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How to enforce your payment claims against the principal (client) when the head contractor is under external administration

Construction Law News | October 2015

The Building and Construction Industry Security of Payment Act 1999 (NSW) (the “Act”) governs the rights and obligations of all parties to a contract for building works. The ordinary process requires you as subcontractor to serve your Progress Claim on the Head Contractor who gets paid by the Principal and then pays you. However, what do you do when the Head Contractor becomes insolvent or is placed under external administration?

Timing is critical and liability is strict

The Act provides the mechanism for you to pursue payment of your progress claim directly from the Principal provided that the Head Contractor has not already been paid on your behalf. It is essential that you comply with the deadlines stipulated by the Act in order for your claim against either the Head Contractor or the Principal to succeed. It all begins with your contract with the Head Contractor which should contain the relevant dates for service and payment of progress claims.

  • The Head Contractor has 10 business days after your progress claim is validly served within which to provide you with a Payment Schedule;
  • If you do not receive a Payment Schedule within 10 business days and the progress claim remains unpaid you can then choose to have the claim dealt with by Adjudication AND suspend works on 2 business days’ notice (if applicable);
  • You then have a further 20 business days within which to serve the Head Contractor with a 2nd Opportunity Adjudication Notice under section 17(2) of the Act;
  • The Head Contractor then has a further 5 business days within which to serve you with the Payment Schedule;
  • If after 5 business days you still have not received the Payment Schedule you have 10 business days to prepare and serve the Head Contractor and your nominated Adjudicator with an Adjudication Application. Once this is done you can then serve the Principal with a “Payment Withholding Request” under section 26A(2) of the Act which requires the Principal to withhold (quarantine) an amount equivalent to your claim from moneys owed to the Head Contractor;
  • Once you have received your Adjudication Determination you can then seek payment of the amount owing to you under the Adjudication Determination from the Principal.

Beware!!!

It is important to note that your ability to claim from the Principal as outlined above is only possible if the Head Contractor has not already been paid for the work for which you are making your progress claim.

Unfortunately, if the Head Contractor has already been paid you will be required to lodge your Proof of Debt with the Administrator/Liquidator and pursue your claim along with all of the other secured creditors involved in the insolvency proceedings.

Forum Law solicitors in Leichhardt have a strong background in advising and assisting builders and subcontractors with all their legal requirements including the legal aspects of getting paid. Contact us for an obligation-free 30 minute consultation on 02 9560 3388.

Forum Law is an active member of several reputable law and industry associations. We have recently obtained ISO9001 accreditation.