Construction contracts and suspending works
For contractors and trades, getting paid by builders or other head contractors can be very difficult – but the process can be made easier if you understand and use the Building and Construction Industry Security of Payment Act 2002 (Vic). This Act facilitates more efficient payments to contractors and subcontractors performing construction work, and in some circumstances enables you to suspend works. Note that this Act only applies to contracts between subcontractors and head contractors, and can’t be used for contracts between builders or contractors and home-owner clients.
‘Construction contract’ and the Act:
The Act defines construction contracts broadly, and includes ‘arrangements’ which may be less than what you might otherwise require for a ‘legally enforceable’ contract. This means that if you don’t have a written contract in place, you can still use the Act to enforce the arrangement.
If you have followed the steps outlined by the Act (as discussed below), and the other party has failed to pay you, there are three circumstances under the Act where you have a statutory right to suspend works:
- If the other party has given you a valid payment schedule, but they have not paid the amount specified on the schedule by the due date.
- If the other party has not given you a valid payment schedule within the period allowed, the entire amount becomes due and owing, and the other party fails to pay this by the due date
- The matter proceeds to adjudication, and the adjudicated amount is not paid within five business days after determination.
You must provide the other party with written notice at least three business days before stopping work, and your notice must:
- Refer to the Building and Construction Industry Security of Payment Act 2002 (Vic), and
- Notify them that you intend to suspend to work, and on what date.
- If you receive payment you must begin construction work again within three business days.
If there are damages as a result of the suspension of work, the other party is responsible for paying this – not you. You are not liable for any loss or damage suffered (as long as you have followed the correct procedure under the Act!)
The steps required by the Act before suspension of works is allowed:
You, the contractor must make a payment claim:
- A claim for a progress payment can be made on dates as per the contract, or if not specified, every 20 business days after the first day of work has been carried out.
- You must make each payment claim within 3 months or the period specified in the contract.
- The Act protects you when you are carrying out work within Victoria (even if the contract specifies that it is governed by the law of another jurisdiction.)
How to make a payment claim:
Serve a payment claim on the person liable to make the payment under the construction contract – this payment claim must:
- Identify the relevant construction work/related goods and services – specify the work done so that the other party can understand the basis of the claim and reasonably respond,
- Quantify the amount claimed to be due, and
- State that the claim is made under the Victorian Act.
Things that cannot be included in your payment claim (excluded amounts):
Note that you are not able to claim costs concerning latent conditions, time-related costs, costs arising from changes in regulatory requirements, or damages arising in accordance with the contract.
How to serve your documents:
- Personal delivery,
- Lodgement at the person’s ordinary place of business during normal business hours,
- Posting or faxing it to the person’s ordinary place of business (email has been held as valid service by the Courts also), and/or
- In any other way as specified by the relevant construction contract.
The responsible party must then respond with a payment schedule within time, setting out:
- The payment claim the schedule is answering, the amount they are proposing to pay, the reason why they are not going to pay the full amount claimed (if applicable), and the reasons for withholding payment (if applicable).
When is payment due?
- If the other party does not serve payment schedule within time they owe the full amount of payment claim * if they serve you with a payment schedule, they must pay the scheduled amounts.
- Interest is payable on unpaid amounts at the rate specified under contract, or as fixed by the Penalty Interest Rates Act 1982 – whichever is greater.
- If payment is not made you have a right to a Court Order by applying for summary judgment, or adjudication.
When to apply for adjudication:
- If there is a dispute and you need to enforce entitlement to progress payments.
If you need some advice, get in touch. Allie will be able to advise you on whether suspending work under a construction contract is the best way forwards for you in your particular circumstances, and for further advice about applying for and enforcing adjudication determinations.
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