Securing Progress Payments in the Building & Construction Industry

Date: Feb 03, 2011
Document Type: Newsletter

An Act to amend the Building and Construction Security of Payment Act 1999 was assented to in November 2010. It fine tunes the way in which the problem of progress payments with regard to construction work under contract was addressed, and takes a further step towards ensuring that progress payments will be held by the principal contractor.

In practical terms, this means that sub-contractors who have provided work or purchased materials and not been paid, and have subsequently made a claim for adjudication on the defaulted payment, can now request that the disputed amount be withheld from the defaulting contractor by the principal contractor.

The original Act deals with the recovery of progress payment claims on construction work and payments for materials that relate to specific work. Prior to this legislation, the recovery of payments for work in the construction industry could be a lengthy process. It has presented an ongoing problem for subcontractors across the industry. In particular, the Building and Construction Security of Payment Act 1999 covers:

  • construction work on residential and non-residential properties, including alterations, repairs, restoration, maintenance, extensions and demolition;
  • civil engineering works, including road works, powerlines, telecommunications apparatus, aircraft runways, docks and harbours, railways, inland waterways, pipelines, reservoirs, water mains, wells, sewers, industrial plants and installations for the purposes of land drainage or coast protection;
  • electrical works, including building installations and fittings, heating, lighting, air-conditioning, ventilation, power supply, drainage sanitation, water supply, fire protection, security and communication systems
  • cleaning of internal or external building structures and works;
  • preparatory work, including site clearance, earth moving, excavation, tunnelling and boring, laying of foundations, erection, maintenance or dismantling of scaffolding;
  • refabrication of components, site restoration, site restoration, landscaping
    ? decorating or painting of external or internal surfaces of any building structure or works.

There are areas of exclusion, e.g. drilling and extraction. For specific details, visit Security of Payment or contact your solicitor.

The Building and Construction Industry Security of Payment Amendment Act 2010 makes further provision for ensuring payment by providing a procedure for a subcontractor who is claiming progress payments or reparation for materials to give notice to the principal contractor of the claim, thereby requiring that the monies in question be withheld from the defaulting contractor.

The main aspects of the legislation are as follows:

  • a subcontractor who has made an adjudication application for a progress payment owed by a defaulting contractor on a construction project will be able to require that the principal contractor holds back money to the defaulting contractor;
  • the principal contractor will then be required to withhold payment to the defaulting contractor and will have liability if they do not comply;
  • the obligation of the principal contractor to withhold payment continues until the subcontractor’s claim is withdrawn. If the claim is successful, monies are to be held for a sufficient period after the claim is finalised to give the subcontractor a reasonable opportunity to recover from the defaulting contractor using mechanisms under the original Act or the Contractors Debts Act 1997;
  •  the subcontractor will be able to obtain from the defaulting contractor (via the claim adjudication process) the name and contact details of the principal contractor;
  • the principal contractor will be protected from any claim for payment by the defaulting contractor while the obligation to withhold payment continues.

These obligations ensure that there is a measure of protection for subcontractors with regard to progress payments and out of pocket expenses on materials.

If no money is owed by the principal contractor to the defaulting contractor the subcontractor must be notified within 10 days.

The commencement day of this Amendment Act is yet to be appointed.

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