For a small business owner or contractor, keeping up with paperwork, even understanding it, can be a struggle. However excellent paperwork is smart business in how you can enforce your right to get paid.
To help with your excellent paperwork, we’ve listed Everything You Need to Know about a Payment Schedule.
The building and construction industry is heavily regulated by laws and regulations requiring paperwork. One of the key pieces of paperwork a builder must be familiar with is the payment schedule under the Building and Construction Industry Security of Payment Act 1999 (NSW), also known as the SOPA.
What is a Payment Schedule?
A payment schedule is a builder’s response to a supplier or subcontractor asking for payment of supplies or works. With a schedule, a builder can agree or disagree with a claim. If he disagrees, a payment schedule can be used to give reasons for disagreeing such as incomplete or defective work, failure to provide certificates, missing supplies, and any other reason a builder may use to refuse or reduce payment of a claim.
Important Rules about Payment Schedules
A builder has to be able to issue to a supplier or a subcontractor a valid payment schedule under the SOPA to avoid being liable for the full amount of the claim. It is important a payment schedule:
- Be in writing and addressed to the supplier or subcontractor who issued a claim for payment to the builder.
- Be issued by the builder to his supplier or subcontractor within the time required by the construction contract or within ten business days from the time he receives a claim for payment, whichever time expires earlier.
- Identifies the claim it is responding to.
- Provide the amount of payment the builder proposes to make to the supplier or subcontractor, if any.
If the amount the builder proposes to pay is less than the amount claimed by the supplier or subcontractor, the payment schedule must specify the reasons for denying or withholding payment. It is also best practice for the builder to include attachments (such as photos, certificates, reports and other documents, to support) his reasons for denying or withholding payment.
Finally, when serving a payment schedule on the supplier or subcontractor, the means of service must be allowed under the construction contract (for example by fax, email, post or hand).
What Happens When You Don’t Issue a Payment Schedule
If a builder does not issue a valid payment schedule to his supplier or subcontractor, he becomes liable to pay the entire amount of the claim.
If the supplier or subcontractor decides to collect the amount of the claim using an adjudication application under the SOPA, the builder will receive a notice under section 17(2) of the SOPA, giving the builder another chance to issue a payment schedule, this time within 5 business days from the time the builder receives the notice.
During the process of adjudication, if the builder did not issue a payment schedule, he cannot submit an adjudication response.
If the supplier or subcontractor decides to collect the amount of the claim by commencing a case before the courts, a builder who did not issue a payment schedule is not allowed to file a defence or a cross claim.
Lessons for the Builder
The bottom line is building and construction requires excellent paperwork. With the right tools like this checklist on Everything You Need to Know about a Payment Schedule, templates and software, a builder will find making enforceable payment schedules easy as.
Any questions? Call us at Small Builders on: 02 0896 8576. We’d be happy to talk you through it.