If you are a builder or sub-contractor that operates a couple of steps down the contractual chain, almost invariably you’ve experienced difficulties getting paid. In the building industry cashflow can be a problem, especially at the end of a project. Even if a contractor successfully wins an Adjudication, enforcement against a Respondent can be tricky, especially if it is uncertain whether the Respondent will be paid by their Principal.
Payment Withholding Notices
Under section 26A of the Building and Construction Industry Security of Payment Act 1999 (NSW) (the Act), a sub-contractor can require a Principal to a Head Contract to retain the amount claimed once you have lodged an Adjudication Application.
The effect of a Payment Withholding Request is that the Principal is not allowed to pay the Head Contractor that amount and must retain it in retain it in their own account until either:
- The Adjudication Application is withdrawn;
- The Respondent pays the amount claimed;
- The Claimant serves a notice of claim under the Contractors Debts Act 1997 (NSW); or
- 20 days after the Determination is served on the Principal.
If the Principal does not retain the amount claimed as required, they will become directly liable to pay the Claimant (you) the claimed amount, which the Principal can then claim from the Head Contractor.
This process ties into section 6 of the Contractors Debts Act 1997 NSW (CDA), which has always allowed an unpaid contractor to issue a Notice of Claim, which assigns the obligation of the Principal to pay the money owed under the head contract to the Subcontractor, as long as the debt has been established in some way. The Principal must pay the Claimant within 7 days of this notice and service of an Adjudication Certificate is sufficient to activate this right under the CDA.
Payment Withholding Requests are a powerful mechanism that encourages settlement of the disputes and contractor cashflows. But potential Claimants must be aware of their obligations and timing restraints in relation to Payment Withholding Requests.
If you are making Payment Claim under the Act, considering referring a payment dispute to Adjudication or would like further information about Payment Withholding Requests, contact us.
Lawyer, Nexus Law Group
+612 9016 0141
Principal, Nexus Law Group
+612 4961 0002
This publication is © Nexus Law Group and is for general guidance only. Legal advice should be sought before taking action in relation to any specific issues.