Tute 8 (Tara) Flashcards
There is now Security of Payment legislation in New South Wales, Victoria, Western Australia, the Northern Territory, South Australia and Tasmania. Security of payment legislation in Queensland has been recently superseded with new legislation to take effect when?
January 2018.
what must be in place before the first progress cliam is paid?
Security set up, insurances, and the project program
To what construction projects does the security-of-payments legislation apply?
The legislation applies to virtually all commercial construction contracts involving building work.
There are limited exceptions for:
the construction of single houses, generally where the house is for the client - “except ‘one off houses’ where the owner for the building contract is to be the occupier (most architect-designed houses). “
finance agreements for use in the building industry
in some states, construction contracts in the oil and gas and mining industries
Information for the particular state or territory in which the project is located will need to be checked for more detail about these exemptions.
The security of Payment Act in each state establishes a procedure that enables:
contractors to make monthly payment claims to owners
owners to provide payment schedules to contractors
referral of disputed or unpaid progress claims, including those for ‘claimable variations’ to an independent adjudicator
payment of progress claims decided by the adjudicator
You should always advise the owner to obtain immediate legal advice in dealing with security of payment claims because:
the time limits involved for compliance by the owner are tight
the procedures are complex and certain formalities must be observed to protect the owner’s rights
developing case law will progressively clarify some uncertainties, including what items are or are not covered by the legislation, and uncover others
What happens if the owner fails to comply under the security of payment act?
Where the owner fails to comply with their obligations, the contractor is also entitled to serve a notice of intention to suspend work. The contractor can then suspend work two business days after serving the notice, if the payment claim is not paid or not paid in full.
How many days does the contractor have to wait until they suspend work after serving a notice of intention to suspend work due to such circumstances as the owner not complying with the security of payment? and what are they entitled to if suspension happens?
two days after serving a notice to suspend work, they can suspend work.
If the work is suspended, the contractor might be entitled to an extension of time under the contract for the period of the suspension.
(Acumen: Security of Payment - Victoria)
When should GST be applied to a claim?
After all other percentages are applied. For example, builders margins on Provisional sums etc are applied before any GST. GST is the last thing to be applied always.
What is the final certificate?
A final certificate is a certificate issued by the architect at the end of a construction contract to show the amount of the final payment due to the contractor and to certify that the works have been completed in accordance with the contract.
Some clients may require the contractor to sign a ‘release of all claims’ before the final payment is made. It is unlikely that this would avoid the exceptions identified above.
The responsibilities of an architect (as contract administrator) are set out in the ABIC contracts in the following clauses:
- The architect is appointed to administer this contract on behalf of the owner. The architect is the owner’s agent for giving instructions to the contractor. However, in acting as assessor, valuer or certifier, the architect acts independently, not as the agent of the owner.
- The owner must ensure that the architect, in acting as assessor, valuer or certifier, complies with the contract and acts fairly and impartially, having regard to the interests of both the owner and the contractor. The owner must not compromise the architects independence in acting as assessor, valuer or certifier.
In relation to payments made from principal to contract, Clause 42.1 of AS 4300–1995 (along with related Standards Australia contracts, such as AS2124–1992) (AS 4000, although drafted differently, is to similar effect) provides that:
…the Principal shall pay to the Contractor…if no payment certificate has been issued…the amount of the Contractor’s claim.
Regarding the late processing of Progress claims by the architect, The Daysea case decision confirms two very important lessons under Standards Australia contracts, such as AS 4300–1995:
- The architect must issue a certification strictly within the time required by clause 42.1 or expose the principal/owner to a liability to pay the full amount claimed
- Payment certificates (or progress claims if payable because no certificate has issued), although they have to be paid, can be revised by a properly issued final certificate.
With standard lump sum form contracts, what pattern does the cashflow generally look like?
When represented graphically, this pa”ern is seen to be in the form of a lazy ‘S’. It is o$en referred to as the ‘S’ curve of payments.
In practice, the payments would be more likely to be shown as monthly amounts rather than percentage amounts and the periods would more likely be months. but the lazy ‘S’ would still be evident.
It is easily seen (and can be easily explained to a client) that the rate of payments is greater in the middle of the contract period than near the start or end of it. Usually, there is more building work in the middle months than in the first and last months.
Acumen, Progress Claims - Planning cash flow
When is security released?
Most standard-form building contracts include provisions for the release of the security to the contractor usually 50 per cent at practical completion and the remaining 50 per cent at the end of the defects-liability period.
What are the types of security?
retention fund (an amount retained progressively from each payment until a nominated limit is reached) or unconditional guarantees (usually two, each valued at half the total security)
