The Building and Construction Industry Security of Payment Act 2002 ( Vic) made simple

1. The Building and Construction Industry Security of Payment Act 2002 (Vic) made simple Western Suburbs Law Association Tuesday 4 June 2013 Michael Heaton QC

2. Introduction • Purpose and object of Act • Reasons for Act • Dual regime • Precedence of Act over contract • Interim measure

3. Reference Date • S.9(2)(a((i): date under the contract on which a claim for a progress payment may be made [in relation to specific items of construction work] • S.9(2)(a)(ii): date under the contract by reference to which amount of payment claim is calculated in relation to specific items of construction work • In effect, date under contract for making of claims for progress payments • S.9(2)(b): if contract does not make express provision then 20 business days after construction work was first carried out and for second and subsequent Reference Dates, 20 days after the previous Reference Date

4. Reference Date continued… • S.9(2)(c): single or one-off payment • S.9(2)(d): final payment • Reference Date is critical because entitlement to make a claim for a progress payment is on and from each Reference Date

5. Claimable Variations • Class 1 variations: s.10A(2) • Class 2 variations: • work was carried out • work was requested or directed but no agreement as to entitlement value, method of valuing or time for payment • Subject to s.10(4), if contract price $5million or less - can claim: s.10A(3)(d)(i)

6. Claimable Variations continued… • Subject to s.10(4), if contract price greater than $5million and contract does not contain a dispute resolution clause – can claim: s.10(3)(d)(ii). But if contract does contain dispute resolution clause – cannot claim. Dispute resolution clause must be compulsory and determinative. • S.10A(4): if Class 2 variations at any time exceed 10% of the contract price then $5million is read as $150,000.

7. Excluded Amounts • If variation not a claimable: s.10B(2)(a) • Any amount other than a claimable variation due to: • latent conditions • time related costs • changes in regulatory requirements s.10B(2)(b) • Damages for breach of contract or any other claim for damages arising under or in connection with the contract: s.10B(2)(c) • A claim arising at law other than under the construction contract: s.10B(2)(d) • Any amount of a prescribed Class: s.10B(2)(e) • Reasons for s.10A and s.10B – protect VicRoads

8. Due date for payment • Date a progress payment is payable under the contract • If no express provision, 10 days after payment claim is made • Interest payable under s.2 of Penalty Interest Rates Act or at rate specified under contract • Cash flow • Pay when paid provisions have no effect: s.13

9. Examples of dual regime and precedence of the Act • Request or direction to change render • Statutory Declaration requirements under construction contracts

10. Payment claims andpayment schedules • Payment claim: • identify the construction work or related goods and services • amount of progress payment claimed • State made under Building and Construction Industry Security of Payment 2002: s.14(2) • the same payment claim may serve as a payment claim under the contract and under the Act • must be served within the period determined by the contract or 3 months after the Reference Date in s.9(2): s.14(4)(a) and (b) • claimant cannot serve more than one payment claim in respect of each Reference Date: s.14(8) • claimant can claim in a payment claim, an amount not previously paid under a payment claim: s.14(9)

11. Payment claims and payment schedules continued… • Payment schedule – must identify payment claim to which it relates • amount of payment respondent proposes to make – scheduled amount • identify any amount alleged to be an excluded amount • if scheduled amount is less state why • payment schedule to be made within time required by contract or 10 business days after payment claim is served, whichever is the earlier

12. Failure to deliver payment schedule or pay claimed amount • Respondent liable to pay claimed amount on the due date for payment • If no payment of whole or any part of claimed amount, or the whole or any part of a scheduled amount – the amount becomes a debt due to claimant • Claimant can then bring summary proceedings or make an adjudication application • In summary proceedings respondent not entitled to raise any defence under construction contract: s.16(4) and s.17(4) • Claimant is entitled to significant judgment under the Act on payment claims even though respondent may have good defence under the contract, still have to pay • dual regimes and precedence of Act

13. Adjudication Applications • Scheduled amount less than claimed amount: s.18(1)(a) • No payment schedule and no payment of the whole or any part of the claimed amount: s.18(1)(b) • Application must be made within 10 business days of receipt of payment schedule: s.18(1)(a) • Under s.18(1)(b) – 10 business days after due date for payment or 5 business days after time for respondent to respond under s.18(2)

14. Adjudication Applications continued… • Made to ANA chosen by claimant • If 3 ANA set out in contract claimant must choose one of them • Adjudication application may contain submissions relevant to the application • Must be accepted by adjudicator within 4 business days after application made to ANA

15. Adjudication Responses • Within 5 business days after receipt of adjudication application or 2 business days after adjudicator’s notification of acceptance of adjudication, whichever is the later • Effectively, 5 business days to respond • Can contain submissions relevant to the response • Can only lodge adjudication response if payment schedule has been provided • If adjudication response contains reasons for withholding not in payment schedule, adjudicator has to give notice to claimant and give 2 business days to claimant to respond – possible ambush • If adjudication response out of time, not to be considered by adjudicator

16. Adjudications • 10 business days subject to extension of up to 15 business days with agreement of claimant • Adjudicator must consider only: • provisions of Act and any Regulations • subject to Act provisions of construction contract • payment claim and submissions in support • payment schedule and submissions in support • results of any inspections carried out

17. Adjudicationscontinued… • Act provides for only very limited reference to the contract • Reasons to be provided • Eastlink project • Costs – as agreed or fair and reasonable. If one party refuses to pay, other party may elect to pay the non-paying party’s share and that amount is added to the adjudicated amount

18. Enforcement • If respondent fails to pay adjudicated amount, claimant can request adjudication certificate from the ANA: s.28Q • Where ANA has provided adjudication certificate the claimant may recover as a debt due, the amount in any Court of competent jurisdiction • Claimant to lodge adjudication certificate with an affidavit stating the whole or any part of the amount payable has not been paid at the time the certificate is filed: s.28R(2) • Judgment may be entered for the amount not paid: s.28R(3)

19. Enforcement continued … • Quick summary procedure • If respondent applies to set aside judgement, respondent not entitled to raise any cross claim or defence under the contract or challenge adjudication determination except that the adjudication determination included a non claimable variation: s.28R(6) • Provision for claimant to go against principal if respondent does not pay

20. Conclusions • Act creates a dual regime. Dual regime may be inconsistent with contractual regime • The regime under the Act takes precedence on an interim basis • A progress claim can be made under the Act and under the contract in the one claim • The regime under the Act promotes cash flow, the lifeblood of the industry • Builders, contractors and subcontractors, that is, persons carrying out construction work, ought make more use of the regime under the Act