How to manage your risk around payment schedules
When you’re managing a lot of projects, you have progress payment claims coming in thick and fast from your subbies. You need to monitor these closely because obviously mistakes can happen -- you may be invoiced for the wrong job, there could be a typo in the amount owing, or you may want to withhold payment if the subbie hasn’t completed the work as per your contract.
So, you need the right tools in place to identify any errors and make sure you’re not paying more than you should. If you’re contesting a payment claim, you need to respond to it before the deadline with a payment schedule. Otherwise, under the relevant Security of Payment laws, you could be liable for the full amount claimed.
Understanding Security of Payment laws
Security of Payment laws are in place in each state and territory. They protect contractors, sub-contractors, consultants or suppliers involved in construction work or the supply of related goods and services (we’ll call them “subcontractors” or “subbies”) and give them a right to recover progress payments if the Principal or Head Contractor fails to pay.
Before the laws were introduced, payment delays could leave subbies strapped for cash and struggling with the costs of recouping what was owed to them. This increased their risk of insolvency.
Current laws operate on a “pay now, argue later” approach and provide a framework to handle any payment disputes quickly, cost effectively and typically without the need for lawyers and court hearings.
What’s the process for issuing a payment claim under Security of Payment laws?
Broadly, the process in each state and territory for sub-contractors to issue a payment claim is as follows:
The sub-contractor carries out construction work or supplies related goods and services under a construction contract.
Then, the subcontractor submits a progress claim that includes:
Details of the work done and/or the goods and services supplied
The amount the subcontractor is claiming
A statement declaring that the claim is made under the relevant legislation. This wording varies according to which jurisdiction the project is in.
The respondent must respond to the claim. If the Principal or Head Contractor agrees with the payment claim, they can pay the amount in full on or before the due date.
If the Principal or Head Contractor doesn’t pay the full amount by the due date, they must prepare and serve:
A payment schedule (if the project is located in Victoria, New South Wales, Queensland, South Australia, Western Australia, Tasmania or the ACT), or
A Notice of Dispute if the project is located in the Northern Territory.
How to respond to a payment claim?
The purpose of the Security of Payment laws is to avoid payment delays that can leave contractors strapped for cash, while also resolving payment disputes quickly and preventing projects from grinding to a halt. When you receive a payment claim, you need to respond to it quickly.
If you agree with the claimed amount, you can pay it on or before its due date. However, if you don’t agree to pay the claimed amount, you need to prepare and serve a payment schedule (unless the project is in the Northern Territory, in which case you need to prepare and serve a Notice of Dispute). The payment schedule must be in the prescribed form and contain the prescribed information. For example, it should:
identify the payment claim to which it relates
indicate the amount you’re willing to pay (if any)
identify amounts that should be excluded from the payment claim and
ALL the reasons why you believe it’s right to withhold part or full payment.
You have a short timeframe to respond or you’ll become liable to pay the full amount claimed. This timeframe varies across the country in business days, as illustrated:
Note: A shorter period may apply, if specified in the construction contract.
What risks do you face?
Risks to your business include:
Not responding to a payment claim / responding after the deadline
If your processes are manual, it’s easy for things to get missed or paperwork to go astray - especially when you’re managing multiple projects concurrently and have a heavy administrative load.
Maintaining compliance across jurisdictions
Builders operating across Australia need to be aware that their responsibilities and timeframes under the scheme may differ according to which jurisdiction their project takes place in. Principals or Head Contractors can be caught out, for example, if they assume they have 15 working days to issue a payment schedule, when in fact they only have 10 days for an out of state project.
Consequences of not providing a payment schedule
The consequences of not providing a payment schedule vary according to laws in your state or territory and your industry body. Consequences may include:
Becoming liable for the full amount claimed
Losing the right to reply in an adjudication process
Works stopping on your project (sub-contractors can suspend work by giving 3 business days’ notice if the project is in Victoria or the Northern Territory, or 2 business days’ notice if the project is in any other state or territory).
Further, if your sub-contractor lodges a complaint against you, you could also face disciplinary action from your industry body, such as:
Receiving a fine
Accruing demerit points against your licence
Having your licence suspended or cancelled.
In short, compliance is extremely important to your business - as well as to your reputation.
How does MYOB help manage payment schedules?
With MYOB Advanced Construction, you can generate payment schedules quickly and easily, helping you to maintain compliance with the Security of Payment laws. Your payment schedules are linked to the respective progress claim, so you have your payment history, compliance paperwork, and all relevant notes stored together and accessible anywhere, anytime and on any device.
With a cloud-based construction enterprise resource planning system, you can manage your financials, customers, projects, reporting and more from one integrated database. This makes it much easier for you to see at a glance where every project is at, while also identifying any errors or discrepancies in your subbies’ progress claims.
Get in touch for an in-depth look at MYOB Advanced Construction.
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