Chapter 15 Security of Payment Legislation Australian Capital Territory
The security of payment legislation in the ACT is the Building and Construction Industry (Security of Payment) Act 2009 (ACT) (ACT Act).
When does the legislation apply?
The ACT Act applies to any contract or other arrangement to carry out construction work (or supply related goods and services) within the Australian Capital Territory (construction contract). There is no requirement for the contract or arrangement to be in writing. It can be written, oral or a combination of both.
The ACT Act applies to construction contracts entered into after 1 July 2010. It applies even if the construction contract specifies that it is governed by the law of another jurisdiction.
‘Construction work’ is defined very broadly. It includes the construction, alteration, repair, maintenance and demolition of any works forming part of land, including buildings, structures, roadworks, power-lines, telecommunications apparatus, runways and railways, pipelines, water mains, and sewers. It also extends to the installation within a building of heating, lighting, air-conditioning, ventilation or drainage and the cleaning of buildings in the course of construction. Express exclusions to the definition of construction work are essentially limited to mining operations.
‘Related goods and services’ includes:
- materials and components forming part of any building, structure or work;
- plant and materials used in carrying out construction work;
- the provision of labour or architectural, design, surveying or quantity surveying services; and
- the provision of building, engineering, interior or exterior decoration, or landscape advisory services.
Accordingly, the ACT Act will apply to most typical construction contracts and related consultancy agreements.
However, the ACT Act does not apply to a construction contract:
- that forms part of a loan agreement, a contract of guarantee or a contract of indemnity;
- for residential building work having no more than 3 storeys, if the owner lives or intends to live in the building and provided the owner is not licensed as an owner-builder;
- where the consideration payable under the contract is not calculated by reference to the value of the work carried out or the goods and services supplied (for example an agreement for lease);
- under which a party undertakes to carry out construction work, or supply related goods and services, as an employee of the other party; or
- to the extent the construction work is carried out, or related goods and services are supplied, outside of the Australian Capital Territory.
Construction contracts cannot include a ‘pay when paid‘ provision, where a contractor makes its liability to pay a subcontractor (or the due date for payment) dependent on payment to the contractor by a principal, or dependent on the operation of another contract.
It is not possible to contract out of the ACT Act and any contract provision that is inconsistent with the ACT Act, purports to (or has the effect of) excluding the operation of the ACT Act, or attempts to deter a person from taking action under the ACT Act, is void to the extent of the inconsistency.
What rights does the legislation confer on contractors?
When can contractors make a claim?
A claim for a progress payment (payment claim) can only be made on and from the dates specified in the contract (reference date). If no reference date is specified, then a payment claim can be made on and from the last day of each calendar month. Only one payment claim may be served for each reference date.
Unless the construction contract provides a longer timeframe, a payment claim cannot be made more than 12 months after the construction work to which the claim relates was last carried out (or the related goods or services to which the claim relates were last supplied).
How does a contractor make a payment claim?
A contractor makes a payment claim by serving the payment claim on the person who is liable to make the payment under the construction contract (principal).
There is currently no prescribed form for a payment claim, however a payment claim must:
- identify the construction work, or related goods and services, to which the claim relates;
- specify the amount of the progress payment claimed (the claimed amount); and
- state that it is made under the ACT Act.
What can a contractor claim?
A contractor may claim payment for construction work carried out, or for related goods or services supplied.
No types of payments are expressly excluded from being claimed, however the claim may include any amount held by the principal under the construction contract (eg retention money) that the contractor claims is due for release.
A progress payment may be for a final payment, a one-off payment, or a milestone payment.
It is not necessary for the validity of a payment claim that the work claimed was actually performed under the relevant construction contract. It is sufficient that the work is claimed to have been performed under the construction contract.
Canberra Drilling Rigs Pty Ltd v Haides Pty Ltd  ACTCA 15
- Canberra Drilling Rigs Pty Ltd (Canberra Drilling) was contracted by Core Building Group (Core) to carry out piling and anchoring works for a residential development. Canberra Drilling subcontracted Haides Pty Ltd (Haides) to undertake some of that work. At the request of Core, Haides performed additional work and issued a payment claim for this work to Canberra Drilling.
- Canberra Drilling failed to provide a payment schedule and an adjudicator determined that Canberra Drilling owed $284,057.50 to Haides for the additional work undertaken.
- Canberra Drilling commenced proceedings challenging the validity of the adjudication on the basis that the adjudicator had no jurisdiction to determine the matter as the additional work was not performed under the construction contract.
- The court ruled that it is sufficient to enliven the adjudicator’s jurisdiction for a contractor to merely claim works were done under the construction contract. The fact any work claimed was not actually performed under the construction contract does not mean that the contractor has no right to seek adjudication of the claim. The question of whether the work was done under the relevant construction contract (and the amount owed to the contractor) will be taken into account by the adjudicator in determining the claim.
