The Building and Construction Industry Security of Payment Act 1999 (the ‘Security of Payment Act’) is legislation in NSW that intends to reduce the incidence of insolvency in the NSW construction industry by granting various rights and protections for contractors; and by setting out a statutory mechanism for recovering progress payments.

Although the Security of Payment Act is a dramatic and positive move in the right direction, does it fall short of the intervention that could have been made?

We say the Security of Payment Act falls short.

The Security of Payment Act mimics the essence of the Housing, Grants, Construction and Regeneration Act 1996 in England & Wales (the “Construction Act”) in a number of ways, although the Construction Act has had a stronger influence on its construction industry as it implies into all ‘construction contracts’ key mandatory terms as recommended by industry experts, not least by Sir Michael Latham, in his Constructing the Team report published in July 1994.

Crucially, the Security of Payment Act provides conditional access to the adjudication process as part of the payment recovery process where ‘a claimant may apply for adjudication of a payment claim’ only. Whereas the Act in England & Wales provides that the construction contract enables “a party to give notice at any time of his intention to refer a dispute to adjudication”

So, what’s the big deal?  The NSW construction industry is missing out on the statutory support necessary to reap the following benefits:

Statutory right
Adjudication under the Construction Act will apply even if the contract does not provide for it. But more importantly, the fact that adjudication has now become such an intrinsic fabric of the UK construction industry, the process is widely understood, and therefore parties are highly attuned to it, and the constant looming threat is a powerful deterrent to willful wrongdoing.

Reputation
As the proceedings are conducted in private the dispute can be resolved without being heard in open court thus protecting the reputation of the parties; Arbitration offers this too but arbitration costs can be even more prohibitive than litigation costs and results in parties avoiding taking dispute resolution measures which only serves to allow the disputed matters to stew and snowball rather than providing a practical opportunity to resolve disputed matters.

Costs
Obtaining a judgement by way of adjudication will, in the majority of cases, be a fraction of the cost of pursing a judgement through the courts or arbitration.

Speed
An impartial decision can normally be obtained with a number of weeks whereas a case commenced in the courts or arbitration can take months or, in some cases, years to conclude.

Flexible procedure
The parties may, on agreement, extend the time limits for a response depending on the complexity or volume of material to be considered.

Final decision
The decision of an adjudicator is normally binding unless appealed to arbitration or litigation and there is nothing limiting the parties from making the decision final.

So, what can parties in NSW do to take advantage of such benefits now?

The answer is to incorporate terms to enable adjudication ‘at any time’ in your construction contract.  This will ensure that a cheap, fair, and binding dispute resolution mechanism is available to both parties to rapidly address disputes.

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