luikens:[29]

“Precision and particularity must be required to a degree reasonably sufficient to apprise the parties of the real issues in the dispute.”

Mr Beacham argues, however, that the basis of the claim is evident on the face of the document, that is, it is a claim for all work for which Neumann has previously claimed save for the work for which it has been paid. In order for Peet to decide whether it should respond it would need to engage in a careful analysis of the schedules exhibited to the summary set out the work which was undertaken under the contract over some 25 pages and marry the work with the amounts paid on the progress certificates and arrive at the outstanding items. Requiring a respondent to a payment claim to undertake that kind of research which would be subject to error and within the time constraint of 10 days under the Payments Act[30] leads me to conclude that the payment claim does not identify the construction work to which that claim relates and does not fulfil the requirements of s 17(2) of the Payments Act.

This approach can present the claimant with the very real difficulty.