Part of a comprehensive analysis of the Building and Construction Industry Security of Payment Act 2004
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Entitlement to Progress Payments under the Building and Construction Industry Security of Payment Act 2004
The Building and Construction Industry Security of Payment Act 2004 (the Act) establishes a statutory framework to ensure that parties who have carried out construction work or supplied goods or services under a construction contract are entitled to timely progress payments. This framework is designed to promote cash flow and reduce payment disputes within the construction industry.
"Any person who has carried out any construction work, or supplied any goods or services, under a contract is entitled to a progress payment." — Section 5, Building and Construction Industry Security of Payment Act 2004
Verify Section 5 in source document →
Section 5 explicitly grants an unconditional right to progress payments to any person who has performed construction work or supplied goods or services under a contract. This provision exists to protect subcontractors, suppliers, and contractors by ensuring they receive payment for their work without undue delay or obstruction.
Calculation of Progress Payment Amounts
The Act provides clear guidance on how the amount of a progress payment is to be determined, thereby reducing ambiguity and disputes over payment sums.
"The amount of progress payment is the amount calculated in accordance with the terms of the contract; or if the contract does not contain such provision, the amount calculated on the basis of the value of the construction work carried out, or of the goods or services supplied, by the person under the contract." — Section 6, Building and Construction Industry Security of Payment Act 2004
Verify Section 6 in source document →
Section 6 ensures that where the contract specifies a method for calculating progress payments, that method prevails. However, if the contract is silent, the payment amount is to be based on the value of the work or goods supplied. This provision exists to provide a fallback valuation method, preventing parties from withholding payment due to contractual gaps.
Valuation of Construction Work, Goods, or Services
Valuation is a critical step in determining the progress payment amount. The Act prescribes how valuation should be approached to maintain fairness and consistency.
"Valuation of construction work, goods or services is in accordance with the terms of the contract; or if the contract does not contain such provision, having regard to the matters specified in subsection (2)." — Section 7(1), Building and Construction Industry Security of Payment Act 2004
Verify Section 7 in source document →
Section 7(1) mandates adherence to contractual valuation terms where they exist. In their absence, valuation must consider specific factors outlined in subsection (2), which typically include the quality, quantity, and standard of work or goods supplied. This provision exists to prevent arbitrary or unfair valuation and to uphold the integrity of payment calculations.
Due Date for Payment and Timing Rules
Timely payment is essential to the financial health of construction industry participants. The Act sets out detailed rules governing when progress payments become due.
"Due date for payment is specified with detailed timing rules depending on contract terms and whether the claimant is a taxable person, including maximum days after invoice or payment claim." — Section 8, Building and Construction Industry Security of Payment Act 2004
Verify Section 8 in source document →
Section 8 provides a comprehensive framework for determining the due date for progress payments. It takes into account whether the claimant is a taxable person under the Goods and Services Tax Act 1993, the presence or absence of contractual payment terms, and the timing of invoices or payment claims. This provision exists to eliminate uncertainty and delay in payment timing, thereby improving cash flow predictability.
Invalidity of 'Pay When Paid' Provisions
One of the most significant protections offered by the Act is the invalidation of 'pay when paid' clauses, which historically have been used to delay payments down the contractual chain.
"A pay when paid provision of a contract is unenforceable and has no effect in relation to any payment for construction work carried out or undertaken to be carried out, or for goods or services supplied or undertaken to be supplied, under the contract." — Section 9(1), Building and Construction Industry Security of Payment Act 2004
Verify Section 9 in source document →
Section 9(1) nullifies any contractual provision that conditions payment on the payer receiving payment from a third party. This provision exists to prevent parties from using upstream payment delays as a reason to withhold payment downstream, thereby safeguarding the cash flow of subcontractors and suppliers.
Definitions Relevant to Payment Provisions
Understanding key definitions is essential to interpreting the Act’s provisions correctly.
"\"Money owing\", in relation to a contract, means money owing for construction work carried out, or for goods or services supplied, under the contract;" — Section 9(2), Building and Construction Industry Security of Payment Act 2004
Verify Section 9 in source document →
"\"Pay when paid provision\", in relation to a contract, means a provision of the contract by whatever name called— (a) that makes the liability of one party (called in this definition the first party) to pay money owing to another party (called in this definition the second party) contingent or conditional on payment to the first party by a further party (called in this definition the third party) of the whole or any part of that money; (b) that makes the due date for payment of money owing by the first party to the second party contingent or conditional on the date on which payment of the whole or any part of that money is made to the first party by the third party; (c) that otherwise makes the liability to pay money owing, or the due date for payment of money owing, contingent or conditional on the operation of any other contract or agreement; or (d) that is of such kind as may be prescribed." — Section 9(2), Building and Construction Industry Security of Payment Act 2004
Verify Section 9 in source document →
Section 9(2) provides precise definitions to clarify what constitutes 'money owing' and a 'pay when paid provision.' These definitions are critical to the application and enforcement of Sections 5, 6, 8, and 9(1). They exist to remove ambiguity and ensure that the Act’s protections are applied consistently.
Cross-References to Other Legislation
The Act integrates with other legislation to provide a coherent legal framework for payment in the construction industry.
"References to 'Goods and Services Tax Act 1993' regarding taxable persons and tax invoices." — Sections 8(1)(b)(i), 8(2)(a), 8(6), Building and Construction Industry Security of Payment Act 2004
Verify source in source document →
"Reference to 'Supreme Court of Judicature Act 1969' for the rate prescribed in respect of judgment debts." — Section 8(5)(b), Building and Construction Industry Security of Payment Act 2004
Verify Section 8 in source document →
These cross-references ensure that the Act’s provisions on payment timing and calculation are aligned with tax obligations and judicial interest rates, thereby promoting legal certainty and administrative efficiency.
Penalties for Non-Compliance
It is notable that Part 2 of the Act, which governs progress payments, does not specify penalties for non-compliance within the extracted provisions. This absence suggests that enforcement mechanisms may be found elsewhere in the Act or through other legal remedies such as adjudication or court proceedings.
Conclusion
The Building and Construction Industry Security of Payment Act 2004 establishes a robust statutory regime to ensure that parties in the construction industry receive timely and fair progress payments. Key provisions such as the unconditional entitlement to progress payments (Section 5), clear valuation methods (Sections 6 and 7), strict payment timing rules (Section 8), and the invalidation of 'pay when paid' clauses (Section 9(1)) collectively serve to protect the cash flow of contractors and suppliers. The Act’s integration with other legislation further enhances its effectiveness and coherence.
Sections Covered in This Analysis
- Section 5 – Entitlement to Progress Payment
- Section 6 – Amount of Progress Payment
- Section 7(1) – Valuation of Construction Work, Goods or Services
- Section 8 – Due Date for Payment
- Section 9(1) and 9(2) – Invalidity of Pay When Paid Provisions and Definitions
- References to Goods and Services Tax Act 1993 and Supreme Court of Judicature Act 1969
Source Documents
For the authoritative text, consult SSO.