Security of Payment insight #2: Payment schedules

Payment schedules

  1. Payment schedules need to be provided within 10 business days or as required by the relevant construction contract, whichever is the earlier. There are two concepts for a payment schedule: a) the statutory payment schedule;
    b) the payment certificate (as variously named under the construction contract).
  2. Payment certificates under the contract may not necessarily constitute the required Payment Schedule under the Act with respect to the time when a Payment Schedule needs to be provided. The construction contract needs to make express reference to the time for the statutory Payment Schedule to be provided. I.e., unless there’s expressly clear words to displace the 10 business days under the Act.[1]
  3. If the amount that the respondent proposes to pay is less than the amount claimed in the payment claim, the respondent should set out a list of reasons for non-payment. The adjudicator can only consider those submissions duly made. A respondent should at least cross refer to correspondence rejecting the claim; provide more than a bare denial which is no reason at all.
  4. “Pay-when-paid” provisions (contractual clauses which seek to make the subcontractor’s entitlement to payment contingent on the head-contractor’s receipt of payment from upstream) are not valid reasons to withhold payment. Such provisions are void under section 12 of the Act. Some more sophisticated contracts (for example in PPP arrangements), make some claims by a subcontractor conditional on a successful claim by a head contractor (often referred to “Linked Claim”, which if disputed is usually deemed to be a “Linked Dispute” under the relevant project agreements). Whether a Linked Claim falls foul of section 12 is yet to be tested by the courts. Whether a clause is a pay-when-paid provision will depend on whether there are “monies owing”, as defined in section 12, and the drafting of the Linked Claim clause.[2]
  5. Contractual rights of set-offs can be valid grounds for refusing to make payment provided amounts owing under the construction contract can be valued by including set-offs under the contract.

How to prepare a payment schedule – best practice

  1. Use the contractor’s Excel document to assess amounts proposed to be paid by the respondent and identify the reason why payment will not be made for any disputed items. A matrix/key can be used to identify reasons with the corresponding number applied next to each claim, to avoid unnecessary duplication. Be careful that the reasons are not too general so as to provide no indication as to the reason at all. Also include a covering submission to the payment schedule which will form the backbone to the Adjudication Response in due course.
  2. Where available, payment schedules should include attachments such as:
    1. statements detailing the extent of the work completed;
    2. completion certificates;
    3. delivery dockets;
    4. photographs;
    5. correspondence (as relevant);
    6. other contract documentation as may be required by contract.
  3. Service should occur during normal business hours,[3] at the claimant's ordinary place of business or as otherwise required by the contract. In the absence of a contrary contract provision, the safest way of ensuring service is to serve by courier with instruction to obtain a signed receipt.
  4. Respondent parties should be careful of contractual deeming provisions as to service (e.g. if contract notice received after 4pm, it is deemed to have been received the following day). It is critical to consider how deeming provision affects your payment schedule which is due within 10 business days of the payment claim.
  5. A respondent should also keep a record of the time, date and manner of service on the claimant. A claimant may deny receiving a payment schedule in which case the respondent must be able to evidence the date of service. The best practice is to prepare service receipt or affidavit of service as proof of delivery.

[1] Thiess Pty Ltd & Anor v Lane Cove Tunnel Nominee Company Pty Ltd & Anor [2009] NSWCA 53.

[2] See Maxcon Constructions Pty Ltd v Vadasz [2018] HCA 5, although the pay when paid provision was referred to in the context of retention monies.

[3] Claimants have till midnight however best practice should dictate that ordinary business hours or hours proscribed by the construction contract are used.

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