Keep the Cash Flowing - With SOP, "Near Enough" can be costly
Posted on May 02, 2014
Small errors in using the Building and Construction Industry Security of Payment Act 2009 (the Act) are proving costly. They can make debt recovery slower and more expensive, or create liabilities that could have been avoided or deferred.
An error in a Payment Claim or the way it is served can make it useless or, at best, merely an invoice. You may need to send a fresh one to start the process again or resort to litigation to claim your money.
An error in a Payment Schedule can trigger liability for amounts that may be excessive, not payable, or not properly due until later.
In this update we identify common errors that are costing people money and how to avoid them. Some of them may seem obvious, but we are seeing even slight administrative errors create unnecessary headaches.
Payment Claims
If a Payment Claim doesn’t satisfy the requirements of the Act your rights will not be triggered and you may as well not send it. Here are some keys to getting it right:
1. Clearly Identify the Work and the Amount Claimed
Ideally each separate element of work should be identified together with the specific amount claimed for it. These amounts should be totalled, GST added (if applicable), and a grand total clearly identified. In particular:
- Identify each item of contract works that you are claiming for (and where relevant the percentage of it you have completed);
- If there are variations, how each variation came about, the clause(s) of the contract entitling you to it, the price to be paid for it and how that price was arrived at; and
- Annex any relevant supporting documentation (such as directions).
2. Include the “Magic Words”
“This is a payment claim made under the Building and Construction Industry Security of Payment Act 2009 (SA)”
3. Serve the Payment Claim within 6 Months
You can only claim for work completed in the 6 months prior to service of the Payment Claim, so don’t delay.
4. Serve the Payment Claim Properly
Email is not valid service under the Act unless your contract says it is. Fax works well because it is valid, immediate and provides a transmission receipt. Delivery or post is okay, but remember you need to be able to prove the Payment Claim was served, so keep detailed records of who served it and how. Most importantly, address it to the correct recipient and get their fax number and/or address right!
Payment Schedules
1. Serve it in time
Usually you have no more than 15 business days after service of a valid Payment Claim to serve a Payment Schedule. Miss that deadline and you will almost certainly have to pay it in full!
2. Include all of your reasons for disputing the claimed amount
You only get one chance at a Payment Schedule. It should identify every reason why you say the full amount of the Payment Claim should not be paid, because any reasons that are not included in your Payment Schedule cannot be raised later. It should:
- Respond specifically to each item you dispute and identify how much you say should be paid for it;
- For each item claimed, set out your reasons for any deductions (such as a set-off, back charge, negative variation, defect or liquidated damages) and identify the clause(s) in the contract allowing the deduction;
- Identify the total amount you are prepared to pay in respect of the Payment Claim; and
- Annex supporting documents (such as certificates or defect reports).
3. Be Cautious
If you receive a Payment Claim that you think is invalid, provide a Payment Schedule anyway. Write on it that you consider the Payment Claim is invalid, but that you are responding to it out of “an abundance of caution”. That way your defence is not compromised if an adjudicator or judge later finds the Payment Claim is valid.
As with a Payment Claim, the more detail your provide the better.
Finally, make sure you can prove that you served it correctly and on time!
If you have any doubt you should seek legal advice in relation to your Payment Claim or Payment Schedule. If you wish to make an Adjudication Application, or are served with one, the timelines are very tight and the consequences may be severe so seek legal advice immediately.