What must a principal do when faced with a claim?
Principal may serve payment schedule
If a principal is served with a payment claim it may reply by serving the contractor with a payment schedule setting out the amount that the principal proposes to pay.
When to serve a payment schedule
The principal must serve the payment schedule within 10 business days of receiving the payment claim (or any shorter time stated in the contract).
What must be included in the payment schedule?
To comply with the ACT Act the payment schedule must:
- identify the relevant payment claim;
- state the amount the principal proposes to pay (scheduled amount); and
- if the scheduled amount is less than the claimed amount, explain why the scheduled amount is less (including any reasons for withholding payment).
What amount must be paid?
If the principal does not provide a payment schedule within the time limit, the principal must pay the claimed amount in full on the due date for payment.
If the principal does provide a payment schedule, the principal must pay the scheduled amount by the due date for payment.
When is payment due?
A progress payment becomes due and payable on:
- a date determined in accordance with the construction contract; or
- if the contract does not specify a date, 10 business days after service of the payment claim.
Right to interest on unpaid amount
Interest is payable on the unpaid amount of any progress payment at the greater of:
- the rate prescribed under the Court Procedures Rules 2006 (ACT); or
- the rate specified under the contract
Contractor’s rights if not paid – how to enforce its rights
A contractor may apply for adjudication of the amount to be paid by the principal (adjudication application) if:
- the scheduled amount is less than the amount in the payment claim;
- the principal fails to pay the whole (or any part) of the schedule amount; or
- the principal does not serve a payment schedule in accordance with the ACT Act and fails to pay the amount specified in the payment claim.
The contractor must ensure it complies with the relevant notice periods set out in the ACT Act prior to commencing adjudication.
The principal will only be entitled to submit a response to the application for adjudication if the principal has provided a payment schedule (noting that the principal gets a ‘second chance’ to provide a payment schedule upon being notified that the contractor intends to apply for adjudication).
The adjudication application must be decided no later than:
- if the principal is entitled to a response, 10 business days after the response is received or required to be given (whichever is earlier); or
- if the principal is not entitled to a response, 10 business days after the principal has received a copy of the adjudication application.
Unless otherwise specified by the adjudicator, the principal must pay the adjudicated amount to the contractor within 5 business days of the adjudicator’s decision. If the adjudicated amount remains unpaid (in whole or in part) the contractor can request the adjudicator to provide a certificate in respect of this amount, which can be filed end enforced by the contractor as a judgment debt.
Obtaining summary judgment
The contractor may enforce its right to a progress payment by applying to the court for summary judgment:
- in the amount of the payment claim, where the principal fails to serve a payment schedule in accordance with the ACT Act;
- for any part of the scheduled amount which remains unpaid after the due date for payment.
If the contractor seeks summary judgment, the principal is not entitled to bring a cross claim against the contractor, or to raise a defence in relation to matters arising under the construction contract.
Right to lien
The contractor may exercise a lien over any unfixed plant or materials which the contractor has supplied for use in the construction work, where a progress payment becomes due and payable but remains unpaid.
A lien under the ACT Act does not create any right against a third party who is the owner of the unfixed plant or materials, and will not take priority over any charge existing before the date on which the relevant progress payment becomes payable.
Right to suspend work
If a principal fails to make payment in accordance with the ACT Act, the contractor may suspend construction work or cease the supply of related goods and services two business days after giving notice of the suspension to the principal. The contractor must recommence construction work within three business days of the principal paying the outstanding amount.
NSW and ACT security of payment legislation compared
The ACT Act is very closely modelled on the NSW Act (prior to the changes introduced by the Building and Construction industry Security of Payment Amendment Act 2018 (NSW)).
Some differences between the ACT Act and the NSW Act include:
- the ACT Act does not bind the Commonwealth – by virtue of section 27 of the Australian Capital Territory (Self-Government) Act 1988 (Cth);
- the due date for payment under the ACT Act is as specified in the relevant construction contract, and is not limited to 15 business days from when the payment claim is served (however, if no date is specified in the contract, the due date for payment is 10 business days after the payment claim is served);
- the ACT Act does not contain an equivalent of Division 2A of the NSW Act (claimant’s rights against principal contractor);
- the ACT Act expressly entitles a party to appeal an adjudication decision to the Supreme Court if the Supreme Court considers that the determination could substantially affect the rights of the parties and there was either a manifest error of law on the face of the decision or the determination may add to the certainty of the law;
- the ACT Act provides an inclusive (rather than exhaustive) definition of ‘related goods and services’, meaning that the ACT Act may apply to a broader range of contracts for the supply of goods or services; and
- the ACT Act does not have any supporting regulations.