Outstanding payments can be the bane of building and construction contractors’ cashflow, but new legislation that commenced in April has changed the way contractors claim outstanding payments, according to building and construction lawyer ROB STARKE.
The Building and Construction Industry Security of Payment (Amendment) Act (“the Amendment Act”), commenced operation from 21 April 2014. It applies to business or individuals that participate in construction work, which has a broad definition under the Act, however does not include residential building contracts.
Contractors now need to claim outstanding payments pursuant to the Payment Claim process established by the Building and Construction Industry Security of Payment Act, 1999 (“the Act”).
A Payment Claim is a debt recovery process specific to the building and construction industry and provides a mechanism for a contractor or sub-contractor to recover money from a principal or head contractor, or resolve a dispute regarding an invoice in a timely manner.
Previously, a delay was caused for Contractors who did not have the necessary statement on the invoices as a default and would have to reissue each invoice if they wished to commence the payment claim process. To issue a payment claim prior to the Amendment Act, an invoice had to specify that it was issued in accordance with the Act. However, that requirement has been abolished by the new legislation.
The amendments have also introduced the requirement that a progress payment issued to a Head Contractor from the Principal must be payable no later than 15 days from when the Payment Claim is made, and 30 days for a payment to a Sub-Contractor. This requirement has been introduced to speed up the flow of cash through the contracting chain. A Principal or contractor cannot contract out of this requirement for payment terms.
The changes also make it an offence for a Head Contractor to serve a Payment Claim to the Principal without a “Supporting Statement”. A Supporting Statement is a statement whereby the Head Contractor declares that all Sub-Contractors have been paid.
Penalties are severe for a failure to attach the Supporting Statement to a Payment Claim up to $22,000.00 or imprisonment if a false declaration is made. The Act has made these changes so sub-contractors are not withheld payment due to the Head Contractor not being paid by the Principal. The Act clearly specifies that the Head Contractor must meet all of its own responsibilities to its contractors prior to making a payment claim.
Please note, the amendments will only apply to contracts commencing after 21 April 2014, and do not apply retrospectively.