Not Being Paid? Security of Payment Is the Fast Lane, and It Closes

Why does this matter before anything goes wrong?

Because the useful rights are the ones you have while your customer is still trading, and most people only read about them after that stops being true.

Security of payment is a statutory right to get paid for construction work, separate from whatever your contract says. The NSW Government describes the point of it plainly: it sets out payment requirements that principals, head contractors, subcontractors and suppliers must follow. NSW Government.

The phrase the courts use for how it works is pay now, argue later. You claim, the other side either pays or formally disputes within a set time, and if they do neither there are consequences. It is deliberately fast and deliberately rough.

Then your customer goes into administration, and it largely stops working. Once administrators are appointed, ASIC says unsecured creditors generally need the administrator’s consent or the court’s permission to begin, continue or enforce a claim. ASIC guidance. The fast lane closes.

That is the whole argument of this page. If you are owed money by someone still trading, you have options this week that you will not have later.

This is general information about how the NSW scheme works, not advice about your contract or your position. Every state has its own regime and they differ.

Does this apply to me, or only to subcontractors?

It is wider than most people assume. The NSW scheme covers anyone carrying out construction work, or supplying related goods and services, under a construction contract in NSW. NSW Government.

In practice that means:

• Subcontractors and trades. The group it was written for.
• Head contractors. You claim up to the principal as well as receiving claims from below, and there is a trap in that which has its own section here.
• Suppliers and plant hire. Supply of related goods and services is inside the scheme, not outside it. If you hire plant to a site, read the section on your machine as well, because an unpaid invoice is not your biggest risk.

What is a payment claim?

The formal document that starts the clock. Not an invoice with a stern email attached.

The NSW Government sets out what a payment claim must do: identify the construction work or related goods and services it relates to, state the amount claimed, and be served on the person who is liable to pay. NSW Government.

Two things people get wrong:

• Timing. There are limits on when a claim can be served, tied to reference dates under the contract and to when the work was done. Late is not a technicality here, it can be fatal to that claim.
• Form. A document that does not identify the work clearly enough is a weaker claim than one that does, and the other side’s advisers will look at that first.

Get the specifics for your contract and your state from the official guidance before you serve one, or from an adviser. The detail is where these fail.

They sent back less than I claimed. What now?

That is a payment schedule, and it is the other side’s formal response. It must state what they propose to pay and, where that is less than claimed, why.

You then have a decision with a deadline on it. Adjudication is the statutory process for having an independent adjudicator decide the amount. NSW Government.

What matters practically:

• It is fast compared with court, which is the entire design.
• The deadlines are short and they are not forgiving.
• An adjudication determination is about getting paid now, not about finally settling who was right. Either side can still argue the merits later.

And if they send nothing back at all?

That is often the strongest position you will ever be in, and the one people sit on.

Where a respondent fails to provide a payment schedule and fails to pay by the due date, the Act provides consequences, including a path for the claimant to recover the claimed amount. Security of Payment Act, NSW Government.

Silence from a customer who has always paid late is not the same as silence from a customer who has stopped answering. The second one is a signal, and it is worth acting on the same week rather than the following month.

I am a head contractor. What do I need to know?

That you are exposed from both directions, and that one of your obligations is backed by a criminal penalty rather than a commercial one.

When a head contractor serves a payment claim on a principal in NSW, it must be accompanied by a supporting statement declaring that all subcontractors have been paid what has become due and payable. NSW Government.

The penalties attached to that are not ordinary:

• Serving a payment claim with a supporting statement knowing it is false or misleading in a material particular carries a maximum penalty of 200 penalty units or 3 months imprisonment, or both.
• Failing to provide a supporting statement with a payment claim to a principal carries a maximum penalty of $22,000. NSW Government.

Read that against the position a head contractor is actually in when a developer stops paying. You have not paid your subbies because you have not been paid. You need to claim from the principal to be able to pay them. And the document you must attach says they have already been paid.

That is the moment to get advice, before you sign anything. It is also the clearest example on this website of why “just keep claiming” is not neutral advice.

My plant is on a site that has collapsed. Is it still mine?

This is the question hire companies should ask first, and it is not about the invoice.

If you hire equipment out, your interest in that equipment can be a security interest under the Personal Property Securities Act. Where goods are hired for a long enough term, the arrangement is generally a PPS lease. If that interest is not registered on the PPSR, it can vest in the customer when they enter administration, under section 267 of that Act. Personal Property Securities Act.

The consequence is worth stating plainly. You do not become an unsecured creditor for the value of the machine. You stop owning the machine.

Hire businesses have lost equipment this way, and usually not through bad luck. It happens because a registration was never made, or was made against the wrong entity, or the hire agreement did not support it.

What a hire business should be checking, today, on every customer:

• Are your hire agreements in writing, and do they give you an express right to register?
• Are your registrations actually on the PPSR, against the correct ABN or ACN, and current?
• Do your descriptions identify the goods properly, including serial numbers where the goods are serial numbered?

Search the PPSR and check. It costs very little and the alternative is losing the asset.

If equipment is already on a site that has gone into administration, do not simply go and collect it. ASIC describes restrictions on recovering property during a voluntary administration. ASIC guidance. Get the position confirmed first.

What if my customer has already gone under?

Then this page is about your other customers, and a different page is about this one.

What you are owed for completed work becomes a claim in the administration or liquidation, decided by that process. Read what voluntary administration means for creditors, and where your claim ranks and which company debts can become personal if the unpaid amount is now pressing on your own business.

The useful thing to take from this page is the timing. Whatever the remaining customers on your books look like, the rights described above are live for them right now.

What should I actually do this week?

Four things, and none of them need a lawyer to start.

• Work out who is paying later than they used to. Not who is late, who is getting later. That trend is the signal.
• Check your paperwork supports a payment claim on each of those jobs: the contract, the reference dates, what has been claimed and what has been certified.
• If you hire out plant, search the PPSR for your own registrations and confirm they are against the right entity and still current.
• If you are a head contractor, look at your supporting statement obligations before your next claim up the chain.

The NSW Small Business Commission publishes guidance for building and construction subcontractors, and the NSW Government’s own security of payment pages set out the forms and timeframes.

Can I talk it through?

Yes, and it is usually quicker than reading another page. Call the number on this page and say what has happened and which customer is worrying you.

You do this once. We do it every day. The first conversation is for both of us to work out whether there is anything useful we can do, and there is no form to fill in and nothing to sign. If it later turns into professional work, that is a separate agreement with its own fees, agreed in writing before anything starts.