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February 27, 2023
Progress Payments in Construction Industry
What are the Security of Payments Laws?
In NSW, those who perform construction-related work or offer supplementary goods and services under a construction contract are entitled to collect progress payments for their efforts.
The Progress Payments are regulated by:
- Building and Construction Industry Security of Payment Act 1999 (NSW)
- Building and Construction Industry Security of Payment Regulation 2020 (NSW) (“Security of Payment laws”).
The Security of Payment regulations apply to all parties to contracts in the building and construction sector, including contractors, suppliers, consultants, subcontractors, and builders.
By ensuring that each party to a contract is paid for the work or services they do, the Security of Payment regulations aim to lower the risk of insolvency in the building and construction sector in NSW.
Security of Payment laws apply to:
- Any construction contract.
- A construction contract that is written or oral.
- A construction contract that is partly written and partly oral.
- A construction contract that says it is to be governed by a law of a State or Territory outside of NSW, but the work is carried out in NSW.
- On and from 1 March 2021, owner occupier construction contracts (construction contracts for residential building work on any premises or part of the premises where the contracting party resides or proposes to reside in).
What are the exceptions to Security of Payment laws?
- A contract for construction where the work is done outside of New South Wales
- A construction agreement for the provision of products and services related to construction work performed outside of NSW.
- A construction agreement that governs the employment relationship.
- A building agreement that is linked to a loan.
A progress payment is what?
The following are examples of progress payments:
• The final payment for completed construction work or the supply of goods/services under the construction contract.
• A one-time payment for completing construction work or the supply of goods/services under the construction contract; or
• A payment based on an occasion or date (a “milestone payment”). This does not preclude the building contractor from submitting a single payment claim for a progress payment for completed construction work or for associated goods in any given month.
How is the amount of a progress payment determined?
The construction contract typically specifies the progress payment amount.
The progress payment amount will be determined based on the cost of the completed construction work, or the goods/services rendered if it is not specified in the construction contract.
When is the payment deadline for a progress payment?
The requirements of the relevant building contract should be followed when making a progress payment.
A person who is entitled to a progress payment (the claimant) may lodge a payment claim on the party who is or may be obliged to make the payment under the relevant construction contract. There are specific maximum deadlines for payment depending on the nature of the contract. If this contract under which the payment claim is made is not an owner occupier construction contract as defined by the Act, the following will apply:
If the Head Contractor makes a payment claim, payment is due and payable in 15 business days after the claim is made or earlier date if the contract specifies.
Progress payment should be paid to a subcontractor within 20 business days or earlier if the contract specifies.
Payment claims made through owner occupier contract is due and payable as determined by the contract and if it is not expressed in the contract, it must be paid within 10 business days after the claim is made.
How to get your progress payments back
In accordance with each contract, a claimant may serve one payment claim each month (which may be on the final day of one month and the first day of the following month, or on or from an earlier date if the contract so stipulates).
If the construction contract has been terminated, a payment claim may be filed as of the termination date.
A payment claim must expressly declare that it is a payment claim made in accordance with the Security of Payment laws, specify the services or goods it refers to, and specify the claimed amount.
A claimant may only submit a claim during the period specified in the contract or within 12 months after the completion of the job (whichever is later).
A supporting statement form must be completed by the head contractor claimant and attached to their claim.
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