Responding to a Payment Claim: What You Need To Know About Payment Schedule

In the construction industry, strict compliance with the Building and Construction Industry Security of Payment Act 1999 (NSW) is essential, as failure to provide a timely and detailed payment schedule can lead to automatic liability for the full claimed amount. Section 14 of the Act sets out clear requirements for how and when a payment schedule must be served, including the need for specific reasons if any part of the claim is disputed. Missing the deadline or failing to respond properly can result in serious legal consequences, including the loss of any right to challenge the claim.

Section 14 of the Act: Statutory Requirements

A person who is served with a payment claim under the Act, the respondent, may reply to the claim by providing a payment schedule to the claimant. Section 14 specifically outlines the requirements of such a payment schedule. 

1. Section 14(2) of the Act set out the requirements for the payment schedule to:– must identify the payment claim to which it relates; and – must indicate the amount of the payment that the respondent proposes to make (the scheduled amount).
2. Section 14(3) of the Act requires that if the scheduled amount is less than the claimed amount, the payment schedule must indicate why the scheduled amount is less and the reasons for the respondent for withholding the payment. 
3. Section 14(4) set out the timeline for which the payment schedule should be provided. The respondent may be liable to pay the entire claimed amount if they failed to provide a payment schedule within the time frame specified in the contract or within 10 business days after being served, whichever expires earlier. 

As such, respondents must be familiar with the terms of their contracts as well as the statutory obligations under the Act.

Consequences of Failing to Respond 

The Act is clear and strict in its enforcement. If a respondent fails to provide a payment schedule within the required timeframe, Section 15(1) of the Act deems the respondent liable to pay the full claimed amount. This liability arises automatically and can be enforced as a statutory debt. Further, in Style Timber Floor Pty Ltd v Krivosudsky [2019] NSWCA 171, the Court reinforced the rules in Section 15(1) and Section 15(4) of the Act and decided that the respondent will lose the entitlement to challenge the payment claim to bring any cross-claim or raise any defence when the respondent failed to provide a payment schedule in accordance with the Act and the claimant has commenced the recovery proceeding in respect of that any unpaid amount.

Considerations For Respondent

When being served with a payment claim, the respondent must also confirm the validity of the payment claim. A valid and enforceable payment claim shall be in compliance with Section 13 of the Act.  In the event that the respondent is only willing to provide a payment schedule with scheduled amount less than the claimed amount, the respondent must include detailed reasons for the difference of the amount and why the respondent is withholding a portion of the claimed amount, this principal is affirmed in J C Butko Engineering Pty Ltd v Talis Civil Pty Ltd [2021] NSWDC 735, where the Court emphasised the importance of specificity and transparency in responding to claims.

Key Takeaways

1. Timing and Service

The courts have interpreted “provide” in section 14 as equivalent to “serve.” Therefore, the method and timing of service are critical. Section 31 of the Act governs the methods by which documents, including payment schedules, may be served. Common methods include personal delivery, post, or as specified in the construction contract. Importantly, the clock starts ticking from the date the payment claim is served, not the date it is received or reviewed.

2. Scope of the Act

Not all construction contracts fall under the Act. For example, certain residential construction contracts, particularly where the homeowner occupies the property, may be exempted. Parties must determine whether the Act applies before relying on its protections.

3. Practical Implications

• Missing the deadline can expose a respondent to an automatic and enforceable debt.
• Once the timeframe expires, the respondent’s ability to contest the claim is severely limited.

Feel free to contact Damin Murdock at Leo Lawyers via our website, on (02) 8201 0051 or at office@leolawyers.com.au. Further, if you liked this article, please subscribe to our social media accounts. DISCLAIMER: This is not legal advice and is general information only. You should not rely upon the information contained in this article and if you require specific legal advice, please contact us.