NSW Building Payment Claims: How Owners Should Respond to a Payment Claim

1. Can the Security of Payment Act apply to an owner-occupier?

The Building and Construction Industry Security of Payment Act 1999 (NSW) (SOPA) is designed to facilitate progress payments for construction work. It may also apply to qualifying residential building contracts with owner-occupiers entered into on or after 1 March 2021. Whether it applies depends on the contract date, the nature of the work, the parties and any statutory exclusions. Living in the property does not, by itself, establish an exemption.

2. What should you check when a Payment Claim arrives?

Immediately preserve the original claim, attachments, emails, download links and evidence of service. Identify the claimant, the contract and project, the amount claimed and its calculation, the work, goods or services identified, compliance with statutory and contractual requirements, when and how the claim was served, and whether earlier claims have been made. Termination, defects and insurance issues may be relevant, but they do not replace the need to address statutory deadlines.

3. What is a Payment Schedule, and when is it due?

If you dispute all or part of the amount, you should ordinarily serve a written Payment Schedule identifying the relevant Payment Claim, stating the amount you propose to pay (which may be zero) and setting out all reasons for withholding payment. It is generally due within the shorter period specified in the contract or 10 business days after receipt of a valid Payment Claim. Business days and service must be calculated under the applicable law, not simply by counting calendar days.

4. Why should the reasons for withholding payment be comprehensive?

Depending on the facts and evidence, reasons may include incomplete work, duplicate charges, calculation errors, unauthorised variations, defective work, disputes about the contract price or other available legal grounds. They should be assessed and, where appropriate, clearly included in the Payment Schedule. In adjudication, a respondent is generally prevented from introducing reasons for withholding payment that were not included in its Payment Schedule. A bare statement such as “payment is disputed” may be inadequate.

5. What happens if you miss the deadline?

Failure to serve a Payment Schedule in time may expose the owner to a statutory liability for the claimed amount and to adjudication or court recovery proceedings. In certain proceedings, reliance on contractual defences and cross-claims may also be restricted. The consequences depend on whether the document is a valid statutory Payment Claim, the procedure used and the particular facts.

6. What evidence should an owner preserve?

Keep every version of the building contract, quotations and variations, payment records, progress photographs, defect reports, site diaries, emails and WeChat messages, engineers’ or building inspectors’ reports, key-handover records, insurance documents and proof of service for each payment claim. Preserve original files and complete conversations, not only selected screenshots.

7. Separate the statutory payment process from the underlying contract dispute

The rapid payment mechanism under SOPA does not necessarily determine all parties’ ultimate contractual rights. Alleged breaches, defect rectification, damages and termination may require separate negotiations, regulatory complaints, NCAT proceedings or court proceedings. The appropriate remedy depends on the contract, amount in dispute and the nature of the case.

Legal sources

This article is an original English explanation based on the following official and authoritative materials:

• NSW Government: Responding to a Payment Claim
• Legal Aid NSW: Security of Payment
• NSW Government: Applying for Adjudication

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