What is the Security of Payment Act?
The Building and Construction Industry Security of Payment Act 1999 (NSW) (Act) is designed to ensure that any person who carries out construction work, or supplies related goods and services, gets paid promptly. It creates a fast-tracked, interim dispute resolution process that operates alongside, and often much faster than, traditional court proceedings. The Act is underpinned by a simple but revolutionary philosophy: “pay now, argue later.”
Step-by-Step Guide
For anyone involved in the construction industry, from suppliers to subcontractors to head contractors, understanding this legislation is not just beneficial, it is fundamental to financial survival and legal protection.
When you have engaged a subcontractor, supplier, or tradesperson for your works and they serve you with a Payment Claim under the Security of Payment Act, there are critical things you need to be aware of.
Check out our step-by-step guide on how to respond to a Payment Claim.
Step one: check the validity of the Payment Claim
Once you receive a progress claim or invoice (Claim), you need to make sure the Claim you’ve received is valid under the Security of Payment Act.
To illustrate this, let’s say your subcontractor submits an invoice identifying the construction work performed and the amount being claimed, and includes the endorsement that it is a “Payment Claim made under the Building and Construction Industry Security of Payment Act 1999 (NSW).” This endorsement indicates that it is not just an invoice but a valid payment claim under the Act (Payment Claim).
Even if you are not entirely sure whether a Claim is a valid Payment Claim, a good ‘rule of thumb’ is:
If it says it’s a payment claim, it probably is.
It is always recommended that you treat every Claim as valid Payment Claims and prepare your response (Payment Schedule) accordingly. This ensures you are not caught out by strict deadlines or technical arguments later in the process.
While it may seem unfair, the Act essentially requires a payment claim to say it is a payment claim, but there is not the same requirement on a payment schedule. This means that an email that responds with something as paltry as “not approved” could be regarded as a ‘valid’ payment schedule meaning that you are restricted to this ‘reason for non-payment’ even though it does not appear to be much of a ‘reason’ at all.
Step two: calculate your deadline
Under the Act, a Payment Schedule must be served within the time required by your contract or within 10 business days after the Payment Claim was served, whichever is shorter. The definition of “business day” excludes weekends, public holidays, and Christmas.
For example, if a subcontractor serves a Payment Claim on Friday, 1 August 2025, your 10 business-day deadline would expire on Friday, 15 August (unless your contract requires a shorter period, in which case the shorter time prevails).
Missing this deadline means you automatically lose the right to dispute the claim. So the stakes are high.
Step three: include the prescribed information
Your Payment Schedule must do more than just say “I don’t agree” or “I’ll pay less.” It has to clearly identify the Payment Claim you are responding to, and it must state the amount you propose to pay, if any (Scheduled Amount). That Scheduled Amount might be the full claim, part of it, or nil.
If the Scheduled Amount is less than the claimed amount, you must explain why. For example, if a subcontractor claims $100,000 (Claimed Amount) but you only agree with $85,000, the Payment Schedule should not simply say: “I propose to pay $85,000.” (see Step Four for more)
Step four: explain all your reasons for withholding payment
If you do not intend to pay the full Claimed Amount, you need to set out the amount that is agreed, the amount that is not agreed, and your reasons for withholding payment. These reasons must be clear and detailed enough to let the claimant understand your position.
In Multiplex v Luikens, the NSW Court of Appeal confirmed that while a Payment Schedule does not need to be as detailed as a court pleading, it must still contain enough precision and particularity to identify the real issues in dispute. This means being specific.
By way of example, imagine your supplier submits a Payment Claim for $50,000 worth of materials, but only $40,000 worth was actually delivered to site. In your Payment Schedule, you should state that $40,000 is agreed, and the remaining $10,000 is not agreed because the goods were not supplied and identify which goods not delivered.
Similarly, if a subcontractor submits a Payment Claim for a variation that was never approved, you should explain that the claim is being withheld because no written variation approval was provided under the contract.
Another common example is where a subcontractor submits a Payment Claim for progress payments on work that is defective. In that case, your Payment Schedule should state that payment is withheld because the works do not comply with the drawings or specifications and identify which works and refer the relevant contractual documents or requirements. In this case, your position would likely be that the works “are not complete”. If the works were defective and you actually incurred costs repairing them yourself, you would set out these costs. In this regard, make sure that you give an opportunity for the contractor to fix the issues before hiring another, especially if the contract requires this.
Once you serve your Payment Schedule, you are generally locked into the reasons given in your Payment Schedule. For example, if your subcontractor applies for adjudication as they are not satisfied with the Scheduled Amount, you will not be able to raise new arguments that were not included in your Payment Schedule.
That is why it is crucial to include all possible grounds as much as you can at the outset on your Payment Schedule, whether they relate to scope, defects, rates, quantities, or contractual time bars so that you can expand and raise your arguments based on those grounds if the matter proceeds to adjudication. The more valid reasons you include in your Payment Schedule, the more arguments you will have available before the adjudicator, which may ultimately lead to more favourable outcomes.
In that regard, we note that there are no penalties for a reason not being a good one or a successful basis for non-payment, so do not be shy with reasons for non-payment. You may always concede amounts later in your adjudication response.
The consequences of failing to serve a Payment Schedule
The Act has real teeth. If you fail to serve a Payment Schedule within the strict timeframe, the consequences are immediate and severe.
First, you become liable to pay the full amount claimed, regardless of whether the works or goods are defective, incomplete, undelivered, or outside the contract scope. Your subcontractor then has two powerful options. They can issue a notice under section 17(2) of the Act and proceed to adjudication, where the adjudicator will almost certainly award the entire Claimed Amount because you did not provide any Payment Schedule with reasons for withholding payment.
Alternatively, they can commence court proceedings under section 15(2) of the Act and obtain summary judgment for the full amount as a debt due. In that case, the court will not consider whether the work was defective or whether variations were valid. It will only look at whether a valid Payment Claim was served and whether you failed to provide a Payment Schedule in time.
In short, silence or delay is treated as acceptance. Once the deadline has passed, you cannot raise new arguments, cross-claims, or set-offs. The Act is unforgiving, and missing your opportunity to respond almost always results in having to pay 100% of the claim.
While it is important to remember that security of payment is not final, it is costly and inconvenient to try to recover amounts you consider should not have been paid so avoid putting yourself in this position.
Final Thoughts
The Security of Payment regime is designed to keep money flowing through the construction industry, but it does not tolerate delay or carelessness. Treat every Payment Claim as urgent, diarise your deadlines, and draft your Payment Schedule with care and detail. Doing so preserves your rights, protects your cash flow, and keeps you compliant with the Act’s “pay now, argue later” philosophy.
If you struggle to draft a Payment Schedule, or if you have received a notice of adjudication, you should seek legal advice immediately. CTI Lawyers can assist in reviewing your Payment Schedule, preparing your response, and guiding you through the adjudication process to ensure your interests are properly protected.
Advice & Support
For advice regarding contract disputes and statutory duty of cate matters, we encourage you to connect CTI Lawyers to get specific guidance and expert assistance on this matter. They are highly knowledgeable in these areas and will be able to provide you with the necessary support.
As specialised construction lawyers, CTI Lawyers helps navigate the complex minefields of payment recovery, contracting, legislative requirements and more. We assist with all construction contract and dispute related matters, from contract review and drafting to debt recovery through adjudication and court. CTI Lawyers also frequently assists clients with defending claims brought against them in tribunals or the Local, District and Supreme Courts.